Disney Q1 FY2022 Earnings Report Preview: What to Look For

The Walt Disney Co. (DIS) has returned to healthy growth in recent quarters after two straight years of falling profits and one year of falling revenue. But as the company's theme parks and resorts business is rebounding, growth in its new entertainment streaming service, Disney+, has begun to slow. In a major move to reignite growth in the service, Disney recently shook up its streaming management and organization.

Investors will be watching to see if Disney can overcome these challenges and maintain its financial recovery when the company reports earnings on Feb. 9, 2022 for Q1 FY 2022. The company's fiscal year ended on Oct. 2, 2021. Analysts expect robust growth in both adjusted earnings per share (EPS) and revenue.

Investors will also be focusing on two other key metrics: revenue for Disney's Parks, Experience and Products segment and the number of Disney+ subscribers. The Parks, Experience and Products segment continues to recover after being hit hard by the pandemic as the company shuttered theme parks and cruise operations. Analysts expect the segment's revenue to expand at a robust pace.

Disney+ 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 that growth has begun to slow amid growing competition from other streaming services. Analysts expect the number of subscribers to grow, but at a much slower pace than in recent quarters.

Shares of Disney have dramatically underperformed the broader market over the past year. The stock had briefly been outperforming the market between late February 2021 and late March 2021 before it began to lag the market. The stock's underperformance gap has only grown wider throughout the past year. Disney's shares have provided a total return of -25.0% over the past year, well below the S&P 500's total return of 14.5%.

Disney Earnings History

Disney reported Q4 FY 2021 earnings and revenue that missed analysts' expectations. Adjusted EPS rose 293.5% compared to the year-ago quarter. It was also the fourth straight quarter of positive adjusted EPS after Disney reported an adjusted loss per share in the fourth quarter of FY 2020. Revenue rose 26.0% year over year (YOY), the second straight quarter of revenue growth after four consecutive quarters of declines. The company noted that while its financial results improved in the second half of FY 2021 compared to FY 2020 due to the reopening of theme parks and resorts, its business continues to be adversely impacted by reduced operating capacities.

In Q3 FY 2021, Disney reported results that beat consensus estimates. Adjusted EPS, which exceeded expectations, rose more than tenfold compared to the year-ago quarter, in which earnings were significantly depressed due to the pandemic shock. Revenue rose 44.5% YOY, beating estimates and ending the streak of four consecutive quarters of revenue declines. Disney said that its theme parks and resorts had resumed operations, although generally at reduced capacity. The company also said that its cruise ship sailings and guided tours were gradually returning to service. Disney added, however, that it was still facing challenges related to the pandemic.

Analysts expect Disney's earnings and revenue to continue recovering in Q1 FY 2022. Adjusted EPS is expected to rise 68.1% compared to the year-ago quarter. Revenue is expected to grow 29.1%, which would be the third straight quarter of revenue expansion. For full-year FY 2022, analysts forecast adjusted EPS to increase 64.9%, which would be the second straight year of growth after two straight years of declines. Annual revenue is expected to grow 24.2%, marking the second straight year of increasing revenue after declining in FY 2020.

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The Key Metrics

As mentioned, investors will also be focusing on Disney's revenue from the Parks, Experience and Products segment. This segment is comprised of Disney's theme parks, resorts, cruise ships, and vacation clubs and is tied especially closely to the spending power of consumers in the U.S. and around the world.  The Parks, Experience and Products segment was badly impacted by the pandemic and related government-imposed measures to limit the spread of the virus. The company posted a string of revenue declines beginning in Q2 FY 2020 and continuing through Q2 FY 2021. But it has begun to recover from the worst of the pandemic, thanks to vaccine rollouts and the relaxation of restrictions that have allowed Disney to increase capacity limits at its theme parks. In Q3 FY 2021, revenue soared 307.6% YOY. Revenue rose 99.4% YOY in Q4 FY 2021 and analysts expect it to increase by 80.7% in Q1 FY 2022. Despite this improvement, revenue for the segment would still be below levels reached prior to the adverse shock from the pandemic.

Disney+ subscribers is another key metric that will receive investors' attention. 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 throughout the world, was first launched in November 2019. Disney+ still comprises just a small share of Disney's total revenue, but it has grown rapidly in the short time it has been available. By the end of Q1 FY 2020, the first quarter in which the service was offered to customers, Disney+ had 26.5 million subscribers. That number increased nearly four and a half times to 118.1 million subscribers by the end of FY 2021. However, growth has been slowing gradually as the service faces competition from other video streaming providers like Netflix, Amazon, and Apple. In the first quarter of FY 2021, the number of Disney+ subscribers increased 258.1% YOY. Subscriber growth slowed to 209.3% YOY in the second quarter, then to 101.7% YOY in the third, and to 60.2% YOY in the fourth quarter. Analysts expect the deceleration trend to continue in Q1 FY 2022, forecasting Disney+ subscribers to grow 31.8% YOY.