Written by: Sophie Lund-Yates | Hargreaves Lansdown
Revenue rose 26% in the final quarter to $18.5bn, with growth across both divisions, especially Disney Parks, Experiences and Products. For the year as a whole, revenue’s up 3% as theme parks were affected by Covid-19 closures. Quarterly operating profit more than doubled to $1.6bn.
Overall, the Media & Entertainment Distribution business saw revenues rise 9% to $13.1bn. The return of live sporting events helped boost advertising revenue, but this was more than offset by increased sports programming costs. Revenue was also lost as a result of film cancellations and deferrals. There was a 38% rise in direct-to-consumer revenue, with the number of Disney+ subscribers increasing 60% to 118.1m. ESPN+ and Hulu subscriptions rose 66% and 20% respectively. Operating profit fell 39% for the division as a whole, with DTC losses widening from $374m to $630m.
The group said “although film and television production generally resumed beginning in the fourth quarter of fiscal 2020, we continue to see disruption of production activities depending on local circumstances”.
Parks, Experiences & Products reported revenues of $5.5bn, almost double the same time last year, as parks and resorts were open for the entire quarter. There was a particularly steep increase in US park revenue. As a result of the higher revenue, operating losses swung from $945m, to a profit of $640m.
Overall, the group recognised $92m in restructuring charges, a significant improvement on the $393m recognised in the same period last year, relating to the reduction in the value of theme park assets, pension settlements and redundancies.
Higher profits fed into a 62% rise in free cash flow to $1.5bn, while net debt was $38.4bn at the start of October, compared to $40.7bn the year before.
Disney shares fell 4.5% in after-hours trading.
“This isn’t the fairytale ending to the year Disney, or the market for that matter, wanted. The biggest blow to sentiment comes from the negative commentary around the group’s burgeoning direct-to-consumer business. While growth has been exceptional up to this point, Disney’s now feeling the weight that comes with great expectation. Missing subscriber numbers is this stock’s equivalent of a Disney villain – unlikeable, but sadly a bit predictable. A mixture of Covid-related production problems and the fact growth in earlier quarters has poached future subscribers, means this development isn’t a total shock. The streaming business is also somewhat of a money pit, which is only getting deeper.
Away from streaming and back in the land of Disney’s physical theme parks, the story is much brighter. Especially in the US, customers have been coming back in droves. This has a disproportionately positive effect on profits which have come along for the ride.
All-in, it’s a very mixed picture. The focus now is squarely on Disney’s ability to meet the streaming subscription targets the market’s so excited about.”
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