Disney Beats Wall Street Even as Disney+ Sheds 4 Million Subscribers

Walt Disney modestly beat Wall Street expectations on Wednesday as it revealed earnings for its March-end quarter. The company posted net income of $1.27 billion, and taking out some one-time charges, diluted earnings per share of $0.93. Revenues for the quarter and six months grew 13% and 10%, respectively.

Analysts were expecting Disney to report earnings of $0.89 per share on revenue of $21.7 billion. Disney shares closed Wednesday at $101.13 per share, down 1% Wednesday and 13.7% since the beginning of the year. Share prices have fluctuated this year between a low of $88.87 in early January and a high of $113.21 in early February.

Despite intense media coverage focused on a legal and public relations battle between the company and Florida Gov. Ron DeSantis over its parks in the state and concern over the WGA strike’s impact on scripted content, Disney CEO Bob Iger instead highlighted the company’s strides in cutting costs after announcing plans to lay off 7,000 employees and get its streaming business closer to profitability.

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Disney reported 157.8 million Disney+ subscriptions as of the end of March, down 2.5% from 161.8 million at the end of 2022. Analysts surveyed by FactSet had expected 163.5 million subscribers. But lower marketing expenses and higher per-subscriber revenue helped narrow the direct-to-consumer unit’s losses to $700 million for the quarter.

The company cited the $2.32 billion in global box office from “Avatar: The Way of Water” as contributing to a year over year improvement in theatrical distribution revenue. Disney separately announced Wednesday that it had earned over $2 billion in the theatrical box office to date in 2023, a year that Iger and other studio leaders hope will be a return to pre-COVID theatrical normality.

While “Ant-Man and the Wasp: Quantumania” was a disappointment with $475 million, it earned a lot more than “Death on the Nile” ($138 million) this time last year. Future quarters may benefit from “Guardians of the Galaxy Vol. 3,” which kicked off the summer with a $289 million global launch, and hopes are high for Disney’s live-action “The Little Mermaid” remake, Pixar’s “Elemental” and Lucasfilm’s “Indiana Jones and the Dial of Destiny.”

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A reversion to theatrical windows closer to pre-COVID standards may play a role. While previous Disney tentpoles like “Doctor Strange in the Multiverse of Madness” and “Encanto” were comparatively quick to hop from theaters to Disney+, the theatrical window has been closer to pre-COVID normality for Marvel’s “Ant-Man and the Wasp: Quantumania” and James Cameron’s “Avatar” sequel.

The last two years have provided plenty of evidence that theatrical releases, even in-theater bombs like “Lightyear” generally performed better on Disney+ than most streaming-only features. The new game will be reacclimating consumers to seeing Disney biggies in theaters rather than waiting a month or two to watch them “for free” on Disney+.

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Disney Theme Parks and related revenue streams increased 17% this quarter to $7.8 billion while segment operating income increased 23% to $2.2 billion. Not that the theme park picture was all rosy: The domestic Disney resorts didn’t meet projections, particularly at Walt Disney World in Florida, which has become ground zero for the ongoing, increasingly litigious culture war with Governor Ron DeSantis.

“Results at our domestic parks and resorts were slightly unfavorable to the prior-year quarter, as a decrease at Walt Disney World Resort was largely offset by growth at Disneyland Resort,” the company said in its earnings announcement. “The decrease at Walt Disney World Resort was due to higher costs, partially offset by increased volumes. Higher costs reflected cost inflation, increased expenses associated with new guest offerings and higher depreciation. The increase in volumes was due to attendance growth and higher occupied room nights.”

This is, in fact, the calm before the storm for Walt Disney World, with lower-than-average occupancy rates expected for the hotels and less attendance in the parks. Park management recently announced that some of the protocols installed during COVID, like park reservations, would be a thing of the past. And discounts have begun to appear, encouraging families to return to what Disney styles as the “Most Magical Place on Earth.” Add-ons like Genie+ and Lightning Lane, which allow for favorable access to the most popular attractions around the property, have resulted in some big numbers for the company but it has also led to guest frustration.

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After the opening of the Tron Lightcycle Run attraction at the Magic Kingdom, there are comparatively few new offerings to lure people back to the parks. The overhaul of EPCOT, truncated by COVID and corporate second-guessing, will be completed soon with an educational “Moana” walkthrough exhibit (about the different ways water flows). The only other major attraction is a revamped version of Splash Mountain themed to “The Princess and the Frog.” That revamp, of course, has been another area of contention from fans, who have balked at the “woke” retheming by Disney.

The results were better for Disneyland in California. Increased operating income “resulted from growth in attendance and guest spending, partially offset by higher costs.” The report read: “Higher guest spending was due to increases in average ticket prices and average daily hotel room rates. The increase in costs was primarily due to higher operations support costs and increased costs associated with new guest offerings.” In late January Mickey & Minnie’s Runaway Railway opened at Disneyland, followed shortly by a new reimagined version of classic Disneyland land Mickey’s Toon Town.

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CEO Bob Iger and CFO Christine McCarthy made a couple major announcements amid the post-earnings conference call. First, consumers will eventually get a singular app that combines Disney+ and Hulu, not unlike what David Zaslav has planned for the “HBO Max + Discovery+” app merely titled Max launching on May 23. Second, as we’ve seen with pretty much every major streaming application, Disney+ will be removing content from the service and decreasing production for the respective platform. No word as to whether the purged films and shows will be licensed to third parties or hidden away and eventually brought back into the light akin to the Disney Vault.

The immediate impact of the Writers Guild strike may be more about managing negative publicity than facing hard financial decisions. Iger has been called out by name as among the executives receiving sky-high pay packages as writers strike for higher wages and pre-streaming television employment structures. How he addresses the strike may impact his reputation as a talent-friendly CEO.

Few expect the film production pipeline to be impacted unless the strike extends past six months, and in the meantime, films and television shows not being produced could mean additional investor-friendly savings, at least in the near term.

Should the strike last long enough to create yet another production pipeline pile-up, costs could temporarily escalate, which analysts may take into account in their longer-term forecasts.

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