Today’s Disney investor meeting, led by CEO Bob Chapek, offered a peek inside the financial condition of the house of mouse and how they are weathering the fiscal storm sweeping the globe. While the company continues to bleed cash, some segments of the company are actually doing better than expected.
Here’s a quick summary of the company’s financial condition and some interesting details, including clues on the minimum length of time Disneyland will remain closed and how Walt Disney World is performing.
Not Great, Bob
Overall, Earnings for Disney’s fourth-quarter (ending October 3, 2020) show a LOSS per share of $0.39 compared to income of $0.43 in the same square last year. And while that sounds horrible, investors expected a 71¢ loss per share. So, that’s actually good news for Disney shareholders. Though, we’d like to point out that much of that difference came from removing thousands of people from Disney’s payroll.
Disney+ or Bust
Disney+ and ESPN+ were the bright spots in this report. While they’re still losing money due to massive startup costs for Disney+, the service now has 73 million subscribers, with an average $4 monthly subscription payment (remember, all those D23 Expo and mobile carrier deals are pulling that number down quite a bit).
Until Covid ends, Disney+, ESPN+, and Hulu are likely to continue to be one of the most important divisions of the company. Disney is focusing attention on new content for those platforms, like Soul coming out next month. Internal company payments (yes, one part of Disney pays another part of Disney) are helping keep Studio afloat.
New Disney+ and Hulu content will be announced Dec 10 on Investor Day.
Parks, Experiences, and Losses
Disney’s Parks & Products segment took a gigantic hit last quarter. Overall, the segment lost $1.1 billion. While WDW remaining open is likely helping matters, it’s clearly not enough to sustain the rest of the division – the Orlando resort is only coming in at a positive contribution margin (which means it’s operating at a loss! Confusing, but in simple terms, it means they’re covering their variable costs – but not all of their fixed costs). Disney didn’t go into too much detail here.
Chapek aimed the blame squarely at the state of California, expressing his disappointment at Disneyland’s inability to reopen. Disneyland is expected to remain closed through at least Disney’s 2nd quarter (which runs through March of 2021).
Walt Disney World hotel bookings for the quarter have been trending at around 77%, and the resort is nearly full for Thanksgiving. The company is attempting to limit costs by keeping specific hotels closed.
Walt Disney World parks have jumped to a maximum capacity of 35% from the previous 25%. And while that may not sound like a lot to you, that’s 35% of packed to the walls New Year’s Eve type of attendance. With rides at limited capacity, and many shows, shops and restaurants still unavailable, the parks feel quite crowded when they reach that 35% attendance cap.
And while Disney’s cruise ships won’t be sailing again until some time next year, they have not canceled the construction of their three new giant ships. That shows some confidence in the company’s ability to rebound, though we suspect that there will be delays in the delivery of at least two of the three ships.
Overall, Disney thinks they missed out on $2.4 billion in potential income in Q4, and $6.9 billion for the entire fiscal year. That’s not actual money they lost, but rather the amounts they think they missed out on due to Covid.
Studio Life
Over at the studio, revenues are down with movie theaters closed – but so are costs. With no movies to advertise, you don’t have to spend money on marketing. As we hopefully near a vaccine and as states continue to various stages of reopening, the various Walt Disney Studios have restarted paused productions and have new “Covid Compliance” officers monitoring the soundstages and production facilities. Studio Entertainment revenues for the quarter decreased 52% to $1.6 billion and segment operating income decreased 61% to $419 million.
Chapek acknowledged a future for premium home movie releases on the company’s streaming services. That could mean more films either skipping the theaters or being released simultaneously in theaters and on streaming.
So Now What?
The vast majority of the company’s bleeding and missed revenue is coming from Parks, Experiences & Products. It’s very likely things will change as capital expenditures wind down and projects are shelved. And with Disneyland confirmed to remain closed through the end of March 2021 at the very least, the situation could continue to get worse. Additionally, the company warned that things are not likely to get better at the parks for the entire fiscal year 2021.
Disney will again forgo paying a dividend to shareholders in January to save money.
Capital expenditures are going up at Disney+ and Direct to Consumer, but are dropping at the parks and travel segments. We’ll likely see the company continue to focus on streaming and direct to consumer products in the near term.
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