Company / Analytics

Analytics, 12 February 2021

Disney’s Q1 earnings beat analyst expectations

Walt Disney Company is one of the world’s most dominant entertainment brands. Once again, Disney’s Parks, Experiences, and Products segment was the part of the company’s business most severely impacted by the pandemic and pandemic-related measures to control the spread of the Covid-19. Disney’s theme parks were either closed or operating at reduced capacity while cruise ships and guided tours were suspended during the quarter.

The company has been forced to implement massive layoffs and close some operations amid the COVID-19 pandemic. For example, Disney this year closed Blue Sky Studios, known for the “Ice Age” and “Rio” film franchises, following layoffs of tens of thousands of employees last year as Disney temporarily shut theme parks, suspended cruise trips, and canceled theatrical productions. Investors were waiting to see whether Disney’s cost cuts could stem further losses amid plunging revenue.

Disney’s streaming service, Disney+, proved again to be a big plus during a pandemic that has shuttered its other business segments. A surge in Disney+ subscriptions, to 94.9 million, led to a revenue rebound from the previous quarter as the company double-down on direct-to-consumer sales.

Here are the key numbers:

Disney believes the “the strategic directions we’re taking to transform our company will fuel our growth and enhance shareholder value, as demonstrated by the incredible strides we’ve made in our DTC business, reaching more than 146 million total paid subscriptions across our streaming services at the end of the quarter,” its CEO, Bob Chapek said in a statement while announcing the results.

Chapek added that “Disney+ has exceeded even our highest expectations, noting that it stood at 26.5 million subscribers in the same quarter a year ago.

Indeed, Disney’s Media and Entertainment Distribution, which includes Disney+ alone brought in $12.66 billion for the quarter, though this was a decline of 5% from the same quarter a year ago before the pandemic swept across the country. Meanwhile, the Disney Parks, Experiences, and Products unit took in $3.6 billion, down 53% year-over-year as many Disney parks and its cruise line remain closed.

Analyst forecast and outlook

The sustained strength of Disney+ has impressed Wall Street analysts despite stiff competition from Apple TV+, Netflix, AT&T Inc.’s HBO Max, Peacock, and Amazon Prime Video, and others. Analysts note that the success of Disney+ is a testament to Disney’s brand equity and expertise in storytelling.

Analysts expect Disney to continue growing their streaming business, while their parks, television, and movie businesses will benefit and quickly recover as a result of increased vaccination and massive pent-up demand.

Disney expects capital expenditures for the fiscal year 2021 to be similar to those for 2020, with the business investing more in the media and entertainment segment and less in the parks segment.

However, since Disney is investing heavily in its streaming business — it plans to plow $14 billion to $16 billion across all of its services in 2024 — it isn’t expected to be profitable until at least 2023 and more likely in fiscal 2024. Still, Disney+ is expected to deliver more revenue in March, when the monthly fee rises by $1 to $7.99 in the U.S. and by 2 euros to 8.99 euros a month in Europe.

How did the Walt Disney stock move?

Shares of Disney have outperformed the broader market over the past year. However, the stock only began leading the market in early December after lagging for most of the year, weighed down by the adverse impacts of the pandemic. Disney stock reached a 52-week high in after-hours trading Thursday and has improved more than 35% in the past year, including 24% since its investor day on Dec. 10. The Dow Jones Industrial Average, — which counts Disney as a component — has advanced 7% over the past year. The stock was closed at $190.91 on Thursday, after rising to $193.89 in after-hours trading.

Should you buy or sell Disney?

The current consensus among 28 polled investment analysts is to buy stock in Walt Disney Co. The 25 analysts offering 12-month price forecasts for Walt Disney Co have a median target of 192.00, with a high estimate of 211.00 and a low estimate of 116.00. The median estimate represents a +0.63% increase from the last price of 190.80, according to CNN Business.

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