Disney Fiscal Q4 Preview: Theme Parks and Cash in Focus

Disney Fiscal Q4 Preview: Theme Parks
Yinchen Niu/VIP+

Disney will face its moment of truth when it announces its fiscal Q4 earnings Wed., Nov. 10, after market close. Investors already have a pretty clear idea of what to expect from streaming service Disney+, but what will really be in focus is the recovery in its cash-generating theme parks business. 

About a month ago, CEO Bob Chapek spoke at the Goldman Sach Communacopia Conference and said that Disney+ growth will slow and global paid subscriber additions will be in the low single-digit millions. There will likely be no surprises when Disney reports its fiscal fourth quarter streaming growth.  

This is why attention will shift sharply to the fundamentals. Investors are clearly getting antsy, which is evident in the way Disney stock has been trading this year. Shares sunk nearly 5% so far in 2021, while the broader market surged 26% to record highs. It’s a far cry from the stellar 2020 Disney had when its stock rose more than 25%, even as COVID wreaked havoc on most of its business.  

Now that the bad news about the high-growth streaming business is out of the way, how did Disney’s core theme parks fare during the most recent quarter? 

For the first time since the pandemic began, Disney saw a substantial recovery in the parks business in fiscal Q3. After suffering operating losses for four quarters straight, parks swung back to profit. 

However, attendance remains below 2019 levels, and that likely persisted last quarter. It’s unclear what the capacity at the parks was during the quarter and whether the Delta variant had a meaningful impact on attendance over the summer. According to Morning Consult data, comfortability among consumers to attend theme parks took a dip in the summer but have since begun to recover.  

Still, even as sentiment bounces back, challenges persist. On Sunday, Disneyland Shanghai was immediately shut down after one person tested positive for COVID, and the park was closed for two full days before reopening on Wednesday.  

The health crisis is still very real, and the company is forced to comply with local restriction and protocols when it comes to COVID. The financial impact of unexpected closures may not be debilitating if they happen sporadically, but the many uncertainties caused by the pandemic continue to weigh on operations.  

Cash is king, and theme parks are a cash cow for Disney. Without a healthy balance sheet, Disney can’t fully invest in content and Disney+, so,if one segment suffers, the rest of the businesses suffer in sympathy. 

The vision for the company is clear, but the execution thus far has been hampered by forces out of Disney’s control. Though Chapek has continuously shown optimism in the recovery, so many factors are at play and investor patience is wearing thin. Disney’s stock performance will be heavily reliant on what investors see from the last quarter’s results and management’s tone on the outlook for the important holiday quarter.