Walt Disney (NYSE: $DIS) Spikes on Earnings Beat, Narrowed Streaming Losses

The Walt Disney Company (NYSE: $DIS)

The Walt Disney Company (NYSE: $DIS) is a multinational entertainment and mass media conglomerate, that is a leading provider of diversified family entertainment. Based in Burbank, CA, Disney is organized into three segments: Sports, Entertainment, and Experiences.

On Wednesday, February 7, 2024, Walt Disney released its first quarter results for fiscal 2024 after markets closed to a positive reception.

Walt Disney First Quarter Earnings Results

Disney reported revenue of $23.5 billion for the first quarter ending December 30, 2023, comparable to the revenue in the same quarter last year.

Its diluted EPS came in at $1.04 compared to $0.70 in Q123, while adjusted EPS, excluding special items, came in at $1.22, an increase from the $0.909 reported the previous year. Revenue exceeded analysts’ expectations of $23.64 billion, while the adjusted EPS of $1.22 was above the expected $0.99.

Disney had a net income of $1.91 billion in the quarter, above the $1.28 billion reported the previous year.

Segment Performance

This is Disney’s second quarter using a new reporting structure with three segments. These are Entertainment, which encompasses its streaming and media division; Sports, which includes ESPN; and Experiences, which covers its merchandise, parks, hotels, and cruise line.

The Entertainment segment brought in revenue of $9.98 billion, a 7% decline compared to the $10.68 reported the previous year.

Walt Disney’s Sports segment brought in revenue of 4$.84 billion, a 4% increase compared to the $4.64 billion reported in the previous year.

Meanwhile, the Experiences segment brought in revenue of $9.13 billion, a 7% increase from the $8.55 billion reported the previous year.

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Direct To Consumer Revenue

Under the Entertainment segment, the Direct-to-Consumer (DTC) category, which encompasses the company’s streaming services, reported a revenue of 5.55 billion, a 15% increase from last year’s revenue of $4.82 billion. Additionally, Disney’s operating loss from streaming narrowed by 86% to $138 million, compared to the $984 million operating loss the previous year.

Disney attributed the narrowed operating loss to higher rates due to increased pricing across their streaming services and subscriber growth at Disney+ Core and Hulu. Additionally, the company saw a rise in ad revenue due to higher impressions across their streaming services, partially offset by a decline at Hulu.

Disney stated that programming and production costs per hour for its DTC services for non-sports content had decreased. The decline was partially offset by increased non-sports content, higher subscriber-based fees for Hulu Live TV programming, and increased ICC cricket programming costs.

Walt Disney provided further insight into the performance of its direct-to-consumer offerings. Disney+ average domestic monthly revenue per paid subscriber rose by 9% to $8.15 from $7.50 in the previous year.

Meanwhile, international Disney+ average monthly revenue per paid subscriber fell by 3% from $6.10 to $5.91. Paid domestic and international Disney+ subscribers declined by 1% to 46.1 million and 65.2 million, respectively.

Walt Disney’s combined streaming businesses, including its Direct-to-Consumer business in the Entertainment segment and ESPN+ in the Sports segment, brought in revenue of 6.08 billion, a 14% increase from last year’s 5.37 billion. The operating loss from the combined DTC streaming businesses declined by 79% Y/Y to $216 million from $1.05 billion.

Walt Disney Boardroom Wars

Disney’s Q124 results came out amidst an ongoing boardroom war against Blackwells Capital and activist investor Nelson Peltz. The previous proxy war by Peltz ended in early 2023 after Disney initiated numerous cost-cutting measures. However, Peltz renewed his proxy war to earn himself and Disney’s former CFO, Jay Rasulo, a board seat.

Previously, Peltz has pointed to Disney’s stock plunge, drop in analysts’ estimates, and lackluster studio content performance as the reason for his boardroom war.  

During a recent CNBC interview, Disney CEO Bob Iger said he had not spoken to Peltz and had “no plans to speak to him.”

Epic Games Partnership

in his remarks, Disney CEO, Bob Iger, announced that the company was partnering with Epic Games, the company behind well-known games like Fortnite. As part of the deal, Disney will invest $1.5 billion in Epic Games. The two will work together to create a Disney-themed universe where consumer can interact with iconic characters from Disney.

Commenting on the partnership, Iger said “This marks Disney’s biggest entry ever into the world of games and offers significant opportunities for growth and expansion.”

Walt Disney Issues Guidance

According to Disney’s CFO Hugh Johnston, the company expects revenue for the Entertainment DTC category to grow sequentially in the second quarter. They anticipate operating losses will be in line with those of Q1. Disney expects to achieve streaming profitability at the end of fiscal Q4. They anticipate subscriber growth and double digital operating margins in the long term.

The CFO added that they are on pace to meet or exceed their $7.5 billion annualized cost target by the end of Q424. He said that in Q1, expenses declined 4% compared to last year. The CFO added that the company was on track to generate around $8 billion in free cash flow at the end of fiscal 2024.

Walt Disney anticipates adjusted EPS to increase 20% for FY24 to around $4.60.

Disney Stock Performance

During aftermarket trading on Wednesday, February 7, 2024, Disney stock surged by 6% in response to the marketing beating Q1 results. The pump continued during regular trading on Thursday, February 8, 2024, with the stock surging 9.49% to $108.54 as of 09:49 AM in New York. However, the stock is still down 3% in the past 12 months. Year-to-date, DIS stock is up 19.66%.

Walt Disney stock (DIS) is trading above its 50-day and 200-day moving averages of $92.93 and $89.23, respectively. However, it is below its 52-week high of $118.18.

Walt Disney (NYSE: $DIS)

Disney Stock Forecast

Following the recent turnaround in Disney’s financial performance, analysts give DIS stock a consensus moderate buy rating. They have set a broad range for the stock, with the most optimistic predicting $130 in the next 12 months, while the most bearish expect $82 in the next 12 months. The analysts’ average target for DIS stock is $112.30, a 3.44% upside.

Final Thoughts

Disney stock had a bad run in the past two years following a significant spike during the pandemic as it reported a successful rollout of its streaming services. However, management has been working to turn things around following a spate of failures at the box office.

Thus far, they have been successful, seeing a massive reduction in operating losses from its streaming services. Additionally, the company has recently begun issuing dividends after a short pause. While yields are low, it could be enough to incentivize income investors.

Adding Walt Disney stock to your portfolio would be a wise move based on its most recent market-beating quarterly results, and upbeat guidance.

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