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Disneyland Paris’ 30th anniversary celebrations on March 05, 2022.
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Disney reported significantly worse-than-expected quarterly earnings per share on Wednesday, but narrowly exceeded expectations on the all-important streaming subscriber front.
Expectations were low going into the report, with Disney stock down by nearly a third since its previous quarterly report and other streaming-centric companies generally disappointing shareholders this earnings season.
For the first three months of 2022—Disney’s fiscal second quarter—the company reported $1.08 in earnings per share. That was up 37% year over year but behind analysts’ consensus estimate of $1.19. Earnings per share were 26 cents without adjustments, down from 50 cents in the year-ago period.
Revenue was $19.2 billion, up 23%, versus Wall Street’s $20.1 billion. The revenue figure was reduced by about $1 billion due to the early termination of a licensing agreement with an unnamed customer in the quarter, the company said. That was revenue that Disney recognized in a prior quarter, and is now reversing as it brings licensed content back to its streaming services.
On the company’s earnings call, CFO Christine McCarthy said she expects licensing revenues to keep declining later this fiscal year, and for content production expense to keep rising.
Streaming is expensive—Disney management expects Disney+ to first turn a profit in fiscal 2024. Investors have been more focused on streaming profitability lately, and less interested in subscriber growth at all costs.
Operating income in Disney’s fiscal second quarter was $3.7 billion, up 50% from a year earlier and beating the $3.3 billion average estimate.
Disney+ ended the quarter with 137.7 million subscribers, up by 7.9 million since the end of 2021. About half of those additions were on India’s Disney+ Hotstar, which come at lower average revenue than subscribers in other markets. Wall Street had been expecting 5.3 million net adds on average, but estimates ranged from growth of 2 million to more than 8 million. Subscriber growth has been volatile: Disney+ added 11.7 million subscribers in the fiscal first quarter and just 2 million in the fiscal fourth quarter.
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Netflix (NFLX) muddied the stream with its first-quarter report, which included a shocking decline in subscribers—management cited increased competition and a post-pandemic hangover. Disney+ bucked that macro trend in the reported quarter.
Disney’s other streaming properties didn’t do as well: During the quarter reported on Wednesday, Hulu added just 300,000 subscribers—versus analysts’ 1.0 million estimate—and ESPN+ added 1.0 million—versus the 1.4 million average estimate.
Disney’s direct-to-consumer streaming business had sales of $4.9 billion in the period, and lost $887 million. Those were both worse than expected.
Following the Netflix model, Disney plans for several years of unprofitable growth for its streaming services—Disney+, Hulu, and ESPN+—on the way to the Holy Grail of a high-margin, recurring-revenue business with a global scale. The problem is that at least a half-dozen other legacy media and tech firms are pursuing the same goal, including
Warner Bros. Discovery (WBD),
Paramount Global (PARA), NBCUniversal-owner
Comcast (CMCSA),
Apple (AAPL), and
Amazon.com (AMZN).
Before Disney reaches its streaming-centric future, a post-pandemic theme-parks recovery that boosts earnings today has been a major part of the bullish thesesis shared by shareholders.