What Did Critics Get Wrong About Disney This Week?
If you own Disney stock, I don’t know what to tell you right now other than to rub some dirt on it and get back in there.
You took the type of drubbing generally reserved for henchpersons in John Wick movies.
Disney stock fell a staggering $11.08 or 9.5 percent (!) in a single day. No Band-Aid is gonna cover that wound.
Here’s the thing, though. Disney executives felt like they played a winning hand, even though it didn’t work out that way.
So, what did critics get wrong about Disney this week?
Disney Experiences Is Dominating
In a future article, I’ll touch on a developing story, a kind of new Florida Feud unfolding in Central Florida.
Thankfully, this one isn’t political in nature. Instead, it’s what MoffettNathanson analysts have dubbed the Theme Park Wars.
Their numbers crunchers are already debating how much the arrival of Universal Epic Universe will impact Walt Disney World.
I’m amused by this – and a lot of what has happened this week – as it misses the forest for the trees.
Investors are arguing about something that will happen in five quarters rather than focusing on the now.
Specifically, Disney Experiences, the theme parks division, increased revenue by ten percent in a calendar year.
International parks proved especially lucrative, gaining 29 percent, while North American parks also increased seven percent.
Overall, Disney Experiences raised its operating income by 12 percent, yet that wasn’t the story.
Instead, people devoted more attention to CEO Bob Iger’s comment that post-COVID demand was slowing.
We all knew the salad days of the so-called Revenge Travel phenomenon would end one day. Apparently, that’s right around now.
Despite this slowdown, Disney’s theme parks excelled in the most recent quarter and will apparently show single-digit growth during the current one.
Wall Street instantly declared that steady growth as a sign of stagnant revenue and arbitrarily punished Disney mightily.
Disney Followed Wall Street’s Movie Advice
Critics and analysts have spent millions of words writing about everything Disney was doing wrong with its film division.
Eventually, the universal opinion became clear. Outside parties told Disney it needed to make fewer movies.
In the process, these people expected Disney to control the quality of the input by narrowing the focus.
In short, less is more. That’s what people wanted from Disney, and Bob Iger delivered.
On multiple occasions, the CEO has indicated that Disney will release fewer films.
During Tuesday’s earnings call, Iger went a step further by explicitly stating the new plan for Marvel.
From now on, Disney will release no more than three Marvel films and two Marvel series each year.
Personally, I don’t think that’s enough, as I strongly believe that studios should release all the content the market will support.
The genius of Wall Street is that Disney has probably worked against its best interests here to give investors what they want.
The stock price has dropped dramatically anyway. So, it’s definitely a “thanks for nothing” scenario.
Still, I’m wildly optimistic about Disney’s 2024 slate, especially two of the summer releases, Inside Out 2 and Deadpool & Wolverine.
By the next fiscal earnings call, both films will have reminded people how great Pixar and Marvel stories can be.
Disney Streaming Results Are Incredible
I’m a football fan, and I’m consistently amazed at how personnel management works.
During a season, you’ll think, “If only we could fix the offensive line.” Then, during the offseason, you do just that.
Once the next season starts, you’ll think, “If only we could fix the defensive line…” The moral is that something’s always broken.
Disney just spent two years trying to fix its Direct-to-Consumer (DtC) business, aka streaming.
For this past quarter, the entertainment side of streaming actually turned a profit. Nobody saw that coming.
Overall, DtC lost a modest $18 million, a jaw-dropping improvement from a year ago.
At the time, DtC had cut its losses to $659 million…and people were happy about that!
Wall Street had feared a $841 million loss. In just one year, Disney has eliminated all that.
You’d think investors would be happy about that news…but no.
Instead, as I referenced in a different piece, analysts fixated on the lackluster showing in Linear Networks.
That division fell short of expectations by…$48 million. Critics talked about that vs. Disney eliminating $640 million in losses in a year.
What are we doing here, people?!
What Disney has accomplished with DtC over the past calendar year is mythic.
All Wall Street heard was, “Disney has to pay for cricket next quarter, so DtC will drop a bit.”
Disney Has Cracked the Math on ESPN
A few months ago, I made the assertion that Disney has cracked the math on its Linear Networks/streaming setup.
This week’s data proves the point, as Disney will be making money on both in just six months.
Now, I’m ready to say the same about ESPN, at least in the short term.
We’re still taking a lot on faith as we await details about the so-called Sports Hulu and Flagship, the over-the-top ESPN solution.
Still, Disney’s recent sports negotiations have apparently gone swimmingly.
Barring something unforeseen, Disney will keep its NBA rights and NBA Finals broadcasts as well.
That wasn’t a foregone conclusion at all. Meanwhile, Disney has found a way to pay for everything.
Here’s CFO Hugh Johnston commenting on Disney’s updated plan for streaming rights:
“The sports business is a super-strong business. ESPN has a 35% market share.
“We expect we will continue to choose to get the rights that we need to make ESPN a strong performer.
“There are other things we may choose to carve off a sports right or give up a certain (license) that are less relevant to the portfolio.”
That’s Disney publicly stating that it will pay for profitable sports rights and back off anything that is not.
ESPN should have been doing that all along, and the strategy is already paying immediate dividends.
Disney acquired women’s college basketball and WNBA rights for pocket change. Now, Caitlin Clark has turned into a rainmaker.
All those ratings she pulls, streaming subscriptions she causes, and advertising revenue she creates are pure profit.
ESPN has its math cracked for the short term.
Thanks for visiting MickeyBlog.com! Want to go to Disney? For a FREE quote on your next Disney vacation, please fill out the form below, and one of the agents from MickeyTravels, a Diamond Level Authorized Disney Vacation Planner, will be in touch soon!
Feature Photo: Disney