Kaltbaum Capital Management President Gary Kaltbaum and Barron’s Roundtable presenter Jack Otter on Disney’s future after the company’s recent earnings report.
Disney magic cast its spell on consumers of streaming faster than even the masters of the “Mouse House” imagined.
The Walt Disney Company revealed on Thursday in its earnings announcement that its 15-month streaming service, Disney +, totaled 94.9 million subscribers in the quarter ended January 2. The number is not only well above analysts’ expectations, but when Disney first announced the service it expected to have 60 to 90 million subscribers by September 2024. In December, during investor’s day, Disney bosses revised the projections saying that the incandescent service could reach 260 million in 2024.
Currently, Netflix is the largest direct-to-consumer video service in the world, with 203 million subscribers worldwide.
DISNEY CALIFORNIA ADVENTURE TO WELCOME ‘TICKETED EXPERIENCE’ WITH FOOD, MERCH, ENTERTAINMENT
“We are confident that, with our robust channel of exceptional, high-quality content and the next launch of our new international general entertainment offering under the Star brand, we are well positioned to achieve even greater success going forward,” CEO Bob Chapek said in the company’s earnings release.
The success of the company’s streaming services made up for the losses the company continues to suffer as the coronavirus pandemic keeps its theme parks fully closed or operating at reduced capacity.
The company reported its third consecutive drop in revenue of $ 16.2 billion, a drop of 22% compared to $ 20.8 billion a year ago. Adjusted earnings per share for the quarter were 32 cents per share, compared to $ 1.53 per share last year.
| Ticker | Safety | Last | Change | Change % |
|---|---|---|---|---|
| DIS | WALT DISNEY COMPANY | 190.91 | +1.28 | + 0.68% |
| NFLX | NETFLIX INC. | 557.59 | -6.00 | -1.06% |
Parks, Experiences and Products operating revenue decreased by $ 2.6 billion to a loss of $ 119 million. Segment revenue for the quarter decreased 53% to $ 3.6 billion.
Disneyland Resort and California Adventure in Anaheim, Disneyland Paris and Hong Kong Disneyland were closed during the quarter, while Walt Disney World in Orlando, Florida, Shanghai Disney Resort remained open with significantly reduced capacities.
However, Disney properties in California are showing signs of activity. Disneyland has been used as a COVID-19 vaccination site with 100,000 doses administered to date, while Disney’s California Adventure is set to host a “ticket experience” next month, with food, merchandise and entertainment.
Chapek noted in the company’s results call with analysts on Thursday that the average daily attendance at Walt Disney World has grown significantly from the previous quarter, partly due to increased capacity as a result of the company’s health and safety protocols. Disney noted that it remains satisfied with the rate for reservations at its theme parks during the current quarter.
“It is clear that people want to reconnect with their loved ones and spend time together doing things they enjoy and, given the demand we are seeing now, we are confident that it will only increase when the pandemic is over,” Chapek said.
Disney has been working hard to expand its offerings at Walt Disney World, with two new Epcot attractions, Remy’s Ratatouille Adventure – based on its hit movie “Ratatouille” and Guardians of the Galaxy: Cosmic Rewind from the two Marvel films.
Expectations are also high for a spectacular show at night, “Harmony”, as well as the upcoming Star Wars Galactic Cruiser hotel.
A Marvel-themed site known as the Avengers Campus is scheduled to open at California Adventure later this year, and Mickey’s Runaway Railway will arrive at Disneyland in 2023.
Chapek said the prospect of reopening his theme parks for the rest of 2021 will depend on the rate at which people receive the COVID-19 vaccines, but acknowledged that the reopenings are likely to include continued social detachment and wearing masks.
“We have no doubt that when we reopen the parks that are closed or increase capacity, we will have some level of social distance and the use of masks, you know, for the rest of this year, this is our expectation. I believe that Dr. Fauci said earlier today that he hopes there will be vaccines for everyone who wants them by April of this year, “said Chapek.” If that happens, it will be a game changer and could speed up our expectations and give people confidence they need to return to the park. Will there be any overlap until we know we could get immunity? Of course, there will be. But do we also believe that we will be in the same state of social distance of six feet and wearing a mask in 2022? Absolutely not.“
The company expects an additional $ 1 billion in costs related to complying with government regulations and implementing security measures for employees, talent and visitors at its theme parks during fiscal year 2021.
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Despite the obstacles that the pandemic has placed in front of theme parks, the company has also benefited from millions of people staying at home watching videos. Disney’s direct consumer revenue in the quarter increased 73% to $ 3.5 billion and the segment’s operating loss decreased from $ 1.1 billion to $ 466 million, thanks to strong subscriber growth at Disney + and Hulu , as well as increased advertising revenue driven by higher impressions on Hulu.
Disney + recorded 21.2 million global net adds in the quarter, bringing its total to 94.9 million subscribers. Hulu reached 39.4 million subscribers, with its live TV accounting for 4 million of these subscribers and the video on demand service (SVOD) for subscription only for 35.4 million, and the total number of ESPN subscribers at the end of the quarter was 12.1 million.
Disney cited a strong combined release of Disney’s Soul on the streaming service and in theaters on Christmas Day. The film grossed nearly $ 100 million at the global box office.
“We think it was a very good thing to do for our customer and subscriber base, due to the holiday and the fact that we have talked consistently about how to stay flexible in terms of how we go ahead and get our bonds to market,” said Chapek to analysts. “We are absolutely excited about what this has brought to our business in terms of acquisition and retention.”
Disney’s “Raya and the Last Dragon” is set to debut on the streaming service on March 5 at Premiere Access, following the live-action model “Mulan”. Meanwhile, Marvel’s “Black Widow” is still aiming for an exclusive theatrical release on May 7. However, Chapek noted that the company would watch movie theaters reopen very carefully to determine whether the launch strategy will change.
Average monthly revenue per subscriber paid for Disney + decreased from $ 5.56 to $ 4.03 due to the launch of Disney + with Hotstar. Disney Plus Hotstar – available in India and Indonesia – has an average price lower than in other regions and contributed to the fall.
EPSN + average monthly revenue per paid subscriber increased $ 4.44 to $ 4.48 due to an increase in price. Average monthly revenue per subscriber paid only for Hulu’s SVOD service increased by $ 13.15 to $ 13.51 due to higher advertising revenue per subscriber, a smaller combination of wholesale subscribers and an increase in premium per subscriber and additional resource revenue.
The Hulu Live TV + SVOD service increased from $ 59.47 to $ 75.11 due to increases in retail prices, higher advertising revenue per subscriber and an increase in premium per subscriber and feature add-on revenue.
“We believe that the strategic actions we are taking to transform our company will fuel our growth and increase shareholder value, as demonstrated by the incredible advances we have made in our DTC [direct-to-consumer] , reaching more than 146 million paid subscriptions to our streaming services at the end of the quarter, ”said Chapek.
More streaming muscles are likely to be flexed in the coming days, when Star, a sort of Disney international version of Hulu with general entertainment – is released alongside Disney Plus.
In addition, more subscribers are expected to subscribe after Disney’s announcement in December of about 100 future projects, including 10 new Marvel series, 10 new “Star Wars” series, 15 live-action Disney, Disney Animation and Pixar series and 15 all – new live action movies from Disney, Disney Animation and Pixar.
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Revenue from Disney’s media and entertainment distribution units – its cable channels and ABC television network – fell 5% to $ 12.6 billion, with total operating revenue of $ 1.45 billion in the quarter.
Disney shares rose about 2% on the floor after earnings were announced.