Iger Clears First Earnings Hurdle in His Return as Disney CEO
The Walt Disney Company just announced its revenue for the quarter.
I’m not exaggerating when I say that the entirety of Wall Street and Hollywood watched closely.
After all, the last time Disney posted its quarterly earnings, its performance proved so disappointing that Bob Chapek lost his job as CEO.
So, how did the company do? Here’s how Bob Iger performed during his first quarter back as CEO…
Disney by the Numbers
Bob Iger is hanging a giant MISSION ACCOMPLISHED!!! sign in his new (old?) office right now.
Iger and his team just announced Disney’s numbers, and the wizard of Wall Street media has somehow cast his latest magic spell.
Disney overperformed across the board in beating Wall Street estimates.
The company announced revenue of $23.51 billion. For perspective, Disney’s revenue for the same quarter in 2022 was $21.82 billion.
That’s a growth rate of 7.7 percent year-over-year. Pointedly, I’ll add that it’s right in line with what former CEO Bob Chapek had suggested would happen.
Chapek’s earnings guidance called for high single digits revenue growth in fiscal 2023. Since this is all a popularity contest, Iger will still be hailed as a hero.
Of course, Iger has plenty of reason to gloat. Disney’s earnings per share of 99 cents easily beat Wall Street’s estimate of 78 cents.
Similarly, analysts only projected revenue of $23.37 billion. So, Disney beat its estimates by $140 million and 21 cents per share.
That’s a win in the eyes of investors. Seriously, I was watching CNBC when the announcement happened, and they were all but fist-bumping in celebration.
Bob Iger won his personal Super Bowl this week. More importantly, the totals buy Disney’s CEO some breathing room as activist investor Nelson Peltz fights a proxy war.
These numbers suggest that Iger can maintain his previous track record of earnings success while still satisfying the interest of Hollywood creatives.
Disney needs both to succeed.
About the Parks
Two aspects of the Disney empire matter the most to fans.
Specifically, Disney’s Parks division excelled during the first quarter. Like, the parks dominated.
During the final three months of 2022, the time frame for this earnings report, Disney’s Parks division earned $8.736 billion.
That’s an increase of 21 percent or roughly $1.5 billion from a year ago when the parks grossed $7.234 billion.
Friends, you can safely say that Disney has returned to its pre-pandemic park status…and then some.
As a reminder, we’re talking about Halloween and Christmas, which have evolved into some of the most popular tourists draws on the annual calendar.
So, $8.7 billion is probably the high end for revenue in the short term, but it’s still a staggering feat.
If Disney can make $8 billion as its baseline for quarterly park earnings, that foundation should ensure future theme park growth.
In fact, Bob Iger surprised everyone by announcing an Avatar experience coming to Disneyland.
Later, the CEO added that he’d spoken with Josh D’Amaro, the Parks Chairman, as recently as that morning about adding more franchises at the parks.
About Disney+ and Subscriber Numbers/Losses
As for Disney+ and Disney’s other streaming services, this fiscal quarter requires plenty of context.
Disney+ ended the last fiscal year with 164.2 million subscribers. Now, the service has lost 2.4 million subscribers, which sounds problematic. It was expected, though.
In fact, Wall Street projected more than three million in subscriber losses. And this probably makes you wonder why everyone braced for the worst.
There’s an arcane explanation here. As previously mentioned on MickeyBlog, Disney lost Indian Premier League Cricket streaming rights.
Disney managed to keep the broadcast rights for about $3 billion. Meanwhile, a competing service paid $3.2 billion for the streaming rights alone.
Nobody would pay that much unless media corporations perceived that the licensing rights were worth that much.
Disney effectively lost half of what it had, and that setback impacted subscriber numbers in the subcontinent where Cricket is wildly popular.
Hotstar subscribers often pay annually, which makes this a bit of a slow drip loss for Disney.
The Hotstar losses weren’t the only source of subscriber cancellations, either. Disney+ also increased its prices during the most recent quarter.
Simultaneously, a three-year sign-up deal from 2019 ended in November 2022.
So, we had plenty of reasons for people to end their Disney+ subscriptions. However, we also had one reason for new people to join.
Disney+ introduced an ad-supported tier. It incentivized budget-conscious streamers to sign-up for a lower monthly fee.
Notably, Disney later indicated that its advertising revenue from Disney+ won’t be significant until later in 2023.
Still, Disney likely gained a new wave of subscribers thanks to this offer. That helped counterbalance the other reasons to cancel.
The Big Picture
Iger also announced some dramatic changes coming to Disney. I’ll write about them in greater detail tomorrow, but the gist is that Disney is rebooting.
Iger will reset the corporate structure Chapek introduced a couple of years ago.
Disney will include three core segments and thereby save an estimated $5.5 billion via restructuring.
As part of those changes, the company will lay off 7,000 workers, which makes me a little ill. We should never act cavalier about people losing their jobs.
Iger unmistakably announced these moves to cut activist investor Nelson Peltz at the knees.
The strong quarterly financials combined with these moves should secure Disney’s 2023 balance sheet.
In fact, Iger added that Disney will bring back its shareholder dividends in calendar 2023.
All these moves diminish the attacks made by Peltz and Isaac Perlmutter.
Still, I’m tracking one data point that sticks out like a sore thumb on Disney’s quarterly earnings report.
At the end of fiscal 2021, Disney’s free cash flow was right at $2 billion. When 2022 ended, that total had dropped 47 percent to $1.06 billion.
Not coincidentally, Bob Chapek was out of a job later that month. Free cash flow matters in corporate America.
At the end of the fiscal first quarter of 2023, Disney’s free cash flow had fallen 81 percent more to a net loss of more than $2.1 billion.
Since Wall Street cannot fire Bob Chapek again, I’m curious how big a deal this is to Disney critics like Peltz.
The one caveat here is that free cash flow didn’t decrease at the same rate year-over-year as it had during Chapek’s final quarter.
That’s a sign that Iger has taken steps to improve cash flow. We should continue to see gains in this area throughout 2023.