Key Takeaways

  • Adjusted EPS was $0.32 vs. the -$0.43 analysts expected.
  • Revenue surpassed analyst expectations.
  • Disney+ subscriptions were higher than the amount forecast by analysts.
  • Disney's theme parks were closed or were operating at reduced capacity due to the pandemic.

What Happened

Disney surprised analysts' earnings expectations by a wide margin in Q1 FY 2021. The company's adjusted EPS was positive, beating forecasts of an adjusted loss per share. Revenue and Disney+ subscriptions also exceeded analyst forecasts. However, both revenue and adjusted EPS were down significantly compared to the year-ago quarter as the company still faces challenges related to the COVID-19 pandemic.

Once again, Disney's Parks, Experiences and Products segment was the part of the company's business most severely impacted by the pandemic and related measures to limit the spread of the coronavirus. Disney's theme parks were either closed or operating at reduced capacity while cruise ships and guided tours were suspended during the quarter.

(Below is Investopedia's original earnings preview, published February 10, 2021.)

What to Look For

The Walt Disney Co. (DIS), one of the dominant global entertainment brands, has been forced to implement massive layoffs and close some operations amid the COVID-19 pandemic. Disney decided this year to close Blue Sky Studios, known for the "Ice Age" and "Rio" film franchises. The move follows layoffs of tens of thousands of employees last year as Disney temporarily shut theme parks, suspended cruise trips, and canceled theatrical productions.

Investors will be watching to see if Disney's cost cuts can stem further losses amid plunging revenue when it reports earnings on February 11, 2021 for Q1 FY 2021. Disney's fiscal year (FY) ended on October 3, 2020. Investors are likely to be disappointed. Analysts are expecting Disney to report a second consecutive quarter of adjusted losses per share and a third straight quarter of declining revenue.

Investors will also be paying attention to the number of subscriptions Disney reports for its Disney+ video streaming service. The service was first launched in late 2019 and has grown rapidly despite facing large, entrenched competitors. Analysts expect total Disney+ subscriptions to more than triple compared to the same three-month period a year ago.

Shares of Disney have outperformed the broader market over the past year. However, the stock only began leading the market in early December after lagging for most of the year, weighed down by the adverse impacts of the pandemic. The recent optimism has propelled Disney's shares to a total return of 32.0% over the past 12 months, above the S&P 500's total return of 16.7%.

One Year Total Return for S&P 500 and Disney
Source: TradingView.

Disney's stock rose after a quarterly adjusted loss of $0.20 per share in Q4 FY 2020, which was announced on November 12. It was the first loss in at least 16 quarters but it was far narrower than analysts expected. Revenue fell 22.9%, marking the second consecutive quarter of declines. Disney said that its results were adversely impacted by the pandemic, most significantly due to sharply reduced volume at its Parks, Experiences and Products segment.

The company's shares also rose after reporting financial results for Q3 FY 2020, despite revenue plunging 41.9%. Disney posted positive adjusted earnings per share (EPS), but it was down 94.0% compared to the year-ago quarter, the largest drop in at least 15 quarters. It also reported the seventh consecutive quarter of falling adjusted EPS as investments in its new streaming entertainment business initially squeezed profits.

Analysts are expecting further losses and more revenue declines in Q1 FY 2021. It would mark the second consecutive quarter of adjusted losses. Revenue is expected to decline 23.9% compared to the same three-month period a year ago, falling for the third consecutive quarter. Despite this weak performance, analysts estimate that Disney will post annual revenue growth of 5.9% for all of FY 2021. They also expect annual adjusted EPS to be positive, though 38.7% lower than in FY 2020.

Disney Key Metrics
  Estimate for Q1 2021 (FY) Q1 2020 (FY) Q1 2019 (FY)
Adjusted Earnings Per Share ($) -0.43 1.53 1.84
Revenue ($B) 15.9 20.9 15.3
Disney+ Subscriptions (M) 89.2 26.5 N/A

Source: Visible Alpha

As mentioned above, investors also will focus closely on Disney's entertainment streaming business, which is getting a boost as millions of consumers globally increase their viewership of movies and television shows during the pandemic. For the company, that growth is measured by the total number of Disney+ subscriptions. The streaming video service offers programming from Disney, Pixar, Marvel, Star Wars, and National Geographic, with thousands of episodes and hundreds of movies from the company's library of TV and film programming. Disney+ was first launched in November 2019 as part of the company's digital transformation and pivot towards offering more content directly to consumers. The streaming business's growth is a bright spot as Disney's parks and experiences business struggles amid the pandemic.

Since its launch in late 2019, Disney+ has expanded rapidly while competing against major streaming rivals such as Netflix Inc. (NFLX) and Amazon.com Inc.'s (AMZN) Prime Video, as well as Apple Inc.'s (AAPL) Apple TV+, another new entrant. Disney+ finished its first quarter of operation, Q1 FY 2020, with 26.5 million total subscribers. By the end of FY 2020, that number had nearly tripled to 73.7 million. Analysts are forecasting the total number of Disney+ subscriptions at the end of Q1 FY 2021 to rise 236.7% compared to the year-ago quarter.