Disney’s 1st Quarter Earnings Report Will Wow You
The Walt Disney Company reported first-quarter earnings, and the song remains mostly the same. Your favorite business is making tons of money, with the theme park and movie divisions doing most of the heavy lifting. Let’s take a quick dive into Disney’s most recent earnings report to see what’s going on.
The Big Data
I’m not your Economics professor, and I don’t want to bore you with a bunch of numbers you don’t care about. So, I’m going to hit the high points in the first section in case you want to skim the rest in between episodes of various shows centered on “real” housewives.
Disney’s overall earnings for the first quarter were $15.303 billion. It’s the second straight year that they’ve done roughly this much business from October 1st through December 29th. For 2017, the total was $15.351 billion, but it had an extra day in the calculations for boring accounting reasons. If you account for the single day of difference, 2018 actually outperformed 2017 by a tiny amount. No one does this, though. I’m just a numbers wonk.
The static performance year-over-year is quite remarkable. Disney had projected some struggles due to the difference in holiday movie releases. During the final three months of 2017, Star Wars: The Last Jedi earned $1.3 billion in global box office. It also drove merchandise sales at the parks and toy stores. Without an anchor tentpole title, executives knew that they faced a gap. So, a virtual draw is, in truth, a huge win.
The bad news is that net income was down 37 percent year-over-year. Disney’s CFO, Christine McCarthy, suggests that the differences stem from incidentals such as ESPN programming costs involving the college football playoff. However, she mentions that the direct-to-consumer project that we know as Disney+ has required a lot of capital, too.
Most of the cuts that you’ve heard about are because of Disney+. The cost of the startup streaming service isn’t just about technological expenses, either. There’s an opportunity cost factor as well. McCarthy suggested that Disney will lose $150 million in revenue it ceded by canceling its Netflix deal. The upcoming superhero blockbuster, Captain Marvel, is the first Disney title that the company won’t license to Netflix. It’s a significant financial hit, one with ripple effects at the theme parks and other places.
The Individual Segments
Let’s take a quick look at the details of each of Disney’s four major business segments. You’re familiar with three of them, while I always have to explain the other one. The Media Networks division is what you would know as their cable television lineup plus ABC and some other stuff. Much has been made of the struggles of this segment in the cord-cutting era. Despite all of the hand-wringing on the subject, Media Networks continues to perform well.
For the first quarter, this division earned $5.921 billion, a gain of seven percent from last year’s $5.555 billion. Yes, this branch comprises almost 40 percent of the company’s overall revenue. That’s why analysts are so uptight about the cord cutting phenomenon. Losses in this segment could cripple Disney. And it’s also why the company has placed emphasis on Disney+.
Netflix earns roughly $4 billion per quarter from its streaming service. Disney intends to turn their current negative of cord cutting into a huge positive when Disney+ launches later this year. Until then, any positive year-over-year gains in the Media Networks segment have a hugely positive impact on Disney’s bottom line.
We’ve already touched on another division. Studio Entertainment i.e. Disney’s film division faced an uphill battle last quarter. In addition to The Last Jedi, it was also competing against Thor: Ragnarok and Coco, both of which earned $800+ million at the box office.
In other words, Disney was screwed, and they knew it. Their first quarter film slate earned $1.824 billion, only $500 million more than the Star Wars movie earned on its own. As an aside, this will be the last time for a while that Disney has that small a revenue tally for its films. They’re comically loaded for 2019.
The division that you care about is Parks, Experiences & Consumer Products. Disney’s theme parks grossed $6.824 billion. Yes, that’s a huge number; it’s also five percent better than last year’s $6.527 billion. These numbers are close to record-breaking, and the situation will only improve in the coming months. Disney is two quarters away from Star Wars: Galaxy’s Edge counting toward Disneyland revenue. You can imagine how much that’s going to spike these totals.
As you would expect, corporate executives explain the growth in revenue as related to increased ticket pricing. No matter how you feel about their switch to surge pricing, it’s had the intended effect. Disney has maintained traffic volumes while boosting the bottom line, exactly as they had projected.
The final category is the one that few people understand. Disney only introduced the Direct-to-Consumer & International last March. In the future, it’ll primarily be their streaming division. For now, it’s ESPN+, BAMTech, and some foreign revenue Disney gets from advertising for some cable channels and syndicated programming. It’s basically an entire segment that should have a Coming Soon sticker on it, although ESPN+ has hit the two-million customer mark faster than most analysts had projected.
Even with that revenue, this division managed only $918 million, down from last year’s $931 million. It’s kind of an unfair comparison, however, as the 2017 total is taken from a division that no longer exists. Disney wants to compare apples to apples as much as possible here. We can’t really draw anything from this segment yet, though. We’ll know oh so much more a year from now.
TL: DR – Disney’s movies were lackluster during the fourth quarter, but their television programming, merchandising sales, and theme parks all did spectacularly well. The company is thriving, and the rest of the year is poised to be the best one ever for Disney!