- Analysts estimate adjusted EPS of 95 cents vs. 80 cents in Q3 FY 2021.
- Disney+ subscribers are expected to rise YOY, but at the slowest pace in at least seven quarters.
- Revenue is expected to grow at a solid rate, but to slow compared with the past several quarters.
The Walt Disney Co. (DIS) business has recovered strongly in recent quarters as the company has emerged from the extreme impact of the COVID-19 pandemic on its theme parks and live experiences. And while most of the company's parks have reopened, business growth is also being fueled by Disney's popular streaming platforms. Both Disney+ and Disney-owned Hulu have experienced sharp increases in subscriptions in recent quarters. But the prospect of ads being sold on the service and other business concerns for the streaming industry more broadly continue to loom.
Investors will be watching to see how Disney navigates this environment when it reports earnings on Aug. 10, 2022, for Q3 FY 2022. The company's 2021 fiscal year ended on Oct. 2, 2021. Analysts predict that Disney's adjusted earnings per share (EPS) and revenue will both increase at a solid pace year-over-year (YOY), although at a slower rate than in previous quarters.
Investors will also look to the key metric of subscriptions to Disney+, which is Disney's direct-to-consumer video streaming service. The number of subscribers to the service has grown rapidly since it was first launched in late 2019, but the pace has slowed in recent quarters. Analysts expect this trend to continue as the growth rate further decelerates.
Disney stock briefly outpaced the broader market in late summer 2021. After reaching a peak in September, though, it mostly fell over the subsequent 10 months. Shares dropped surrounding the Q4 FY 2021 earnings release in November and briefly rallied in January and February 2022. However, those gains were modest and quickly vanished throughout the spring. Since reaching a low point in July, Disney shares have again improved slightly. Still, Disney stock has provided a 1-year trailing total return of -38.3%, well behind the S&P 500's return of -6.6%, as of Aug. 8.
Disney Earnings History
Disney's adjusted EPS has strongly rebounded in recent quarters following a sustained period of declines. Adjusted EPS fell YOY each quarter of FY 2019 and the first three quarters of FY 2020. The company posted a loss in Q4 FY 2020. But this trend reversed starting in Q2 FY 2021. Earnings skyrocketed over the next five consecutive quarters. Still, that pace of growth slowed dramatically in Q2 FY 2022, and adjusted EPS is still short of where it was throughout most of FY 2019. Analysts now predict that adjusted EPS will grow at an even slower pace for Q3 FY 2022.
Disney's revenue performance has been somewhat similar to its adjusted EPS history. While revenue grew throughout most of FY 2019 and the first two quarters of FY 2020, it fell YOY for four consecutive quarters beginning in Q3 FY 2020. This period of sustained declines erased much of the overall revenue growth in the previous two years. Disney revenue bounced back beginning in Q3 FY 2021, when it climbed by 44.5% YOY. But the pace of growth has slowed, with revenue increasing by 23.3% for Q2 FY 2022. Analysts expect revenue to grow at a still-healthy 23.0% YOY, which would mark a slight deceleration in growth on a sequential basis.
|Disney Key Stats|
|Estimate for Q3 FY 2022||Q3 FY 2021||Q3 FY 2020|
|Adjusted EPS ($)||0.95||0.80||0.08|
|Disney+ Subscribers (M)||147.5||116.0||57.5|
Source: Visible Alpha
The Key Metric
As mentioned, investors will also focus on Disney+ subscribers. The video streaming service, which offers Disney, Pixar, Marvel, Star Wars, and National Geographic branded content in the U.S. and a number of other countries, was first launched in November 2019. Disney+ still comprises just a small share of Disney's total revenue, but the service has grown rapidly in the short time it has been available. By the end of Q1 FY 2020, the first quarter in which it was offered to customers, Disney+ had 26.5 million subscribers. That number increased nearly five times to 137.7 million subscribers by the end of the second quarter of FY 2022.
But Disney+ subscriber growth has slowed in recent quarters. It more than tripled YOY for Q1 and Q2 FY 2021 and more than doubled for Q3 that year. But subscriber growth slowed to 60.5% YOY for Q4 FY 2021 and to a relatively modest 32.9% for Q2 FY 2022. Analysts predict growth to further slow to 27.2% for Q3 FY 2022. Some of this slowdown may be due to broader challenges for the whole streaming industry. Netflix Inc. (NFLX), a major rival to Disney+, posted its first quarterly subscriber losses in many years earlier in 2022, including a loss of nearly 1 million subscribers in the most recent quarterly report. It remains to be seen whether Disney+ will capitalize on an opportunity to gain more subscribers or suffer a similar fate.
Bloomberg. "Hugs Are Back at Disney Parks and Cruises This Spring."
The Wall Street Journal. "Hulu Is Driving More Streaming Subscribers to Disney Than Marvel or Star Wars."
The Wall Street Journal. "Disney Vows to Show Very Few Commercials on Ad-Supported Disney+."
Visible Alpha. "Financial Data."
The Walt Disney Co. "Form 10-K for the Fiscal Year ended Oct. 2, 2021," Page 9.