Disney earnings blow away estimates as theme parks return, but streaming slowdown sends stock lower

Analysts on average expected adjusted earnings of 26 cents a share on sales of $15.86 billion, according to FactSet. Yet Disney stock fell about 3.5% in after-hours trading following the release of the results, after closing with a 0.3% increase at $178.37, as streaming subscribers and revenue came in lower than estimates.

This will be the last quarter that Disney will have to compare to results that largely were unaffected by COVID-19, which has harmed many of Disney’s core businesses, such as theme parks and movies. The one business that had been a bright spot for Disney during the pandemic has been its nascent streaming service, Disney+, which managed to top 100 million subscribers thanks to large growth during the pandemic.

Disney disclosed Thursday that Disney+ now had 103.6 million subscribers, after Chief Executive Bob Chapek revealed the 100 million milestone at the company’s annual shareholder meeting in March. Analysts on average expected 109.26 million subscribers, according to FactSet, as well as 161.67 million total streaming subscribers, which wraps in other Disney streaming services such as Hulu and ESPN+. Disney said it had 158.8 million total streaming subscribers.

“We are on track to achieve our guidance of 230 million to 260 million [Disney+] subscribers by the end of fiscal 2024,” Chapek said in Thursday’s conference call. “Looking at our entire portfolio of streaming services, we expect that as full production levels resume and we get to a more normalized cycle, the increased output will help fuel additional sub-growth across Disney+, ESPN+, Hulu, and Hotstar.”

Chief Financial Officer Christine McCarthy suggested that estimates had been too optimistic, as Disney only had a month between hitting 100 million subscribers and the end of the period.

“We reached that milestone in early March, so we added subs at a faster pace in the last month of the second quarter than we did in the first two months, and that was despite no major market launches, a price increase in EMEA, and a domestic price increase per the end of the quarter,” she noted.

The streaming segment for Disney reported sales of $4 billion, while analysts were expecting $4.05 billion on average. Last year, Disney reported $3.99 billion in revenue from its direct-to-consumer and international efforts.

Since last year, Disney has reorganized its reporting segments, breaking the company into a media segment and an “experiences” segment that focuses on theme parks and product sales. Overall, Disney reported media and entertainment sales of $12.44 billion, while analysts on average were projecting $12.74 billion; the majority of those sales — $6.75 billion — came from Disney’s traditional linear television networks.

Disney’s theme parks and product sales segment reported $3.17 billion in revenue, though most of its theme parks faced closures or limited attendance during the quarter, which ended March 31. That is up from $2.4 billion a year ago, and trounced the average analyst estimate of $1.24 billion, though operating losses topped $400 million and McCarthy attributed the outperformance to consumer products and specifically videogame licensing revenue.

Disney’s U.S. theme parks are now welcoming visitors again, and analysts expected that revenue in that segment would jump to $2.46 billion in the current quarter, though the second-quarter performance is likely to affect those estimates.

“Forward-looking bookings for park reservations at both of our domestic parks are strong, demonstrating the strength of our brands as well as growing travel optimism as case counts decline, vaccine distribution ramps, and government restrictions loosen,” McCarthy said.

While McCarthy did not provide a full financial forecast for Disney, she did note that operating income for linear networks faces “a significant decline” from last year in the current quarter due to costs from ESPN’s coming coverage of major sports events. She also revealed that Disney would delay the launch of its Star+ service in Latin America until the end of August.

Disney stock suffered early in the pandemic, but has hit record highs since the end of its last fiscal year in the fall. Shares have increased 73.5% in the past year, as the S&P 500 index SPX, +1.22% has gained 44.1%.