It’s official: Disney is a tech company. Or at least investors are treating it like it is.
No longer is Disney being viewed as a legacy media company that is rewarded based on current performance of its core profit-driving businesses. Instead, it’s all about the growth trajectory of its still unprofitable bet on the future — streaming.
CEO Bob Chapek made clear on the first-quarter earnings call Thursday that Disney’s top priority is the DTC business and strategic actions to transform the company will eventually increase shareholder value. Given the stock’s modest after-hours gain, it appears investors find the way Disney’s management is all in on DTC sexy.
Chapek is essentially telling investors not to focus on the current struggles of its core segments but instead on the future and Disney Plus. Sound like a tech CEO much?
Tech companies are notorious for getting away with mounting losses and unprofitability as long as they can convincingly sell hopes for a better future, no matter how long it may take. Think Jeff Bezos and Amazon, or even Elon Musk and Tesla.
Not only does Disney’s fiscal first quarter mark the third consecutive quarter of revenue declines but the third straight quarter in which the stock jumped post earnings on the strength of its streaming darling Disney Plus — one that isn’t expected to be profitable until fiscal 2024 at the earliest.
VIP previously questioned how long Disney investors would be forgiving of the pandemic-induced woes and how long the stock’s massive rally would last. It seems as if the stock reaction post-Q1 results was the answer: for as long as Disney Plus grows.
And who can deny that the Disney Plus growth story is impressive? The streamer had 94.9 million paid subscribers as of Jan. 2, up from 87.8 million reported in December, bringing the total number of paid DTC subscribers across its services to 146 million.
For some context, it took rival Netflix about nine years to reach 95 million, something Disney achieved in 14 months. Disney is catching up fast to Netflix, which currently has nearly 204 million paid subscribers globally.
Disney’s direct-to-consumer strategy remains on fire, but that’s not the whole story at the company. Its other businesses are still struggling because of the global pandemic.
This was the first quarter in which Disney reported results under its new structure with two major business segments: Media and Entertainment Distribution and Parks, Experiences and Products.
Revenue in Media and Entertainment Distribution segment, which houses Disney Plus, fell a modest 5% to $12.66 billion, but Parks, Experiences and Products revenue sank 53%, to $3.59 billion. As expected, the theme parks took the biggest hit during the quarter.
Despite that kind of damage being done to the parks business, investors turned a blind eye. The stock pared some of its after-hours gains when management said it expects Disneyland and Disneyland Paris to remain closed through Q2.
But in the grand scheme of things, it wasn’t a big move. Plus, Chapek said given the demand they’re seeing at Disney parks, the company is confident demand will grow when the pandemic is over.
It’s not like COVID is Disney’s fault, and it’s not like Disney is purposefully keeping its theme parks closed or at reduced capacity or is choosing not to produce and release films in theaters. But it’s not the ideal situation for its core and free-cash-flow-generating businesses. Yet it was another quarter where investors essentially said they don’t care as long as the growth story remains intact.
So many things are still unknown, but what we do know is that Disney is not the business we once knew and has transformed into a full-fledged tech company.