Disney Fiscal Q2 Review: Good Times Can’t Last Forever

Disney Fiscal Q2 Review: Good Times
Cheyne Gateley/VIP

Disney isn’t invincible after all.  

The media behemoth’s stock slumped nearly 5% in the after-hours session Thursday on the heels of the company’s fiscal Q2 earnings call, where it reported a surprising miss to Disney+ subscriber estimates.  

Analysts were expecting Disney to report 109 million Disney+ subscribers, but the company reported a total of just 103.6 million as of April 3. On the bright side, Disney beat expectations on its top and bottom lines in the quarter. 

Disney’s subscriber growth slowdown comes after rival Netflix also posted disappointing subscriber growth figures at the end of April. The COVID-19 pandemic was a massive driver of growth for streaming services across the market, and both Netflix and Disney+ reaped the benefits throughout 2020. But things are looking a lot different in 2021, and it’s going to take much more than just streaming growth for the stocks to see meaningful upside gains. 

Many were expecting Disney to continue to bring the heat — especially with those closely watched streaming metrics. But the second-quarter results were a wakeup call to investors that perhaps even the mightiest of companies isn’t always immune to competition and macroeconomic circumstances.  

In another blow, Disney+’s Average Revenue Per User (ARPU) fell 29%, to $3.99 from $5.63 in the same period last year. The company attributed that decline to the launch of Disney+ Hotstar in India. 

And that’s where the results of core businesses like theme parks and studios come into play. While an eventual recovery is expected throughout the second half of this year, the results this past quarter reflect a slower than anticipated path to recovery. Disney’s Parks, Experiences and Products segment revenue plunged 44%, to $3.17 billion.  

It’s important to keep in mind Disneyland Paris remains closed and Disney’s West Coast theme parks — Disneyland and California Adventure — reopened at the very end of April, thus any revenue from those reopening was not reflected in the second-quarter results. In a good sign for theme parks, CEO Bob Chapek noted on the call that “the response [to the reopening in California] has been overwhelmingly positive.”  

Regardless of the second-quarter woes, Disney is still a content powerhouse in the industry, largely creating content consumers love, whether Marvel, Pixar or one of its other major franchises, and that content was supposed to boost subscribers.  

In the last quarter, Disney released hits such as “Raya and the Last Dragon,” “WandaVision” AND “The Falcon and the Winter Soldier,” so it was surprising Disney+ wasn’t able to post more impressive sub growth following those releases. 

Unlike Netflix, Disney has theme parks and studios, which stand to benefit as the world reopens. Sure, this wasn’t a great quarter, but there is some light at the end of the tunnel. For one, with production ramping up, the content releases slated for the second half of this year and 2022 are likely to be strong.  

In a worrisome announcement for movie exhibitors, Chapek noted a new theatrical window of just 45 days beginning in August, adding that “no matter where they start, all of our content will eventually be available on Disney+.” 

In addition, Chapek announced two new sports right deals — renewal of its MLB deal through 2028 and an eight-year deal for English- and Spanish-language rights with LaLiga soccer beginning in August.  

As we’ve observed over the past year or so, investors have been putting much more emphasis on streaming, and stocks were rewarded if they were able to deliver on expectations even if profitability is far down the horizon.  

But that trend might be a little different in the second half of this year, and Disney needs to focus on firing on all cylinders if it plans to see record highs again.