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Disney (DIS) Q2 Earnings Beat, Coronavirus Hits Top-line Growth

·6 min read
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The Walt Disney DIS reported second-quarter fiscal 2021 adjusted earnings of 79 cents per share that beat the Zacks Consensus Estimate by 172.4% and increased 31.7% year over year.

However, revenues decreased 13.4% from the year-ago quarter to $15.61 billion and lagged the consensus mark by 2.6%.

Segment Details

Media and Entertainment Distribution (79.7% of revenues) revenues climbed 0.6% year over year to $12.44 billion.

Revenues from Linear Networks decreased 4% year over year to $6.75 billion. Direct-to-Consumer revenues surged 59% year over year to $4 billion. Content Sales/Licensing and Other revenues declined 36.4% year over year to $1.92 billion.
 

The Walt Disney Company Price, Consensus and EPS Surprise
The Walt Disney Company Price, Consensus and EPS Surprise

The Walt Disney Company Price, Consensus and EPS Surprise
The Walt Disney Company price-consensus-eps-surprise-chart | The Walt Disney Company Quote

 

Parks, Experiences and Products revenues (20.3% of revenues) plunged 43.9% year over year to $3.17 billion.

Domestic and International revenues declined 58.1% and 45.4% year over year, respectively, to $1.74 billion and $262 million in the reported quarter.

However, revenues from Consumer Products increased 13% year over year to $1.18 billion.

Markedly, Disneyland Resort, Disneyland Paris and the company’s cruise business were closed for all of the second quarter. Hong Kong Disneyland Resort was opened for roughly 30 days during the period. Both Walt Disney World Resort and Shanghai Disney Resort were open throughout the reported quarter.

Subscriber Details

ESPN+ had 13.8 million paid subscribers at the end of the fiscal second quarter compared with 7.9 million at the end of the year-ago quarter.

Disney+, as of Apr 3, 2021, had 103.6 million paid subscribers compared with 33.5 million as of Mar 28, 2020. The company remains on track to achieve its prior guidance of 230-260 million paid subscribers by the end of fiscal 2024.

The rapidly growing subscriber base strengthens Disney’s position in the increasingly saturated streaming space currently dominated by Netflix NFLX. The launch of new services from Apple AAPL, Comcast CMCSA and AT&T has further intensified competition.

Disney+’s upcoming slate includes Cruella (simultaneously to be released in theaters on May 28) followed by Pixar’s Luca, (exclusively on Jun 18). Moreover, Black Widow and Jungle Cruise are scheduled to premiere on Jul 9 and 30, respectively (along with theaters). Moreover, Marvel’s new series Loki is set for a Jun 9 debut on Disney+.

Hulu ended the quarter with 41.6 million paid subscribers, up 30% year over year.

The average monthly revenue per paid subscriber for ESPN+ increased 7% year over year to $4.55 due to an increase in retail pricing.

The average monthly revenue per paid subscriber for Disney+ was $3.99, down 29% year over year. Moreover, the average monthly revenue per paid subscriber for Disney’s Hulu SVOD-only service was unchanged at $12.08.

The average monthly revenue per paid subscriber for Disney’s Hulu Live TV + SVOD service rose 21% from the year-ago quarter to $81.83, owing to higher advertising revenues per subscriber, increase in retail pricing and per-subscriber premium as well as feature add-on revenues.

Operating Details

Costs & expenses declined 15% year over year to $14.17 billion in the reported quarter.

Segmental operating income increased 2.4% year over year to $2.47 billion.

Media and Entertainment Distribution segmental operating income surged 73.9% year over year to $2.87 billion.

Linear Networks operating income increased 14.8% to $2.85 billion. Moreover, Direct-to-Consumer operating loss was $290 million compared with the year-ago quarter’s loss of $805 million.

Content Sales/Licensing and Other operating income was $312 million against operating loss of $25 million reported in the year-ago quarter.

Parks, Experiences and Products operating loss was $406 million against the year-ago quarter’s operating income of $756 million. COVID-19 hurt the segment’s profits by roughly $1.2 billion.

Domestic and International segments reported losses of $587 million and $380 million, respectively. Markedly, Domestic had reported profit of $661 million in the year-ago quarter, while International had reported a loss of $343 million.

Consumer Products’ operating profit increased 28.1% year over year to $561 million.

Further, interest expenses increased 6.7% year over year to $320 million.

Balance Sheet

As of Apr 3, 2021, cash and cash equivalents were $15.89 billion compared with $17.07 billion as of Jan 2, 2021.

Total borrowings were $56.15 billion as of Apr 3, 2021 compared with $58.28 billion as of Jan 2, 2021.

Free cash flow was $623 million in the reported quarter compared with free cash outflow of $685 million in the previous quarter.

Outlook

For third-quarter fiscal 2021, Disney expects Linear Networks operating income to decline year over year primarily due to higher sports programming and production costs at ESPN. The Zacks Rank #3 (Hold) company expects this cost to increase by $1.2 billion year over year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Disney+ now expects fewer net subscriber addition for its direct-to-consumer services in the second half of 2021. Moreover, the company now plans to launch STAR+, its stand-alone general entertainment and sports streaming service for Latin America, on Aug 31.

 

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