Disneyland Paris’ 30th anniversary celebrations on March 05, 2022.
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Walt Disney will be the last of the major media and entertainment companies with large streaming operations to report this earnings season, and Wall Street appears to be expecting bad news.
Category pioneer Netflix (ticker: NFLX) muddied the stream with its first-quarter report, which included a shocking decline in subscribers—management cited increased competition and a post-pandemic hangover. Disney (DIS) won’t be immune to the same macro forces, and management has bet the future of the company on its streaming and theme-parks businesses.
Disney stock jumped in February after a blowout report for the last three months of 2021, and shares have slid 29% since then. Investors have woken up to the thesis presented in a Barron’s cover story earlier this year: Streaming is a hit with consumers, and undoubtedly the future of how people will consume movies and TV series, but the business model just doesn’t work yet—and for some companies, maybe never will.
Following the Netflix model, Disney plans for several years of unprofitable growth for its streaming services—Disney+, Hulu, and ESPN+—on the way to the Holy Grail of a high-margin, recurring-revenue business with global scale. The problem is that at least a half dozen other legacy media and tech firms are pursuing the same goal, including Warner Bros. Discovery (WBD), Paramount Global (PARA), NBCUniversal-owner Comcast (CMCSA), Apple (AAPL), and Amazon.com (AMZN).
Disney’s subscriber metrics will be in focus on Wednesday, when it reports results for the first three months of 2022—the company’s fiscal second quarter. On average, Wall Street analysts expect Disney+ to end the period with about 135.1 million subscribers, up by about 5.3 million. But there’s little agreement among analysts, with estimates ranging from growth of 2 million to more than 8 million. That would compare with growth of 11.7 million in Disney’s fiscal first quarter.
Hulu is seen adding roughly 1.0 million subscribers last quarter and ESPN+ is expected to grow by 1.4 million subscribers.
On the financial side, analysts’ consensus estimate is for $1.19 in adjusted earnings per share on revenue of $20.1 billion last quarter. Those would be up 50% and 28%, respectively, year over year. Fiscal second-quarter operating income is expected to come in at $3.3 billion, which would be up 36% from a year earlier.
Before Disney reaches its streaming-centric future, a post-pandemic theme-parks recovery that boosts earnings today has been a major part of the bullish thesis shared by shareholders. Analyst consensus is for a 98% year-over-year recovery in revenue at Disney’s Parks, Experiences and Products segment in the seasonally weakest fiscal second quarter, to $6.3 billion. Segment operating income is expected to swing to a $1.7 billion profit, from a loss in the year-ago quarter.
At the larger Media and Entertainment Distribution unit—which includes the company’s TV, movie, content licensing, and direct-to-consumer streaming businesses—continued streaming losses are expected to weigh on segment profitability. Consensus forecasts are for $13.7 billion in revenue, up 10% year over year, and $1.8 billion in operating income, down 38%.
In late April, Florida’s legislature passed a bill phasing out a special district encompassing Disney’s property in the state which allowed the company to provide utilities, fire, and other services itself, and avoid paying certain taxes. Analysts have generally predicted that the resulting impact on Disney’s bottom line won’t be material.
Disney is scheduled to report results for its fiscal first quarter, which corresponds to the calendar fourth quarter, on Wednesday after the market closes. Management will host a call with analysts at 4:30 p.m. ET.
Write to Nicholas Jasinski at [email protected]
