5/7/2024: Disney+ Finally Turned a Profit
Disney reports 2024 Q1 earnings this morning. Revenue was $22.08B vs. $22.11B expected. EPS was $1.21 vs. $1.1 expected. Disney finally turned a profit on the streaming business with $47M of operating profit vs. $587M of operating loss a year ago. The company also raised the full year adjusted EPS growth target to 25%. The results look pretty decent but DIS 0.00%↑ stock tanked 10+% during today’s trading session.
Disney’s traditional media business continues to struggle with revenue down 8% YoY. Business for Disney Sports aka ESPN is basically flat. Streaming just started to turn a profit. Disney parks and cruises is the main cash cow that contributes ~60% of the overall operating income of Disney but its growth is slowing after the post pandemic boom normalizes. In the report, it mentioned profits for Disneyland (in California) declined YoY due to high costs and lower occupancy rates of Disneyland hotels despite higher attendance for parks. The Disney World (in Florida) and Disney Cruise continue to do well despite higher costs. Well, the hotels in Disneyland are very expensive with a basic room costing almost $1000/night during summer. It makes sense that the occupancy rate comes down due to outrageous nightly rates. Investors should be concerned though because it appears that the strategy of increasing prices to improve profitability is hitting the wall. If I were to spend $1000/night, I want a very nice suite with club level access, not a Holiday Inn level accommodation. The cost for Disney World hotels does appear to be more reasonable and are still popular. I hope they are able to maintain the profitability without hiking the prices too far there.
According to the report, Disney is poised to generate $14B of operating cash flow and $8B of free cash flow for FY 2024. With ~$200B of market cap and their continued focus on improving profitability, I think DIS 0.00%↑ stock is reasonably priced but not cheap. (I am a long-term shareholder.) If consumers continue to spend like it’s 2023, I think Disney will do well. But if a large percentage of consumers decide to ditch overpriced vacations or their 3rd or 4th streaming subscriptions, things could turn difficult for the company.