Disney Starts 2022 with a Bang
Perhaps you’ve heard that The Walt Disney Company’s stock has plummeted in recent months.
After reaching a historic high of $202 per share a year ago, the stock has fallen 30 percent in recent weeks. It bottomed out at $133.60 before ending today at $147.23.
Still, that’s a serious shave in a calendar year. For this reason, Wall Street watched with extreme interest as Disney reported its quarterly earnings.
Suffice to say that everyone is thrilled. Disney just crushed expectations and started 2022 with a bang!
Reality vs. Expectations
As a quarterly reminder, Disney’s earnings reports must match or surpass estimates. Otherwise, the stock will drop for no good reason. It’s the madness of Wall Street.
The strangest part is that the people creating the estimates possess no inside information. So, if they guess too high, Disney suffers needlessly.
For the fiscal first quarter of 2022, outside observers had predicted earnings per share of $0.63 or sixty-three cents.
In terms of revenue, forecasts called for $20.9 billion, which would have been one of Disney’s best quarters ever.
Frankly, these forecasts seemed ambitious and had set Disney up to disappoint. But, somehow, to the company’s credit, it exceeded those lofty expectations!
Disney reports revenue of $21.82 billion, beating estimates by nearly $900 million! Similarly, the earnings per share came in at $1.06 or almost 70 percent better than projected!
Unsurprisingly, as I type this, Disney stock has already gained more than seven percent in after-hours trading and probably hasn’t peaked yet.
I’m not one to provide stock advice since the market is so chaotic and unpredictable.
Still, the data we’re seeing suggests that Disney stock should rebound significantly after a stunning start to fiscal 2022.
Let’s Talk about What Matters
Okay, I just said that the stock market makes zero sense, and the proof is in this one statement of fact.
The data point that impacts Disney the most is neither its revenue nor earnings per share. We’re talking about a mature company that turns 100 next year.
All Wall Street cares about is whether Disney+ subscriptions increased. Everything else borders on irrelevant to them, especially after the Netflix incident.
If you didn’t hear, Netflix stock had reached $700 per share at one point in 2021. Then, for a time in January, the stock had dropped to $350 per share.
That’s not a shave; that’s a beheading. And the cause of the drop is that Netflix reported shaky subscriber numbers for the quarter.
Owners panicked and suddenly noticed every possible negative with Netflix as a business. The company has since recovered some to $412.89, but the point remains.
The stock market treats Netflix and Disney differently due to relying on streaming service subscriber numbers.
Ergo, Disney+ needed to at least match its subscriber estimates, ones made by third-party entities. Otherwise, the stock would have fallen anyway.
Thankfully, Disney+ didn’t simply meet those projections; it crushed them! The service currently claims 129.8 million subscribers, well beyond Wall Street’s expected total of 125.75 million.
So, Disney will generate plenty of positive headlines and “You should buy!” articles for the time being.
The next time Disney+ numbers disappoint, the reverse will occur. Analysts will describe the stock as overpriced and scream, “SELL! SELL! SELL!” It’s a cyclical part of the corporate world.
Meanwhile, ESPN+ has reached 21.3 million subscribers, up 76 percent from a year ago!
Also, Hulu+ has crossed 45 million and is up 15 percent in a year…and just brought back Futurama for 20 episodes!
The Core Businesses
Look, the end-all, be-all of this conversation comes down to streaming. The three Disney services combined for 196.4 million subscribers.
Netflix just reported 222 million subscribers. Disney closed the Netflix screaming subscriber gap from 57 million to 25.6 million in a calendar year.
Still, I care more about silly things like revenue, which is why I don’t work on Wall Street.
So, here’s the news about Disney’s various core businesses. Overall, Disney’s revenue increased a stunning 34 percent year-over-year.
Obviously, we’re comparing pandemic times to what I’m calling post-pandemic life. For the fiscal first quarter of 2021, Disney earned $16.25 billion.
For the fiscal first quarter of 2022, that number soared to $21.82 billion.
Folks, you don’t need to know much about business to understand that $5.5 billion more is better.
Net income is where you’ll really understand the difference. For this timeframe in 2021, Disney impressively turned a profit, albeit a tiny one of $29 million.
In 2022, Disney’s profits were $1.152 billion for the same timeframe. Wow, right?!
Of course, you care the most about the parks. On this front, I have excellent news.
Disney reported theme park division revenue of $7.23 billion. That’s more than $1 billion more than expected, destroying predictions by more than 16 percent.
When we’re talking several billion dollars, beating expectations by that amount represents a shattering performance!
Other Core Businesses
Meanwhile, Disney’s media empire crushed even harder. This segment grossed $14.59 billion, up nearly $2 billion from the 2021 tally of $12.66 billion.
One subplot here is that the media division earned less net revenue than 2021 due to increased production costs.
The difference is $1.45 billion last year vs. $808 million this year. Yes, it’s still a sizable profit. Still, that’s the closest thing to worrisome news on the entire earnings report.
Understandably, the streaming services business, Direct-to-Consumer (DTC), increased significantly. It rose from $3.5 billion to $4.6 billion.
As a reminder, these services remain loss leaders. In fact, DTC lost more money this quarter, $593 million, than last time, $466 million.
Disney will happily pay that price to grow its base…and please Wall Street.
Finally, Disney’s legacy media product, Linear Networks, maintained the status quo from last year.
Technically, this division increased $13 million from just under $7.7 billion to just over it.