Disney’s Earnings Improve but Disappoint Compared to Expectations

 by Ray Keating

News

DisneyBizJournal.com

November 10, 2021

 

Today, the Walt Disney Company disappointed Wall Street with its latest earnings report, including slower Disney+ subscriber growth.

 

The company reported earnings for its fourth quarter and for the fiscal year that ended on October 2, 2021. The fourth quarter adjusted earnings came in at $0.37 per share, which was short of consensus expectations running at $0.51 per share. However, earnings were up versus last year when Disney suffered a loss of $0.20 per share.

For the full year, adjusted EPS of $1.11 compared to a loss of $1.57 last year.

 

As for Disney+ subscriptions, while up for the year by 60 percent, Disney+ only gained 2 million subscribers in the fourth quarter. At the end of this past fiscal year, Disney+ subscribers came in at 118 million compared to 73.7 million at the end of the previous year (again, a 60 percent increase); ESPN+ up 66 percent, from 10.3 million to 17.1 million; and Hulu rising by 22 percent, from 36.6 million to 43.8 million.

 

Disney CEO Bob Chapek reiterated that the company expects to hit 230 million to 260 million Disney+ subscribers by the end of 2024, as well as expecting Disney+ to become profitable on the same timetable. 

 

Chapek also repeated his past declarations that streaming is central to the company’s health and that streaming is all about content. He noted that Disney is looking at a significant increase in streaming content offerings in 2022, particularly during the second half of the year. In addition, Chapek mentioned that the company would be increasing local and regional content offerings, as well as focusing on the preschool market.

 

As for the theme parks, the Disney Parks, Experiences and Products segment doubled its revenues in the fourth quarter compared to same quarter in the previous year – registering $5.45 billion in the quarter ended on October 2, 2021, compared to $2.73 billion in the quarter ended on October 3, 2020. Disney reported, “Revenue and operating income growth was due to the reopening of our parks and resorts, which were open for the entire quarter this year. In the prior-year quarter, Shanghai Disney Resort was open for the entire quarter, Walt Disney World Resort and Disneyland Paris were open for approximately 12 weeks, Hong Kong Disneyland Resort was open for approximately 4 weeks and Disneyland Resort was closed for the entire quarter. During the periods our parks and resorts were open, they were generally reduced capacities.”

 

On the parks business, Chapek declared that they were “very bullish” and expecting “strong demand.”

 

Regarding the new Disney Genie app for navigating Walt Disney World, Chapek noted that one-third of park attendees were paying for the available upgrade.

 

Finally, on the question of how Disney will deal with inflation, the response on the earnings call amounted to “we’re trying to figure this out just like other companies,” along with citing general options on the supplier, technology, and pricing fronts.

 

In after-hours trading, Disney’s stock price was down by 4.4 percent.

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Ray Keating is the editor, publisher and economist for DisneyBizJournal.com, and author of the Pastor Stephen Grant novels and assorted nonfiction books. Have Ray Keating speak your group, business, school, church, or organization. Email him at raykeating@keatingreports.com.

 

The views expressed here are his own – after all, no one else should be held responsible for this stuff, right?

 

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Keating has three new books out. Vatican Shadows: A Pastor Stephen Grant Novel is the 13th thriller/mystery in the Pastor Stephen Grant series. Get the paperback or Kindle edition at Amazon, or signed books at www.raykeatingonline.com. Past Lives: A Pastor Stephen Grant Short Story is the 14th book in the series. Again, get the paperback or Kindle edition at Amazon, or signed book at www.raykeatingonline.com. And order the 15th book in the series What’s Lost? A Pastor Stephen Grant Short Story – grab it at Amazon.com or signed editions at www.raykeatingonline.com. 

 

Also, check out Ray’s podcasts – the Daily Dose of Disney, Free Enterprise in Three Minutes, and the PRESS CLUB C Podcast.

 

6 Key Takeaways on Disney’s Earnings Report

by Ray Keating

Analysis

DisneyBizJournal.com

November 8, 2019

After the market closed on November 7, The Walt Disney Company presented its earnings report for its fourth quarter and fiscal year ended on September 28, 2019. The big takeaway was an increase in revenue, along with an increase in expenses largely related to its forthcoming Disney+ streaming service.

Consider 6 key takeaways from the Disney report:

1. Streaming Focus. CEO Bob Iger made quite clear, once again, that streaming is the company’s major emphasis looking ahead: “We’ve spent the last few years completely transforming The Walt Disney Company to focus the resources and immense creativity across the entire company on delivering an extraordinary direct-to-consumer experience, and we’re excited for the launch of Disney+ on November 12.”

2. Revenue and Earnings. Total revenues for the fourth quarter grew by 34 percent compared to the same quarter last year, and were up by 17 percent for the entire fiscal year. Meanwhile, earnings per share in the fourth quarter, excluding certain items, declined 28 percent to $1.07. However, that beat market expectations.

3. Media Networks Growth. Fourth quarter revenue increased by 22 percent in its media networks division, which includes ESPN. Operating income was off 3 percent, however.

4. Streaming Outlook. Iger served up assorted information on the company’s three streaming services.

For example, Iger noted: “I'm pleased to announce that as of today, ESPN Plus has over 3.5 million paid subscribers...”

He also noted the role that FX will play going forward with Hulu: “FX on Hulu will include all seasons and more than 40 FX series and will offer episodes of current and new FX series immediately after the air on the linear network. Additionally, FX will produce original series exclusively for FX on Hulu, starting with four new series in 2020; Devs from Alex Garland, Mrs. America starring Cate Blanchett, A Teacher starring Kate Mara, and The Old Man starring Jeff Bridges and John Lithgow. This is a great way to expand the FX brand and an important step for Hulu as it adds original content to compete more aggressively with new and legacy DTC platforms. The FX presence on Hulu combined with original production from our ABC and Fox Television studios and our Fox Movie studios including Searchlight will greatly enhance Hulu's consumer proposition.”

As for Disney+, Iger noted: “At launch, Disney Plus users will have immediate access to more than 500 movies including all of our beloved titles and more than 7,500 episodes of library television content, including 30 seasons of Simpsons. By year five, this growing collection will include more than 620 movies and more than 10,000 television episodes along with countless shorts and features. As planned, we first concede this service all creative engines across our Company including the teams of Disney, Pixar, Marvel, Lucasfilm, National Geographic, Disney Channel, and Walt Disney Television studios are focused on creating compelling original content for Disney Plus.”

He added: “At launch, will offer 10 original movies, specials and series exclusive to the platform, including the Mandalorian. The first live-action Star Wars series is unlike anything audiences seen before on any platform and it's a strong indication of the quality in the storytelling that will define Disney Plus. We recently screened a significant portion of the first episode of the Mandalorian compressed and the extremely positive reaction is driving tremendous buzz around this extraordinary series ahead of its debut on Disney Plus. Within a year of launch, the amount of original content on Disney Plus will increase to more than 45 series, specials and movies and will expand to more than 60 original projects per year by year-five.”

5. Parks Performance. Fourth quarter revenue rose by 8 percent in its parks, experiences and products division. Operating income grew by 17 percent.

Christine Mary McCarthy, Senior Executive Vice President & Chief Financial Officer, reported, “Operating income at domestic parks and experiences was up 13% driven by growth at Disneyland on higher guest spending and an increase at Disney Vacation Club.” She also noted, “Attendance at our domestic parks was comparable to the fourth quarter last year, and reflects the impact of Hurricane Dorian, which we estimate adversely impacted attendance growth by about 1 percentage point. Per capita guest spending was up 5% on higher admissions, merchandise and food and beverage spending. Per room spending at our domestic hotels was up 2%, and occupancy of 85% with comparable to the fourth quarter last year.”

Regarding Disneyland, Disney reported: “Growth at Disneyland Resort was primarily due to higher guest spending, partially offset by expenses associated with Star Wars: Galaxy’s Edge, which opened on May 31, and, to a lesser extent, lower attendance. Guest spending growth was primarily due to increases in average ticket prices and higher food, beverage and merchandise spending.”

As for Walt Disney World, it was noted: “Results at Walt Disney World Resort were comparable to the prior-year quarter, despite the adverse impact of Hurricane Dorian in the current quarter. Increases in guest spending and, to a lesser extent, occupied room nights and attendance were offset by higher costs. Higher costs were driven by costs associated with Star Wars: Galaxy’s Edge, which opened on August 29, and cost inflation. Guest spending growth was primarily due to increased food, beverage and merchandise spending and higher average ticket prices.”

Also, park revenues were negatively affected for Hong Kong Disneyland due to the unrest and protests in Hong Kong.

Looking ahead, McCarthy said, “On the domestic front, we expect Q1 revenue growth at our domestic parks and resorts to benefit from a full quarter of Star Wars Galaxy's Edge at Walt Disney World and the December opening of Rise of the Resistance at Walt Disney World. However, the revenue growth will be partially offset by meaningful cost growth driven primarily by operational expenses associated with Galaxy's Edge and higher labor expense due to the impact of higher wages under new collective bargaining agreements. So far this quarter, domestic resort reservations are comparable to prior year. We believe some guests are deferring to Disney Land and Walt Disney World until the complete opening of Galaxy's Edge at those respective locations. I'll note that awareness and intend to visit strong; booked rates at our domestic hotels are currently pacing up 5% versus this time last year.”

6. Studio Growth. Fourth quarter revenues jumped by 52 percent for studio entertainment. Operating income moved up by 79 percent. The Lion King, Toy Story 4 and Aladdin contributed to revenue and operating income increases.

Right now, everything points to this coming Tuesday, November 12, and the big launch of Disney+. That’s where so much of the future of the company lies.

Ray Keating is the editor, publisher and economist for DisneyBizJournal.com, and author of the Pastor Stephen Grant novels. He can be contacted at  raykeating@keatingreports.com.

6 Economics Lessons for Abigail Disney

by Ray Keating

Commentary

DisneyBizJournal.com

April 24, 2019

Abigail Disney, a filmmaker and the grandniece of Walt Disney, is very upset about executive pay at the Walt Disney Company. She made this clear in a Washington Post op-ed. Unfortunately, she also made it clear that she understands nothing about economics and how earnings are determined. 

Ms. Disney complained about “the naked indecency of chief executive Robert Iger’s pay.” Golly. She then went on to compare executive pay to the average worker’s, railed against tax cuts, and attacked the Disney company for opposing a minimum wage hike in the city of Anaheim. I hate to say it: This reads like a typical left-wing, Hollywood diatribe devoid of any economic sense, and the only reason that Ms. Disney is getting attention is because of her last name.

Now, let’s try to help Ms. Disney, and others, understand some basic economics when it comes to compensation. I do a regular podcast titled “Free Enterprise in Three Minutes,” and have dealt with the economics of earnings and wages in several episodes.

I’m currently doing a series on “What People Earn.” So, there’s three minutes (give or take) for each of the following:

Episode 31: What People Earn, Part I: Productivity explains that, ultimately, earnings, or incomes, are determined by productivity, that is, output per worker.

Episode 32: What People Earn, Part II: Boosting Productivity notes, “Higher earnings for workers are not about government mandating a minimum wage or a living wage. Instead, higher earnings are about increasing output, value or productivity in a competitive market.”

Episode 33: What People Earn, Part III: Why Does Mike Trout Earn More than Teachers? tackles the issue of someone like Angels outfielder Mike Trout earning more than your average school teacher – again, based on economics rather than how someone might feel.

And the latest episode deals directly with Ms. Disney’s complaint. It is titled Episode 34: What People Earn, Part IV: Why CEOs Make Far More Than Their Employees, and I explain the basics on why CEOs of businesses make so much more than those on the assembly line, covering the sales floor, or driving the trucks.

There are other episodes that Ms. Disney could benefit from in terms of understanding the actual economics at work, such as Episode 21: The Ills of Price Controls, which explains, in part, why a minimum wage hurts, rather than helps, young, inexperienced, low-skill workers, and Episode 15: Marx Was Wrong – Owners and Labor Work Together, which lays out how the real relationship between business owners and workers functions, as opposed to the idea that one is pitted against the other.

So, there you have it. Six quick lessons for Ms. Disney and others on the economics of earnings. That’s a total of about 18 minutes in listening time. Now, how many people who line up with Ms. Disney on such matters will carve out this little bit of time to gain a better grasp on economics and compensation? I’m guessing not many – and that is unfortunate.

Ray Keating is the editor, publisher and economist for DisneyBizJournal.com, and author of the Pastor Stephen Grant novels, with three books - Reagan Country: A Pastor Stephen Grant Novel, Heroes and Villains: A Pastor Stephen Grant Short Story and Shifting Sands: A Pastor Stephen Grant Short Story – published in 2018. In addition, the second edition of Warrior Monk: A Pastor Stephen Grant Novel was published in January 2019. He can be contacted at  raykeating@keatingreports.com.