| Author | Message | ||
     Entrepreneur Kurra Bewarse Username: Entrepreneur Post Number: 3546 Registered: 05-2011 Posted From: 65.35.45.47 Rating: N/A |
DIS Walt Disney losing some magic today as Disney+ growth fails to meet lofty expectations (171.66 -6.68) The pandemic has ravaged Walt Disney's (DIS) bread-and-butter theme park business, adversely impacting operating income at its Parks, Experiences, and Products segment by nearly $7 bln in FY21 (ending October 3). As the company's largest segment buckled under the weight of park closures and severe capacity limitations, DIS's stock nearly doubled from last year's lows to the record highs set this past March. Eclipsing the theme park downfall is the rampant success of the Disney+ streaming platform, which has added subscribers at a breathtaking pace, illustrated by it crossing the 100 mln subscriber mark in early March. Along with the meteoric rise of Disney+ has come sky-high expectations from investors and analysts. Those lofty aspirations are on display this morning following DIS's mixed Q2 earnings report, which prominently included a miss on Disney+ total subscriptions. The company ended the quarter with 103.6 mln subscribers, falling short of analysts' forecast of about 110 mln. This figure still represents a solid addition of 8.3 mln subscribers since the end of Q1, but it's not strong enough to appease investors who have become accustomed to DIS surpassing subscriber estimates. Beyond missing expectations, Disney+ subscription growth also decelerated sharply from last quarter's gain of 21 mln new subscribers. Consequently, revenue growth in DIS's burgeoning Direct-to-Consumer (DTC) segment slowed to 59% from 73% last quarter, playing a major role in the Q2 revenue miss. The slowdown does create some concern that the return to normalcy and increasing mobility will hinder growth for Disney+. On a related note, when Netflix (NFLX) issued Q1 earnings on April 20, it reported streaming net adds of just 3.98 mln compared to its guidance of 6.00 mln. During the earnings conference call, NFLX stated that demand was pulled forward during the pandemic, causing the weaker-than-expected subscription growth in Q1. It's reasonable to assume that the same scenario played out for DIS this quarter. Considering that movie theaters, sports venues, theme parks, and other entertainment options are becoming increasingly available, it will be very difficult for Disney+ to match the phenomenal growth achieved last year. Therefore, investors may have to reset their expectations a bit, although the longer-term outlook remains very bright for its streaming platforms. In fact, by 2024, the company is targeting 300-350 mln subscribers across all its platforms (Disney+, Hulu, ESPN+), compared to the current total of 159 mln. Of course, the reopening of the economy will be beneficial to the Parks, Experiences, and Products segment, which is still struggling. Although Walt Disney World was open during the quarter, the park operated at significantly reduced capacity. Furthermore, Disneyland Resort in California was closed, and the cruise business remained suspended for the entirety of Q2. As a result, revenue in this segment plunged by 44% yr/yr to $3.2 bln, generating an operating loss of $(406) mln. The good news, though, is that Disneyland reopened in late April for California residents and Walt Disney World bumped its capacity up to 35% from 25%. Slowly but surely, DIS's theme park business is recovering. Lastly, DIS's Linear Networks business was primarily responsible for the EPS beat, as operating income for domestic channels increased by 12% to $2.3 bln. This was driven by lower programming and production costs related to the timing of live sporting events. Moving forward, programming costs are expected to rise due to the increase in sporting events. The fairytale of Disney+ has many more chapters ahead, but investors aren't enjoying the plot twist today as growth tapers off. We still believe there will be a happy ending for DIS, though, as its theme parks recover this year while its DTC segment continues its ascent. |