Disney Q1 FY2022 Earnings Report Recap

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Disney (DIS) Financial Results: Analysis

The Walt Disney Company (DIS) reported Q1 FY 2021 earnings results that surpassed analysts' consensus estimates. Adjusted earnings per share (EPS) crushed analyst forecasts and more than tripled from the year-ago quarter. Disney's revenue also beat expectations, rising 34.3% year over year (YOY). Revenue for the company's Parks, Experience and Products segment exceeded expectations, as did the total number of Disney+ subscribers. The company's shares were up more than 8% in extended trading. Over the past year, Disney's shares have provided a total return of -21.8%, well below the S&P 500's total return of 17.3%.

DIS Parks, Experience and Products Revenue

Revenue for Disney's Parks, Experiences and Products segment rose 101.6% compared to the year-ago quarter, marking the third straight quarter of growth after five consecutive quarters of declines. The segment comprises Disney's theme parks, resorts, cruise ships, and vacation clubs. It is tied especially closely to the spending power of consumers in the U.S. and around the world.

Of all Disney's business segments, the Parks, Experiences and Products segment has been the most severely affected by the COVID-19 pandemic and related government-imposed measures to limit the spread of the virus. The company was forced to close its theme parks and resorts and suspend cruise ship sailings in response to these developments, only beginning to reopen again at generally reduced capacity in May 2020.

Disney said that its domestic-based parks and experiences are generally operating without any major mandatory capacity restrictions but that it continues to manage capacity in the best interest of the health and safety of its guests. However, some of its international operations continue to be affected by mandatory capacity and travel restrictions. Disney's cruise ships operated at reduced capacity in Q1 FY 2022 compared to being completely suspended in the year-ago quarter. Despite the strong growth in Q1, the Parks, Experiences and Products segment's revenue remains below pre-pandemic levels.

Disney+ Subscribers

The number of Disney+ subscribers grew 36.8% compared to the year-ago quarter. It was the slowest YOY pace of growth in subscriptions since Disney first launched the direct-to-consumer video streaming service in November 2019. The streaming service offers Pixar, Marvel, Star Wars, and National Geographic branded content in the U.S. and a number of other countries throughout the world.

Disney+ still comprises just a small share of Disney's total revenue but has grown rapidly in the short time it has been available. That rapid growth has given investors something to be optimistic about during the COVID-19 pandemic, which shut the doors on some of Disney's core businesses, including its theme parks, cruises, and theatrical productions. However, growth has been gradually slowing amid intense competition from other streaming services, such as those offered by Netflix, Inc. (NFLX), Amazon.com, Inc. (AMZN), and Apple Inc. (AAPL). In an attempt to reignite growth, Disney shook up its streaming management and introduced a new international content hub last month.

DIS Earnings Call Recap

In an analyst call after earnings were released, Chief Financial Officer (CFO) Christine McCarthy said that Disney expects to spend significantly on streaming in the second quarter. She said that Disney expects programing and production expenses to increase by about $800 million to $1 billion for the direct to consumer business, which includes programing fees for Hulu live.

Disney's next earnings report (for Q2 FY 2022) is expected to be released on May 10, 2022.