The Walt Disney Company DIS has smashed second-quarter expectations on Thursday due to strong growth in its streaming service Disney+.
What Happened: Disney reported $16.25 billion in revenue, far above the Street estimate of $15.93 billion, while adjusted EPS came in at a loss of 32 cents, beating the Street estimate of a 41-cent loss. The company pulled this off despite suffering a loss in revenue from its parks and cruise ships being fully closed, or open with reduced capacity, due to the COVID-19 pandemic.
Disney’s largest growth was in its streaming subscriptions. The company reported it had secured 95 million Disney+ subscribers for the quarter and now has more than 146 million total paid subscribers. This quarter marks the first since the company ended its free trial period.
CFO Christine McCarthy said executives are “really happy with the conversion numbers that we’ve seen here, going from the promotion to become paid subscribers.” McCarthy also said on the conference call that the company has “also set that target for 100-plus new titles per year. And that's across Disney Animation, Disney Live Action, Pixar, Marvel, Star Wars, Nat Geo. And of course, we'll continue to add more to our library as we go through time as well,” demonstrating the company’s plan for growth in this areas.
The Disney Analysts: Goldman Sachs analyst Brett Feldman reiterated a buy rating and increased the price target from $211 to $225.
Needham analyst Laura Martin reiterated a hold rating.
Morgan Stanley analyst Benjamin Swinburne reiterated an overweight rating and price target of $200.
Rosenblatt Securities analyst Bernie McTernan reiterated a buy rating and increased its price target from $210 to $220.
Stong Growth In Streaming, Movies and Park Revenue: Goldman Sachs' Feldman sees strong growth in 2021 from demand in two main areas. First, from its streaming services, which he said will bring increased revenue when Disney increases subscription prices in February and March. Feldman also noted the potential customer acquisition from Disney’s planned release of two Marvel movies this spring.
Secondly, Feldman believes park revenue will increase as the pent-up demand to visit Disney theme parks gets underway. Feldman said Disney’s “core businesses remain well positioned for rapid recovery as the economy reopens.”
Why Disney Can Surpass Netflix: Needham’s Martin said Disney is valued at only half of what Netflix Inc NFLX is even though Disney is beating Netflix at its only game.
Martin said Disney is surpassing Netflix because of better marketing skills, stronger titles and the ability to pull from subsidiaries, such as Lucas Films and Marvel, to save costs. Martin, like McTernan and Feldman, sees Disney benefiting from the reopening of the economy in 2021, which she says is not the case for Netflix.
Recovery Long, But Worst Is Over: Swinburne of Morgan Stanley said that “although the road to recovery remains long and uncertain,” he believes the worst is over and expects revenue streams from Disney’s parks and cruises to continue to rebound over 2021.
Swinburne also noted that Disney Hong Kong expects to reopen in the second quarter and pointed to better-than-expected retail sales in Disney stores for "Star Wars," "Frozen 2" and "The Mandalorian" merchandise. Swinburne also said Disney's direct-to-consumer business beat expectations, and Disney+ is likely to pass 100 million subscribers soon.
Growing Streaming Services: Rosenblatt's McTernan said that Disney has been able to benefit from both stay-at-home and reopening themes across its business by growing its streaming services, while also beating theme park revenue estimates despite the pandemic. More conservatively, McTernan doesn’t see park revenue returning to pre-pandemic levels until 2023, but noted it could be sooner depending on the success of the vaccine rollout.
DIS Price Action: Shares of Walt Disney Co were down 1.70% to $187.67 at end of day Friday.
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