After going through a long period of restructuring pains, Disney's various businesses have shown a trend of bottoming out and rebounding.
According to disclosures, the streaming media service Disney+ added 6.9 million core users in a single quarter. At the same time, the direct-to-consumer segment's losses shrank by more than 70%, driving both the company's revenue and operating profits to rise; in addition, the company's first revenue growth since mid-2020 Disney's stock price has been rising since the release of the financial report, gradually moving away from the lowest point in nearly a decade just touched last month, and continues to chase industry rivals such as Netflix in terms of market value.
Streaming media increases revenue and reduces costs, sports business becomes new focus
On November 8, Disney released its fourth quarter financial report and full-year report as of September 30.
In the quarter, Disney's total revenue was US$21.241 billion, an increase of 5% compared with the 20.150 billion recorded last year, and better than analysts' consensus estimate of US$20.1 billion; operating profit increased from 1.597 billion to 2.976 billion US dollars, a year-on-year increase of 86%. Excluding some items (namely one-time expenses related to business restructuring), diluted earnings per share also surged 173% from US$0.30 to US$0.82, which was also much higher than analysts' forecast of US$0.68.
The biggest highlight of this financial report comes from the streaming media business. Benefiting from high-quality content such as multiple theatrical movies and the Star Wars spin-off "Ahsoka" and the popular Korean drama "Supernatural", Disney+ added 6.9 million core users in the quarter, setting a new growth rate in the past year. A new high; as a result, Disney+’s core subscriptions reached 112.6 million, about 3 million higher than analysts’ expectations.
According to reports, the live-action version of "The Little Mermaid" received 16 million views in the first five days of its release on Disney+, and the Pixar animation "Elemental City" reached 26.4 million views in the same period, setting a record for the premiere of a Disney+ movie this year. Even though the number of Disney+ Hotstar exclusively for India dropped from 40.4 million to 37.6 million, Disney+ as a whole still achieved considerable positive growth, with the total number of users reaching 150.2 million.
"The Little Mermaid" stills
In addition, Disney is also continuing to optimize the monetization rate of its streaming media business. After increasing the ad-free packages of Disney+ and Hulu by US$3 per month, the average monthly income per household on Disney+ increased by nearly 3% to US$7.50.
At the same time, Disney revealed that Disney+’s low-price plan with advertising has added 2 million new users, pushing the total number of subscriptions to 5.2 million, which is expected to further enhance its appeal to advertisers. As a result, the core average monthly income per household of Disney+ slightly increased by 2% to US$6.70, and even Disney+Hotstar also increased by 19% to US$0.70, reflecting the impact of advertising revenue and package price increases.
Coupled with the Hulu platform, which basically remained flat, the quarterly revenue of the direct-to-consumer segment was US$5.036 billion, an increase of 12% from US$4.494 billion in the same period last year; at the same time, the net loss also dropped from US$1.406 billion to US$420. billion, a reduction of 70%. Looking at the fiscal year, Disney's streaming service has improved operating performance by US$1.4 billion. In view of this, Disney maintains its target of making profits in the fourth quarter of 2024, giving investors reassurance.
However, both the cable network segment and the content sales/licensing segment, which both belong to the entertainment department, continued to decline. The former’s quarterly revenue shrank 9% year-on-year to US$2.628 billion, while operating profit was basically stable at US$805 million; The sluggish performance of "Haunted Mansion" recorded a loss of US$149 million, which was more than 18 times larger than last year's US$8 million.
"The Haunted Mansion" (Source: Douban)
Starting from this season, Disney has made new adjustments to the company's organizational structure, integrating ESPN, which was originally part of the cable network, and ESPN+, which is part of the streaming media, as well as India Star was merged into the sports business, which was separately listed as a department on the same level as entertainment and experience, highlighting Disney's emphasis on related assets such as ESPN.
In the fourth quarter, the sports department's total revenue was US$3.91 billion, which was basically the same as US$3.9 billion in the same period last year; profit increased from US$863 million to US$981 million, a year-on-year increase of 14%. It is worth mentioning that more than 90% of ESPN’s revenue comes from the mainland, and Star even reported a 21% year-on-year decline in a single quarter, showing that it still has considerable room for improvement overseas. In addition, the number of ESPN+ subscriptions increased by 3% to 26 million, and the average monthly income of a single household dropped from US$5.45 to US$5.34.
Finally, the experience department, which includes offline businesses such as Disneyland, continued to recover. Total revenue in the quarter increased by 13% year-on-year to US$8.160 billion, and operating profit increased by 31% to US$1.759 billion, mainly driven by cruise ships, overseas Park and Vacation Club line drives. Among Disney's three major departments, experience contributes 38% to overall revenue, and accounts for nearly 60% of the company's profits, firmly ranking as the number one cash cow. Disney CEO Bob Iger emphasized during the conference call that the return on invested capital (ROIC) of its local parks has nearly doubled in the past five years, while customer satisfaction has also improved.
Strong cash flow helps dividends, and the stock price rebounds away from the bottom
Since Iger returned as CEO at the end of last year, as Disney's business restructuring continues to advance, the results of cost reduction and efficiency increase are showing quarter by quarter, and gradually win back investors' attention confidence.
Benefiting from the improvement in fundamentals of many businesses, Disney generated a total of US$3.428 billion in free cash flow during the quarter, 149% higher than the US$1.376 billion in the same period last year, and the cash provided by continuing operations also increased. 90%. To this end, Disney has raised its full-year savings target of US$5.5 billion to US$7.5 billion and expects free cash flow to continue to grow in fiscal 2024. Iger said the company's reorganization creates "a unified, cohesive and highly collaborative mechanism that can be applied to marketing, product pricing and content production."
"Ahsoka" stills
In the financial report, Iger also specifically listed four key areas, namely "achieving significant and sustained profitability in the streaming business and building ESPN into a preeminent digital sports platform" , improve production and economics for film studios, and enhance growth in the parks and experiences business." Among them, ESPN is regarded by Disney as the next important growth opportunity. In the past fiscal year, ESPN's revenue and profits have increased, and its ratings have increased in the past four quarters. Disney's ultimate goal is to launch a direct-to-consumer version of ESPN's sports channels to offset the continued decline in cable network subscribers. In an exclusive interview with CNBC, Iger revealed that the service is expected to be launched in 2025, and Disney is seeking "strategic partners" to discuss plans.
Regarding the troubled production business, Iger said that under the management of predecessor Bob Chapek, Disney's film division was "out of focus" in order to provide content to Disney+ by focusing too much on quantity rather than quality. It actually started when Iger last served as CEO.
Based on this judgment, Disney significantly adjusted the release plan of new films on the day after the financial report was released, including postponing two "Marvel Cinematic Universe" works to 2025. As a result, next year only those acquired by the original 20th Century will be left. "Deadpool 3" has stopped production during the Hollywood strike, so the schedule has also been postponed 84 days to July to allow more time to polish this R-rated superhero film.
"Deadpool 3"
But for investors, the biggest news is that Disney will restart paying dividends: According to The Motley Fool, Disney's interim CFO Kevin Lansbury said in a conference call , "will recommend to the Board of Directors to declare a dividend before the end of the calendar year" due to the company's strong balance sheet and solid free cash flow recovery.
Previously, Disney last paid a dividend in July 2020, with a semi-annual payment of $0.88 and a yield of 0.12%. It's unclear how much the new dividend will be, although Iger said it would initially be "modest." This is undoubtedly a major attraction for institutional investors and is expected to bring more funds back and stimulate a rise in stock prices.
After the financial report was released, Disney's stock price jumped 6.9% to US$90.34 per share on the 9th, and closed at US$96.06 on the 24th, which was nearly 8% higher than the first trading day at the beginning of the year.In the past three years, Disney's stock price has experienced a "roller coaster" market. It once hit a record high of $201.91 on March 8, 2021, but then began to fluctuate downward due to market fluctuations and its own factors, until it hit a nearly ten-year high of $79.32 on the 4th of last month. The lowest point in the year, the market value has dropped by more than 60% compared with the peak period. Driven by a series of recent positive developments, Disney's stock price is gradually embarking on an upward trajectory.
The revival of streaming media is not limited to Disney. Industry leader Netflix released its latest financial report on the 18th of last month. In the third quarter, it added 8.76 million paid subscribers, more than twice the 2.41 million in the same period last year, and pushed the total number of subscriptions to 247.15 million, firmly becoming the world's largest Streaming media platform.
Coupled with the additional authorization to repurchase US$10 billion in shares, Netflix's stock price soared 16 percentage points to US$401.77 on the 19th, and has continued its strong upward momentum since then, reaching US$479.56 as of the closing on the 24th of this month. It has expanded by more than 62% from the US$294.95 at the beginning of the year, bringing the company's market value back to more than US$200 billion, still suppressing rival Disney. As the capital market stabilizes, the head-to-head battle between Netflix and Disney will rely on fundamentals and continue to advance in depth into their respective businesses.
