ii view: Disney streaming growth overshadows park challenges

There's an estimated virus hit of $2.6 billion in this latest quarter, but investors are looking forward.

First-quarter results to 2 January 2021

Chief executive Bob Chapek says:

“We believe the strategic actions we’re taking to transform our Company will fuel our growth and enhance shareholder value, as demonstrated by the incredible strides we’ve made in our DTC business, reaching more than 146 million total paid subscriptions across our streaming services at the end of the quarter.”

ii round-up:

Entertainment mammoth Disney (NYSE:DIS) delivered an unexpected profit in these latest results, driven by strong demand for its streaming services such as Hulu, ESPN and Disney Plus.

Overall streaming subscribers rose to 146 million, up from 120 million as of its last results. Subscribers for its relatively new Disney Plus service now account for the majority of its streamers at 94.9 million, up from a previous 73 million. 

First-quarter earnings of 32 cents per share came against Wall Street expectations for a loss of a similar size. Disney shares rose by around 3% in after-hours US trading, leaving them up by around a third over the last year. Shares for streaming rival Netflix (NASDAQ:NFLX), which recently reported 203 million global subscribers, are up by more than 45%. 

Unlike pure streamer Netflix, Disney’s theme park and cruise ship operations have been closed or disrupted since the outbreak of the pandemic. Including lost product sales, Disney estimated a shortfall of around $2.6 billion in profit over the latest quarter due to Covid-19.

Sales for its parks, experiences and products business fell by 53% year-over-year to $3.59 billion from a pre-pandemic $7.58 billion. Revenues for its direct-to-consumer (DTC) operations, including streaming subscribers, rose by 73% to $3.5 billion. Losses for the DTC ops reduced to $466 million from $1.1 billion, largely due to increased advertisers at Hulu, and to a lesser degree at Disney Plus and ESPN+.

Overall group sales fell by just over a fifth to $16.25 billion compared to the pre-pandemic first quarter of 2020. Disney previously halted the dividend payment, due to both the ongoing pandemic hit and continued investment into its streaming businesses. 

ii view:

Walt Disney brands include Pixar Animation, Marvel and the Star Wars franchise. The company offers investors a one-stop entertainment business. It now operates across the four divisions of Media Networks, including ABC networks and live sports coverage; Parks, experiences and products; Direct-to-consumer (DTC) including Disney plus; and Studio Entertainment encompassing film production. 

For investors, ongoing uncertainty from the pandemic cannot be forgotten. The rollout of vaccines is being made at varying speeds across the world. Overseas tourist travel to its theme parks is likely to return slowly. But hope that the worst of the pandemic is now over for Disney does look to have taken hold. Its shares are up over 55% since late October and subscriber numbers continue to increase, assisted by the stay-at-home requirements under the virus. In all, Disney’s long and vast experience in the entertainment world continue to leave it as one to own long-term for many global investors.

Positives: 

• Diversity of businesses, strong brands and media content bank
• Growing streaming services

Negatives:

• Covid-19 has closed or disrupted many of its businesses
• Dividend payment halted

The average rating of stock market analysts:

Buy