Q2 2022
- Walt Disney, the house of (Mickey) Mouse, reported fiscal second quarter results which saw the entertainment giant post better-than-expected streaming subscriber growth.
- Disney+ subscriptions rose 33% to 137.7 million and average revenue per user (ARPU) was up both locally and internationally (see the subscriber figures in the table below). Disney also guided for a stronger second half for its fledgling streaming business. Direct to Consumer offerings (which includes ESPN, HULU and Hotstar) exceeded 205 million users as of the end of the period.
- Revenue for the group rose 23% to $19.3 billion. This includes a $1 billion penalty from early termination of some licensing agreements so the content could be expedited to its direct to consumer offerings. Excluding once-offs, diluted EPS for the quarter increased 37% to $1.08 from $0.79 in the prior-year quarter.
- With the lifting of Covid restrictions, Disney’s parks, experiences and products segment grew revenue over 100% y/y to $6.7 billion during the quarter. Operating profit for the segment swung to a profit of $1.75 billion from a $406 million loss previously. This was thanks to increased hotel bookings, cruise ship trips, attendance at Parks, higher ticket prices, and spending on food, beverage and merchandise. International guest arrivals are picking up but are not yet near pre-pandemic levels. Additionally, some international parks were not open full-time in the quarter and Disney Shanghai remains closed.
- The Media and Entertainment division saw revenues climb 9% to $13.6 billion. Following a loss of subscribers at Netflix, investors are weary as to whether Disney can maintain its streaming growth potential. There are also concerns over declining returns from high capex, as well as how increased inflation and a possible recession might impact its other business divisions.
- Shares of Disney are down 33% year-to-date and over 40% y/y. The company is on relatively expensive valuation, which is possibly justified by the earnings quality of this diversified entrainment giant and it’s ability to consistently generate positive Free Cash Flows (which it reinvests into the business). This may not yet be the bottom for Disney but we like the business and own the share in long-term managed portfolios.