How Disney Somehow Made Money Last Quarter
By now, you’ve likely heard that Disney’s fiscal earnings report came out for the first quarter of 2021.
I was legitimately eating a Dole Whip at Disney’s Polynesian Village Resort when this happened. So, I’m running a bit late this time.
However, I’m here to explain how Disney somehow made money last quarter despite everything that’s going on.
What Just Happened?
First of all, we may call this the fiscal first quarter of 2021, but we’re really discussing the period that ended on January 2nd.
So, it’s really the last three months of 2020. Historically, that’s the most lucrative timeframe on the calendar due to holiday shopping and vacations.
Obviously, the situation isn’t as finite due to the pandemic, as retail sales fell during all three months.
Similarly, capacity limits remain in place at the parks. Also, half of Disney’s six parks weren’t open for vast stretches of the quarter.
For these reasons, analysts had projected that The Walt Disney Company’s stock would lose 41 cents per share.
Somehow, Disney stock earned 32 cents per share, which made the executive team immensely proud. They turned an expected loss into a win.
Perhaps Investopedia summarized the situation best with this headline: “Disney (DIS) Defies Analysts by Posting Profit.”
Yes, this turn of events strikes analysts as a huge shocker. The deck was stacked against Disney, yet the company still beat expectations.
A Quick Look at the Math
Disney earned $16.3 billion in revenue during the fiscal quarter, beating expectations by roughly $350 million.
Now, that may not sound like a lot but think about it with your finances.
If you fear you’ve over-drafted, only to discover you’ve reached your incentives for the quarter, you’re thrilled, right?
Yes, the scale is dramatically larger, but the same thought process applies here.
Coronavirus has positioned Disney to fail. Thankfully, like the other best-run companies, Disney has taken this opportunity to adapt and evolve.
Thanks to creative financial tactics, the Parks Division earned almost $3.6 billion for the quarter.
Now, that’s down 53 percent year-over-year. Notably, the fourth quarter of 2019 didn’t involve a pandemic, though.
All parks and resorts were open, while Disney Cruise Line and Adventures by Disney were earning lots of money, too.
Disney somehow kept nearly half of its revenue with only three parks open for the entire quarter!
Similarly, Disney Media and Entertainment Distribution (DMED) held up during this trying time.
You may recall that Disney realigned its divisions in 2020. As such, DMED doesn’t come with an accurate apples-to-apples comparison.
Disney published the data this way, though. This division grossed $12.7 billion for the most recent quarter, a five-percent drop from 2019’s $13.3 billion.
That’s remarkable holdover power once you remember the key component here. Disney’s film division sat on the sidelines for the body of the quarter.
In fact, several of the company’s most successful box office performances came from the re-release of titles like Hocus Pocus.
Disney somehow survived a quarter without significant box office or new home video releases.
The Secret Sauce
Disney did this thanks to its new structure. When Disney+ debuted, the company had structured its Direct-to-Consumer business as a standalone silo.
This happened because executives anticipated that Disney+ would lose lots of money during its earliest years.
Disney established 2024 as a breakeven point for the service based on projections that it would reach 90 million subscribers that year.
Hilariously, analysts believed that Disney described a best-case scenario with that sort of growth.
Well, you know how that has gone. Disney+ has shattered records for subscriber growth, topped off by its latest data.
The streaming service has reached 94.9 million subscribers after less than 14 months in existence.
Yes, Disney+ has surpassed even the loftiest expectations for five-year growth in less than 25 percent of the time needed.
Other Streaming Growth
Remarkably, this service isn’t the only one exploding in popularity. During the third quarter of 2019, ESPN+ claimed 2.4 million subscribers.
On January 2nd, 2021, the streaming service had risen to 12.1 million. Yes, some of that growth stems from ESPN/Hulu/Disney+ packaging.
Even so, ESPN+ has more than quintupled (!) in 18 months. Disney also announced that the service earns $4.48 per user.
I’ll spare you the math here other than to say that Disney now earns more than $160 million a quarter from ESPN+.
Similarly, Hulu claims 39.4 million subscribers, up from 30.4 million a year ago. Disney nets about $1.4 billion per quarter from these folks.
Also, a particular group exists, the Hulu + Live subscribers. Disney’s making a MINT off them, earning $75.11 for each of the four million subscribers.
Folks, that’s $900 million per quarter just from Hulu + Live. That’s not even the most impressive part. Subscribers pay $64.99 a month for the service.
The rest of that income stems from advertising and other ancillary revenue. Disney somehow makes more than it charges for Hulu and Hulu + Live!
Given this information, you understand why Disney has prioritized streaming as the core business now.
Those three services alone account for roughly $1.2 billion per month, which is $3.6 billion per quarter and $14.4 billion each fiscal year.
Significantly, all three services are growing at an exponential rate, too. Now, Disney’s streaming services come with hefty content costs.
So, the net revenue isn’t anywhere near as much as you might expect. Still, you can understand why Wall Street has become so bullish about Disney.
Bob Chapek has positioned to succeed, even during a pandemic. It’s a remarkable achievement.