Media and entertainment conglomerate The Walt Disney Company (DIS – Free Disney Stock Report) issued fiscal first-quarter earnings results. (Year started October 1st.) Even though the bottom line slipped some, investors seemed pleased with the company's prospects, and the stock was up modestly in value following the release.
More specifically, earnings fell 37% year over year, to $1.17 a share for the December quarter. Although we had anticipated a setback in profits, owing to higher operating costs and restructuring expenses, share net came in $0.33 below our estimate. What's more, the company recorded a number of eliminations, which also hurt the bottom line in the latest quarter.
Revenues, on the other hand, advanced 36% to $20.86 billion, just a notch higher than our $20.85 billion forecast. And we are optimistic that the integration of Twenty First Century Fox and Disney+ will contribute nicely to the top line in the coming months.
Breaking the report down further, Disney+ exceeded expectations. Thanks to the mid-November launch of its streaming service, revenues at its Direct-to-Consumer (DTC) and International segment quadrupled year to year. Nevertheless, the costs associated with the launch, consolidation of Hulu, and higher losses from ESPN+ caused the segment to post a steep deficit for the period.
Disney+ had 28.6 million paid subscribers as of the end of January. Verizon (VZ – Free Verizon Stock Report) and other providers offered subscribers free trials of the streaming service. And the company ought to focus on the free-to-pay churn rates moving forward. All told, management is optimistic that the user interface, its brands, and strong original programming will enable it to continue to build its subscriber base.
Studio Entertainment was another bright spot for the period. Star Wars Rise of Skywalker and Frozen 2 both broke the $1 billion-mark at the box office during the quarter. The success of these films and other releases made calendar 2019 the highest-grossing year on record for Disney's Studio Entertainment. That said, it seems like 2020 will have a lighter roster of blockbuster films, though synergies from the Fox studios ought to help the media mogul.
Media Networks also put in a solid quarter, the consolidation of Fox helped offset softness from ESPN. Too, higher income from Hulu and A+E helped year-over-year comparisons.
Parks, Experiences, and Products' results were bolstered by increases in merchandise licensing and its domestic parks. Though lower results at Disney's international properties tempered the success at this segment. Looking ahead to the second quarter, we expect that this unit will post unfavorable comparisons, owing to the timing of the Easter holiday. Too, management announced that its parks in Shanghai and Hong Kong were closed due to fears about the spread of the coronavirus, and it is unclear when it will reopen its locations in Asia.
We believe Disney's ongoing investments in its brands and content, especially in Disney+, should enable it to keep up with the dynamically changing mediascape and ought to help it better compete with industry peers, such as Netflix (NFLX) and Amazon.com's (AMZN) Prime Video, etc. However, elevated expenses associated with the business overhaul may well hinder some of its gains in the near term.
All in all, the company will probably register mixed results for the full year. While we are maintaining our revenue estimate of $82 billion (a 15%-20% advance from fiscal 2019), we have slashed our fiscal 2020 earnings estimate by $1.30, to $6.20, a 1% decline from the prior year.
Disney shares have been on a tear of late, and trended upward nicely following the launch of Disney+. That said, much of the good news we envision over the next 3 to 5 years seems to be already baked into the recent quotation.
About The Company: The Walt Disney Company operates Media Networks such as ABC and ESPN, and Studio Entertainment. Its world famous parks and resorts include Disneyland, Walt Disney World (Magic Kingdom, Epcot, and Disney’s Hollywood Studios), while the company earns royalties from Tokyo Disneyland and manages Disneyland Resort Paris and Hong Kong Disneyland. It also operates a cruise line and Consumer Products and Interactive Media segments. ABC was acquired in February, 1996; Pixar in May, 2006; Marvel in December, 2009; and Twenty First Century Fox in March, 2019.