Earlier today The Walt Disney Company released their fourth quarter and fiscal year 2020 earnings report. With a simple passing glance the numbers might appear to be bad news, but in context with the COVID-19 pandemic, the news was actually very good and the investment community responded appropriately.
As usual, Disney released their earnings report directly after the US markets closed, the company closed at $135.52 a share. After the earnings report was released the price of the stock jumped in after hours trading. It is clear that investors liked what they saw.
So, what did they see?
Two big things jumped out immediately, 1) Disney’s loss per share, and 2) Disney’s revenue. Both of these beat industry expectations and in the world of investing, news is judged based on which side of the expectation a company lands on.
Loss per share: According to a survey of analysts from Refinitiv, the expected loss per share was 71 cents. This is when they take into account the fallout from the pandemic and the general economic environment. Disney beat that expectation by only reporting a 20 cent loss per share. It is not everyday that a loss like this is considered good news, but in the middle of a pandemic, mitigating losses is the goal.
Revenue: According to the same survey, analysts expected Disney’s revenue to be $14.20 billion, the company beat that with $14.71 billion in revenue. Another indication that the company is being managed well during these difficult times.
Let’s take a look at the major newsworthy announcements made by Disney today:
Disney+ paid subscribers have hit 73.7 million. Reaching their five year goal in less than one year.
Parks, Experiences, and Products’s revenue was down 61% from last year. This was not a surprise due to the forced closures of a number of their parks and of their entire cruise line.
Studio Entertainment was down 52% from last year. Again, not a fair comparison since theaters around the country have been shuttered. Last year saw the release of some of the industry’s biggest hits, so when you compare the revenue from one of the company’s best years with their revenue from a year where outside factors have crippled the entire industry, you get pretty lopsided results.
Media Networks were up 11% from last year. This includes ABC and their cable networks. ABC has been having a great year with their Primetime lineup (which includes Dancing with the Stars and the various Bachelor spinoffs) and their news division (both Good Morning America in the morning and World News Tonight with David Music in the evening) have been consistently number one in the ratings.
ESPN has suffered greatly during the pandemic and the company seems a little unsure of its future.
Direct-to-Consumer revenue was up 41% from last year. This is not surprising since it was one year ago today that Disney+ was launched. The company is leaning heaviest into expanding this section of their company.
Streaming subscribers: Disney+ has 73.7 million paid subscribers, Hulu 36.6 million, and ESPN+ 10.3 million.
Disney will be expanding their international streaming service “Star” in the near future. This will provide the vehicle for Disney to stream ABC, FX, Freeform, 20th Century Studios, and other non-Disney+ series and movies in international markets. In the most basic sense, Star is essentially “international Hulu.” Disney acquired Star in their purchase of 20th Century Fox and since Star already has a presence in overseas markets, it made sense for Disney to use a well known brand for their non-Disney+ international streaming service. This saved them from the expense and energy of having introduce the rest of the world to Hulu, which only has a following within the United States.
OTHER HEADLINES FROM REPORT AND CALL:
- Disney will forgo their semi-annual dividend to investors in January and will reinvest that money into creating new content for their Direct-to-Consumer division. This is a big win for activist investor Dan Loeb who called for this a few months back. Disney withheld dividends this summer too. While the reinvestment is a smart business move, investors rely on these dividends, so both Chapek and McCarthy made it clear that these are short term moves and not a sign of things to come.
- The Disneyland Resort in Anaheim will remain closed through at least the end of 2020.
- In a sign that there is strong public interest and public trust in the Disney Parks, even amongst the Covid-19 pandemic the Walt Disney World Resort is seeing their future resort reservations jumping to 77% with near full occupancy for the Thanksgiving weekend.
- ESPN seems to be taking a hit from the erratic live sports schedule. The sports network’s success was difficult to measure against 2019 due to major scheduling issues with tentpole events such as the NBA finals and the start of the college football season, many of these events were postponed and/or truncated. While Chapek seemed optimistic about Disney’s future with live sports, it did appear to me that some cracks may be forming there.
- They announced that losses felt from ESPN were offset by increased revenue from the cable network FX. Specifics were not given, but revenue appears to be up for FX. Not only does FX provide Disney with a popular cable channel, it also provides previous released and original content for Hulu. McCarthy promised to expand on these numbers at the upcoming Investor Day in December.
- Looking forward Disney estimates that the fallout from Covid-19 will cost them roughly $1 billion in 2021.
- Disney has some huge hurdles ahead for their Cruise business. The CDC released new guidelines that will keep them from sailing anytime soon. However, Chapek did announce that the newest ship they’ve designed and built will be delivered in Summer of 2022, along with a second and third ship delivered in 2023 and 2024.
- Disney plans to ramp up new content for their streaming services and announced no plans on slowing down anytime soon. This came after an investor asked if they would follow the old Disney practice of slowing down the number the production of new movies in order to focus on quality. Chapek did not seem to think that their current production rate is affecting the quality of their content.
- For the first time Disney directly commented on their foray into charging an extra cost to see premium releases. Chapek indicated they were very happy with Mulan’s performance as their first “Premier Video On Demand” with the $29.99 price point. However, they did say that the film suffered greatly from the multiple international controversies surrounding it. Chapek said that the performance was strong enough that they will likely use the PVOD model again in the future. He explained that SOUL is being released at no additional cost because he admitted that new content, available at no extra charge, is what will drive up and retain subscriber numbers to their services and this is the immediate goal for the company.
It must be noted that Disney usually releases more information regarding upcoming projects in these investor calls, but they held off on any big announcements and promised they would give more details during their December 10th Investor Day.
With the emphasis on new content for their streaming services, this means that Skyler and Derek (the website’s creators) will be very busy breaking news stories on casting, production, and release information.
Stick with us as The DisInsider continues to grow rapidly with all of the exciting news coming out from the Disney company.
Once a regular movie release schedule can resume, theme parks fully reopen, and their cruise lines set sail again, the news will only pick up and you know that we will have fair and accurate reporting. You can be assured that quality content over misleading click-bait is a primary goal that take seriously.