Disney Q2 FY2022 Earnings Report Preview: What to Look For

The Walt Disney Co. (DIS) is staging a rapid financial recovery from the shock triggered by the COVID-19 pandemic. Both earnings and revenue returned to growth last year and growth is expected to ramp up even more this year. However, the company faces major challenges. While Disney's Parks, Experience and Products segment is rebounding rapidly from the pandemic, growth in the company's Disney+ video streaming service—key to its future growth strategy—has been slowing.

Investors will be watching to see if Disney can surmount these challenges, and build on the momentum gained from its pandemic rebound, when it reports earnings on May 11, 2022 for Q2 FY 2022. The company's 2021 fiscal year ended on Oct. 2, 2021. Analysts expect Disney's adjusted earnings per share (EPS) and revenue to rise at a healthy pace.

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.

The outlook is different for 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 begun to slow amid growing competition from other streaming services. Analysts expect the number of subscribers to grow, but at the slowest pace in several quarters.

Shares of Disney have underperformed the broader market over the past year. The stock's underperformance gap widened sharply after it sank following the company's Q4 FY 2021 earnings report in November 2021. The gap has continued to grow since then. Disney's shares have provided a total return of -42.0%, well below the S&P 500's total return of -1.6%.

Disney Earnings History

Disney reported Q1 FY 2022 earnings results that beat analysts' expectations. Adjusted EPS rose 232.0% compared to the year-ago quarter, marking the fifth straight quarter of positive earnings. Revenue grew 34.3% year over year (YOY), which marked the third straight quarter of growth following four consecutive quarters of declines. The company noted that it was having a strong start to its 2022 fiscal year with its domestic parks and resorts reporting record revenue and operating income.

In Q4 FY 2021, the company's earnings and revenue both missed consensus estimates. Adjusted EPS was positive for the fourth straight quarter after the company reported an adjusted loss per share in the final quarter of FY 2020, which was preceded by a long string of quarterly earnings declines. Revenue rose 26.0% compared to the year-ago quarter, but slowed from the previous quarter's pace. The company noted that its financial results improved in the second half of FY 2021 compared to FY 2020 due to the reopening of theme parks and resorts. But the company said that its business continued to be adversely impacted by reduced operating capacities.

Analysts expect robust but slowing growth in Q2 FY 2022. Adjusted EPS is expected to rise 48.9% YOY, a significant slowdown from the previous quarter's pace. Revenue is expected to grow 28.9% compared to the year-ago quarter, also slowing from the previous quarter's pace. For full-year FY 2022, analysts are currently forecasting adjusted EPS to rise 90.7%, marking the second year of growth after two years of declines. Annual revenue is expected to increase 26.1%, which would be the fastest pace of growth in at least five years.

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The Key Metrics

As mentioned, investors will also be focusing on Disney's revenue from its 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 segment 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. The segment's revenue soared 307.6% YOY in Q3 FY 2021 before slowing to a pace of 99.4% YOY in the fourth quarter. It then rose 101.6% YOY in Q1, and now analysts expect it to rise 101.1% YOY in Q2 FY 2022.

Investors also are likely to focus on how Disney's retirement of its line-skipping programs at some of its parks, such as FastPass+, will impact results. Starting in December 2021, Disney replaced those line-skipping programs with Disney Genie, a digital park planning service that allows visitors to bypass lines for a fee.

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 five times to 129.9 million subscribers by the end of the first quarter of FY 2022.

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. But that growth has decelerated in every quarter since, reaching a pace of 36.9% YOY in Q1 FY 2022. Analysts expect growth to slow again to 30.7% YOY in Q2 FY 2022. The looming challenges that Disney+ faces in streaming is shown in the recent financial results of rival Netflix. Despite its giant scale, Netflix announced its first loss of subscribers in more than a decade.