Disney Takes a Dive after Q4 Earnings Disappoint

By Duncan Ferris


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Walt Disney Co (NYSE: DIS) is one of the biggest household names on the stock market, but the entertainment giant's streaming struggles and disappointing earnings have led its share price to dip.

Walt Disney Co (NYSE: DIS) has seen its share price slump since its fourth quarter earnings missed expectations. The entertainment company’s shares have dropped by over 10% in the last week, amid concerns that the appeal of its streaming service may be waning.

A return to normality after the COVID pandemic will help some of Disney’s segments to recover. But is that enough to make the company that brought us Mickey Mouse a good investment?

Did Disney’s earnings meet expectations?

Disney’s fourth quarter earnings fell short of projections. The company’s revenue came in at $18.5bn, a 26% increase on the same quarter last year but still below analysts’ expectations of $18.8bn.

Adjusted earnings per share were also a disappointment, coming in at $0.37 instead of the predicted level of $0.44. Even so, this remains a vast improvement on Q3 2020, when the figure sat at -$0.20.

Meanwhile, net income from continuing operations swung to $160m from -$710m in the same period in 2020.

What Disney’s CEO said

Disney CEO, Bob Chapek, said: “As we celebrate the two-year anniversary of Disney+, we’re extremely pleased with the success of our streaming business, with 179 million total subscriptions across our DTC portfolio at the end of fiscal 2021 and 60% subscriber growth year-over-year for Disney+.

“We continue to manage our DTC business for the long-term, and are confident that our high-quality entertainment and expansion into additional markets worldwide will enable us to further grow our streaming platforms globally.”

Is Disney+ growing?

A different sector has grabbed many investors’ attention though. The direct to consumer (DTC) segment saw its revenues for the quarter increase by 38% compared to the same period last year, rising to $4.6bn. Disney+ subscriber growth fuelled much of this rise, with 60% more people now using the service. Indeed, Disney+ has appeared to do well since its launch.

However, average monthly revenue per Disney+ subscriber fell by 9% to $4.12. Additionally, growth in subscriber numbers fell well short of expectations in the fourth quarter, coming in at 2.1m compared to analysts’ prediction of 9.4m. So the streaming service is still growing, but not at the rate investors had hoped for.

However, the company has big plans for expanding the service’s reach.

Chapek explained: “In just 2 short years, we’re now in over 60 countries and more than 20 languages, and next year, we plan to bring Disney+ to consumers in 50 plus additional countries, including in Central, Eastern Europe, The Middle East, and South Africa.

“Our goal is to more than double the number of countries we are currently in to over 160 by fiscal year 2023.”

This aim is a strong sign of intent, but Disney will have to back this up with more impressive numbers than the streaming service achieved in its fourth quarter.

Growth in the number of Disney+ subscribers fell short of expectations

How is Disney handling COVID?

Alongside its streaming problems, Disney is facing challenges with content creation. The company warned that it continues to experience disruption of production activities depending on local circumstances. As such, Disney has had fewer theatrical releases and film content to be sold in distribution windows.

Even so, improving conditions should mean that content production can continue to ramp up. With strong box office performances from Black Widow, Free Guy and Shang-Chi and the Legend of the Ten Rings already in the bag, the company is back to doing what it does best.

In other positive news, Disney’s Parks, Experiences and Products revenue beat analysts’ estimates. The segment had been slated to net revenues of $5.4bn, but instead saw them climb by 99.4% to $5.5bn.

This sharp climb is welcome, but not entirely unexpected. The segment suffered strongly at the hands of COVID, with pandemic restrictions limiting business. However, all of the company’s parks and resorts are now open once again, though operating at reduced capacity.

Before the pandemic, the segment used to account for more than a third of Disney’s revenue. This has all changed now though, with Parks, Experiences and Products accounting for just over 24% of FY 2021 revenue.

The segment’s contribution is likely to increase over the coming year though. Higher vaccination levels among youngsters mean that attendances are likely to increase, while Disney remains hopeful that international visitors will soon be flocking to its parks as well.

However, longer lead times for these kind of visitors mean Disney is not expecting to see substantial recovery in international attendance at its domestic parks until towards the end of its next financial year.

Is Disney a good investment?

Its clear that Disney is in much better shape than it was a year ago, but does that mean it’s time to snap up some of the company’s stock?

The streaming market is very crowded at the moment. Netflix is still the pick of the bunch and rival services from Apple (NASDAQ: AAPL), Amazon (NASDAQ: AMZN) and Meta (NASDAQ: FB) make forging a beachhead challenging. These are all companies with a huge amount of resources at their disposal and Disney’s deceleration in subscriber growth could make it hard to keep pace.

Though it has been shouldering much of the burden over the last two years, it’s worth remembering that Disney’s streaming capabilities are not the only strings to its bow. Particularly with its attractions reopening.

That being said, overall uncertainty means it is hard to get excited about the company right now. Disney’s share price hit a record high in March but has since crept lower. 

For now, it might be wise to wait and see how the company’s attractions fare and whether international expansion can give Disney+ renewed growth.


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Author: Duncan Ferris

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Duncan Ferris does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Duncan Ferris has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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