Traders are tuning into Disney after a comeback quarter for the entertainment beast.
Shares surged 8% in pre-market trading Thursday to $158.62 as the company smashed analyst sales estimates by more than $1 billion and earnings by 45 cents.
The company saw a major uptick in operating profits at its parks divisions as consumers returned following time away due to the pandemic and prices were hiked for food and other amenities. Meanwhile, Disney showed a better than expected 11.8 million net additions to its Disney+ streaming service compared to consensus forecasts for 7 million.
“Disney+ is hardly out of the woods with a long way to FY24 guidance. But, Disney is doing and saying all the right things: heavy content investments, rationality on sports rights, bundling, etc. We like the setup here for content success to drive the subs. Parks coming back in a big way provides earnings/valuation support in our view,” Wells Fargo Steve Cahall said in a research note.
Cahall reiterated an Overweight rating (Buy equivalent) and $196 price target on Disney’s stock.
Here are three top takeaways from Yahoo Finance on the results.
230 million to 260 million
Disney+ ended the first fiscal quarter with 129.8 million subscribers, up 37% from the prior year. CEO Bob Chapek reiterated his goal to nearly double subscribers on the platform by 2024.
“We continue to manage our services for the long term and maintain confidence in our guidance of 230 million to 260 million total paid Disney+ subscribers globally by the end of fiscal 2024,” Chapek told analysts on a conference call.
Whether that level of subs equates to profits is another matter — the service saw “higher losses” in the most recent quarter, Disney said.
Disney seemed to stay optimistic on the service’s bottom line on the call.
“On your question on the breakeven guidance and on Disney+ content spend. We’re not updating the guidance. We have that fiscal FY24 guidance out in the marketplace, and we’re sticking to it,” remarked Disney CFO Christine McCarthy.
The parks comeback
The parks business swung to an operating profit of $2.45 billion in the quarter from a loss of $119 million a year ago.
Trends appeared strong in the quarter despite the ongoing pandemic.
Explained McCarthy, “Overall, attendance trends at domestic parks continued to strengthen in the quarter with Walt Disney world and Disneyland Q1 attendance up double digits versus Q4 in part reflecting holiday seasonality.”
The momentum appears to have spilled over into calendar year 2022 (or Disney’s second fiscal quarter).
“Looking ahead to Q2 our demand pipeline for domestic guests at Walt Disney World and Disneyland remains strong, benefiting from our 50 anniversary celebration at Walt Disney World and new attractions in experiences at both parks.
Cahall thinks the return of parks’ profits is important for the stock.
“The Street — us included — got excited on Park margins coming out of the pandemic in late 2020. 2021 saw attendance a little slower to materialize with a lot of profit and loss noise that limited margin drop-through, and took estimates down. Well, the parks story is now back,” Cahall said.
Content machine spins
Anyone concerned that Disney isn’t producing enough content amid COVID-19 to feed the beasts that are entertainment parks and streaming platforms may want to think again.
Chapek detailed a solid pipeline of big budget content that could be key drivers of future sales and profits.
“The remainder of this fiscal year will feature compelling Disney+ originals from across our brands and franchises beginning with Pixar’s ‘Turning Red’ and Marvel Studios ‘Moon Night.’ And in the back half of FY22 we will feature a truly stunning array of content, including two Star Wars series,” Chapek revealed.
Chapek also said to be on the lookout for new series from Marvel and a new live action film based on the classic “Pinocchio,” starring Tom Hanks as Geppetto.