On November 10, Disneypublishedits fiscal Q4 results. The company disappointed investors across the board. Disney stock (DIS) -Get Walt Disney Company Report sank below $160 per share in the morning, before recovering a bit. Below, we review the key performance metrics, and discuss the path forward for Disney and its stock.
An uncomfortable all-round miss
Disney reported revenue of $18.5 billion, an increase of 26% over the same period last year. EPS also improved significantly, climbing from a per-share loss of $0.39 in the comparable 2020 quarter to positive earnings of $0.09 this time.
Analysts were certainly hoping for more, as both top- and bottom-line results missed consensus estimates. But Disney CEO Bob Chapek seemed satisfied:
“This has been a very productive year for The Walt Disney Company, as we've made great strides in reopening our businesses while taking meaningful and innovative steps in Direct-to-Consumer and at our Parks, particularly with our popular new Disney Genie and Magic Key offerings.”
Streaming lagged expectations
In media and entertainment distribution, linear networks did worst, with revenues of $6.7 billion dipping 4% over 2020 levels. Cord-cutting continues to be a secular negative for Disney, which still relies on linear TV for over one-third of its total revenues – and even more of its operating profits.
In DTC (direct-to-consumer), which encompasses all of Disney's streaming products, the company delivered solid growth. Disney+ and ESPN+ saw subscribers rise by more than 60% each, while Hulu experienced an increase of 20% – worse than its peers, but still not too bad.
The problem is that Wall Street seems to have set the bar too high ahead of earnings. Disney failed to meet expectations on Disney+ user adds by a good 7 million, and it did not help that average monthly revenue per user dropped nearly 10%. These numbers bode ill for the growth thesis in streaming.
The reopening upside
Disney parks and experiences segment saw revenues double to $5.5 billion vs. $2.7 billion in the comparable 2020 quarter. The sharp increase was not a surprise and is largely related to the reopening of the company's parks and resorts.
However, consumer product revenues, representing less than 10% of total company sales, declined by 3%. According to Disney, these results were driven by lower royalties from licensing of Marvel's Avengers and Twisted Wonderland games.
Our take
In isolation, Disney’s results were far from disastrous. The reopening of the economy has been helping to push revenues and earnings higher each quarter, mostly driven by the rebirth of parks and entertainment services. Growth in streaming usage remains solid, especially in Disney+ and ESPN+.
The problem is that Disney does not seem to be moving quickly enough relative to expectations. On a 2022 basis, DIS is valued at a P/E of 36 times that is better suited for a growth stock. When the bar is set at this level, analysts and investors will naturally expect more of the media company.
The better news is that business fundamentals do not seem to be deteriorating, only improving at a slower pace. That said, we believe that DIS will find support once valuation better aligns with Disney’s growth prospects. With the stock down nearly 20% from the March peak, this could happen soon.