The Walt Disney Company (NYSE: $DIS) is one of the world’s biggest mass media companies. Founded in 1923 by the Disney brothers, it has since grown into a company worth over $213 billion.
On Tuesday, May 7, 2024, before markets opened, Disney released its second-quarter results to a negative market reaction.
Disney Reports Mixed Second Quarter Results
In the second quarter of fiscal 2024, Disney reported revenue of $22.1 billion, a 1.38% increase from the previous year’s $21.8 billion and above the estimated $20.53.
The diluted EPS was $0.01 loss per share, a huge decline from the $0.69 diluted EPS the previous year. On an adjusted basis, Disney reported an EPS of $1.21, compared to $0.93 the previous year, and beat estimates by $1.02.
Cash from operations in Q2 increased 13.29% to $3.67 billion, while free cash flow increased 21.14% to $2.41 billion.
Segment Performance
Entertainment
The Entertainment segment’s revenue declined 5% year over year to $9.80 billion while operating income grew 72% to $781 million.
Disney+ Core subscribers grew by over 6 million in Q2, beating estimates of 4.7 million, while the average revenue per user increased by 44 cents to $7.28.
Sports
Disney’s Sports segment saw a 2% Y/Y increase in revenue to $4.31 billion. However, operating income declined 2% Y/Y $778 million.
Experiences
Revenue in the Experiences segment increased 10% to $.839 billion while operating income grew 12% to $2.29 billion.
Disney’s total operating income grew 17% Y/Y to $3.85 billion.
Disney’s Streaming Business Nears Profitability
Under the Entertainment Segment, the Direct-to-Consumer portion, which includes streaming services Disney+ and Hulu, saw a huge improvement. Revenue increased 13% to $5.64 billion while operating income rose to $47 million from an operating loss of $587 million in the second quarter of fiscal 2023.
However, not all of Disney’s streaming services were profitable. In total, its DTC Streaming business, which includes all its streaming services across various segments, saw a 12% increase in revenue to 6.19 billion, while the operating loss narrowed by 97% to $18 million.
Disney’s TV Business Sees Huge Decline
Amidst the positive results, Disney reported a huge decline in its TV business. Revenue declined 8% Y/Y to $2.77 billion, while operating income fell 22% to $752 million. A drop in ad revenue drove the decline due to a fall in impressions as viewership declined. Additionally, the TV business suffered from an affiliate’s nonrenewal of carriage of specific networks.
Disney’s Outlook
Driven by the second quarter’s performance, Disney now expects full-year EPS to grow 25%. It expects full-year cash from operations to grow to around $14 billion and a free cash flow of over $8 billion.
In the third quarter, Disney expects Entertainment DTC to be in the red, driven by losses from Disney+ Hotstar. In the fourth quarter, Disney expects its combined streaming business to be profitable and become a source of meaningful growth for the company, with further growth in profitability in fiscal 2025.
The Experiences segment, which includes parks, is expected to report a third-quarter operating income comparable to that of Q3 fiscal 2023. However, the company expects significant operating income growth in the segment in fiscal 2024.
DIS Stock Performance
Following the mixed Q2 results, Disney stock fell 8.32% during the morning trading session to $106.78 per share as of Tuesday, May 7, 2024, at 10:11 AM EDT. Despite the day’s decline, the stock is still up 17.63% this year and 13.99% in the past 52 weeks compared to the 25.77% gain of the SPX in the same period.
DIS stock is trading below its 50 DMA of $114.37 and above its 200 DMA of $95.73. The short interest in the stock has declined 7.6% in the past month and is now at 20.06 million shares, which is 1.09% of the shares outstanding. The company has an intraday market cap of $213.64B.
Analysts’ Outlook on DIS Stock
According to 28 stock analysts’ Disney has an overall strong buy rating. They forecast a wide range for the stock, with a high of $145 and a low of $82. Based on the most recent price, their average forecast is a 21.55% upside.
Should You Add DIS to Your Portfolio?
Disney’s second-quarter results are the first since CEO Bog Iger survived a bruising proxy war with activist investor Nelson Peltz. The focus of Peltz’s battle had been continuing losses in the streaming business since its launch in 2019.
Iger engaged in a massive efficiency campaign that cut over 8,000 jobs in the streaming business. Pressure appears to have worked, as the streaming business is nearing profitability. The current decline in the stock reflects the high expectations investors have for Disney. Despite the revenue and earnings beat, they were unimpressed by the decline in traditional TV revenues.
However, Disney’s profitability forecast in its streaming business could help assuage investors. Consequently, the investors’ strong buy rating accurately represents the future of Dis stock.
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