4 Key Highlights From Disney’s Latest Q4 FY2022 Earnings

November 15, 2022

Disney’s magic is missing as The Walt Disney Co (NYSE: DIS) saw its share price tank by 13.6% after the release of its disappointing earnings results for its Q4 FY2022.

Losses at the company’s direct-to-consumer (DTC) business, driven by its Disney+ service, more than doubled to US$1.47 billion in its Q4 FY2022.

That was on the back of higher programming expenses and the cost of global expansion while weakness in cable-television advertising revenue hurt Disney’s financial performance.

Overall, Disney reported an increase of 9% in its revenue to US$20.15 billion, which missed the average consensus estimate of 16% growth for the Mickey Mouse company during the quarter.

Total operating income was also short of expectations at US$1.6 billion, an increase of just 1% as compared to consensus estimates of US$2.05 billion. Net income edged higher by 1% to US$162 million.

Here are four key highlights that investors should take note of from Disney’s latest earnings.

1. Disney CEO Bob Chapek needs to improve communication

The sharp decline in Disney’s share price is not a surprise given how much the company has achieved versus what investors’ expectations were.

What is surprising is the management’s public response to the disappointing quarter.

Disney CEO Bob Chapek’s statement, accompanying the Q4 earnings, focused mostly on Disney+ subscription growth and seemingly downplayed the losses faced by the business arm.

Chapek is relatively new to the CEO position, having taken over at the House of Mouse in 2020 after his predecessor Bob Iger retired from his 15-year post at the company.

While it is understandable for management to focus on the subscriber growth, it is worrying to see if Chapek can recover from his earlier PR blunders on issues related to the “Don’t Say Gay” bill.

The earnings call seemed to harp on a success that is miles away as management continues to emphasise that its streaming business is on track for profitability in FY2024.

Management also expects losses to shrink in the Q1 FY2023.

2. Disney’s transition is taking longer than expected

One of the reasons for the heavy selling of Disney shares, following the release of its financial results, is the realisation that the transition for the company could take longer than initially expected.

Disney wanted to capitalise on its strong brand and broaden its ecosystem through the streaming business.

While subscriber growth continues on a positive trajectory – as seen by the 39% year-on-year (yoy) increase to 164.2 million paid subscribers on its Disney+ platform – higher losses at Disney+ remain a concern.

To put this into context, Disney’s DTC revenue for the quarter increased by 8% but operating losses widened to US$1.5 billion from US$0.8 billion.

Source: Walt Disney’s Q4 Earnings Results

3. Reopening boosts Disney’s Parks business

Disney Parks, Experiences and Products revenues for Q4 FY2022 increased to US$7.4 billion from US$5.5 billion a year ago.

Meanwhile, the business segment’s operating income increased by US$0.9 billion to US$1.5 billion, mainly due to increases in its domestic and international parks and experiences businesses amid the reopening of the economy.

The international parks and resorts growth was led by Disneyland Paris, partially offset by the decrease at Shanghai’s Disney Resort due to COVID-19 related travel restrictions.

Despite profit at Disney’s theme-park unit more than doubling during the quarter, it fell short of what analysts were expecting.

This was partially due to the higher operating costs, the impact of Hurricane Ian and the lockdown in China.

4. Disney’s brand remains resilient

Despite some of the management blunders, Disney has continued to maintain its strong brand name.

In fact, the increase in the paid subscriber base on its streaming platforms reflects the strong following of content that it owns.

It owns ABC, which is known for its entertainment programmes and news channel along with the various Marvel content line-ups, such as Thor: Love and Thunder, Black Panther: Wakanda Forever, Ant-Man and the Wasp: Quantumania, Guardians of the Galaxy Volume 3, and The Marvels.

Other original content from Disney, Marvel, Star Wars, Pixar and National Geographic will also keep consumers and its followers engaged.

Expectations were high for Disney to see stronger recovery

CEO Bob Chapek has touted FY2022 as an important year of recovery coming out of the pandemic for Disney but expectations were high among investors for the House of Mouse.

The decline in Disney stock reflects the adjustment of expectations, which I am very much guilty of as well.

However, looking beyond the near-term challenges, there is no reason to throw in the towel for investors.

What makes Disney attractive has always been its brand power and storytelling.

The business models can vary and while management might take some time to find the right formula that blends with the current macroeconomic environment, it remains an attractive option for investors looking at the media space.

This is all the more applicable when Disney’s share price has come down significantly from a year ago.

Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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