Revenue fell. Red ink spilled. Let’s celebrate this very impressive financial performance.
Nov. 14, 2020
Sometimes you get a blowout performance just when you need it the most. Walt Disney (NYSE:DIS) posted better-than-expected financial results on Thursday afternoon. The 23% decline in revenue for its fiscal fourth quarter might seem rough, but analysts were bracing for a 26% year-over-year dip.
Posting an adjusted loss of $0.20 a share also may not seem applause-worthy, but it’s actually a lot less red ink than Wall Street pros were targeting on the bottom line. Disney came through with a big beat after hitting a 10-month high earlier this week. The beat on both ends of the income statement isn’t the only refreshingly positive news to come out of the media giant’s latest report. Let’s take a closer look at a few of the other strong signs for Disney.
1. 73.7 million Disney+ subscribers
Disney was hoping to be at 60 million to 90 million premium accounts to Disney+ by 2024. It’s splitting the difference of that wide range in its very first year. Disney+ at 73.7 million paying subscribers is jaw-dropping in an otherwise cutthroat niche. It validates everything that Disney has done over the past year to disrupt itself.
Things aren’t perfect here. Most of the sequential growth in the fiscal fourth quarter came from India’s Hotstar platform aggressively pricing Disney+ in India and now Indonesia. Average revenue per user for Disney+ is just $4.52 a month, weighed down by Disney+ Hotstar’s roughly $2 a month average for a quarter of all of the Disney+ subscribers. This all adds up to a streaming platform that’s accounting for 7% of total revenue for the period. Thankfully for Disney, right now the revenue and lack of profitability aren’t important. Disney+ has catapulted into a major premium streaming service in its first year. One can only imagine what it will do as a sophomore.
2. There’s a Disney+ halo effect
Disney+ isn’t the only streaming service that’s growing for the reborn media stock. ESPN+ saw its subscriber base nearly triple over the past year. Even the more seasoned Hulu experienced a nearly 30% year-over-year increase in its base.
Don’t sleep on Hulu. Between its popular streaming service and its pricier platform that combines streaming television with its flagship service, it’s generating twice the revenue of Disney+.
3. Media networks posted double-digit revenue growth
Theme parks used to be the steady producer in Disney’s arsenal, but that’s obviously not happening right now. It’s been Disney’s media networks segment that has helped try to stabilize the business while the studios and theme parks sputter.
When the segment was growing at a double-digit percentage clip last year it wasn’t a surprise — and it wasn’t organic. The Twenty-First Century Fox acquisition padded results. We’ve now lapped the acquisition, and after a 2% year-over-year decline in revenue last time out we see the segment shift out of reverse with an 11% advance. Affiliate revenue growth helped offset sluggish ad revenue results, and both Disney’s broadcasting and cable networks subsegments came through with double-digit gains.
4. Studio entertainment was profitable
This was always going to be a challenging quarter for Disney. Its slate of releases this calendar year paled in comparison to what it had going on last year when it grabbed the country’s six highest box office grosses of 2019. Then the pandemic happened and theatrical release dates went out the window.
Studio entertainment revenue was cut by more than half, and that makes sense with Disney pulling multiplex screenings into 2021 or going direct to consumers the way it did with Hamilton and Mulan during the quarter. The segment still came through with a small operating profit, and that is pretty remarkable.
5. Theme parks segment outperforms rivals
Seeing Disney’s parks, experiences, and products segment check in with a 61% loss may seem horrific. It’s worse than the 52% plunge for the studio entertainment segment. It was actually the most awe-inspiring of all of the quarter’s performances.
Disneyland in California is closed. Its cruise ships aren’t sailing until 2021. Hong Kong Disneyland — where Disney has a substantial but minority financial position — had to temporarily close down after a COVID-19 outbreak. Disney World opened in mid-July to 25% of its theme park capacity, eventually improving to 35% capacity. How does revenue only decline 61%?
SeaWorld Entertainment (NYSE:SEAS) and Universal Orlando parent Comcast (NASDAQ:CMCSA) have a lot in common with Disney. Their California parks were also closed during the quarter. Comcast and Disney also have parks in Florida and Asia. SeaWorld doesn’t have an international presence — yet — but it does have gated attractions in Texas. Disney also has Disneyland Paris and a healthy consumer products gig, but its rivals don’t have cruise ships torpedoing its finances. SeaWorld and Comcast’s Universal Studios parks saw their revenue fall 78% and 81%, respectively. Disney held up a lot better, and it shaved the segment’s operating deficit in half sequentially.
It may be hard to see a quarterly loss and a 23% drop in total revenue as a success, but Disney delivered in a major way this time. Disney gets it. The House of Mouse is no longer a broken home.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Netflix. Read our full disclosure policy here.
Rick Munarriz owns shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool recommends Comcast and recommends the following options: long January 2021 $60 calls on Walt Disney and short January 2021 $135 calls on Walt Disney. The Motley Fool has a disclosure policy.