Disney earnings call: Streaming losses peak, parks still carrying the day
Walt Disney stock (NYSE:DIS) has hit double-digit declines postmarket during its earnings conference call following a fiscal fourth quarter where it missed revenue and profit expectations after another stellar result from its theme parks division was weighed down by financials on its media side.
That was due in large part to ad slowdowns and linear subscriber declines, issues that the whole industry is going through right now, CEO Bob Chapek said on the call. But he was happy to tout better-than-expected subscriber growth on the direct-to-consumer side, where total subs crested 235M.
The company reached a turning point on streaming this quarter, Chapek said, marking peak DTC operating losses that Chief Financial Officer Christine McCarthy pegged at $1.5B.
Those should decline going forward based on three factors, Chapek said: "First, the benefit of both price increases and the launch of the Disney+ ad tier next month. Second, a realignment of our costs, including meaningful rationalization of our marketing spend. And third, leveraging our learnings and experience in direct-to-consumer to optimize our content and distribution approach to deliver a steady state of high-impact releases that efficiently drive engagement and subscriber acquisition."
Losses should narrow from here in that area and Disney+ is still expected to be profitable by the end of 2024, Chapek said.
The company is about a month from the start of an advertising-supported tier on Disney+, and Chapek indicates it's a "key component to our total property advertising portfolio, and advertiser interest has been strong."
The company has secured more than 100 advertisers for its domestic launch window across a wide range of categories and "strong base pricing," Chapek said.
Parks were again the strong point (last quarter, parks revenue jumping 70% was among the key highlights). This time around, revenue at Disney Parks, Experiences and Products rose 36% and operating income for the segment jumped 137%.
The company indicated in August that there were more drivers ahead, including international visitors, and there the company is making "meaningful progress," CFO Christine McCarthy said during Tuesday's call. The mix of international attendance at Walt Disney World in the quarter was roughly in line with pre-pandemic levels, she noted.
Benefits from price increases to DTC offerings will be limited next quarter, as the changes are coming toward the end of the quarter. The benefits should be more fully realized in the second fiscal quarter, and "we do not expect the launch of the advertising-supported tier of Disney+ in December to provide a more meaningful financial impact until later this fiscal year," McCarthy said.
She guided to more modest subscriber additions in the current quarter, with "tougher comparisons against Disney+ performance," with core subscriber growth re-accelerating in the second quarter driven by international markets. "Subscriber growth will not be linear each and every quarter."
Cash content spend was $30B in fiscal 2022, and McCarthy said the expectation was still in the low $30B range for 2023. Cash capital expenditures came to about $5B in 2022, and will increase to $6.7B in 2023, driven by higher spend enterprise-wide, she said.
And a number of rivals are now actively cutting workers; where is Disney on that? The company is seeking "meaningful efficiencies" overall, McCarthy says, and she's going over Disney's cost base.