After the announcement of the first quarter of fiscal 2022 earnings last night, Disney's stock price finally ushered in a long-lost surge.
By the close, Disney was up 3.3 percent at $147, with a total market capitalization of $268 billion. After hours, the stock price continued to climb, soaring more than 8% at one point, closing up 6.6% and now trading at $157.
However, from early March 2021 to early February 2022, Disney's stock price fell from a low of $201 to $130, a decline of as much as 34%.
In contrast, the S&P 500 has risen by more than 50% overall since the beginning of 2020, while Disney's total return during this period is close to -3%. In addition, from the beginning of the year to date, Disney's cumulative decline of more than 6% is also more than 4% of the S&P 500 index.
In summary,
Disney is not rising in the market, and disney is falling first。
In this way, yesterday's big rise did give a breath to Disney's stock price that has been sluggish for nearly a year. The question is, is this breath just an occasional return to the light, or does it mean that it blows the clarion call of Mickey Mouse's counterattack?
1 Back on track
First, let's interpret yesterday's earnings report.
In terms of performance, fiscal first-quarter revenue was $21.82 billion, higher than analysts' expectations of $20.91 billion, a sharp increase of 34% year-on-year. Net profit was $1,152 million, compared to $18 million in the year-ago quarter.
In terms of specific businesses, among Disney's theme parks and streaming media businesses, media and entertainment business revenue was $14.585 billion, compared with $12.66 billion in the same period last year, an increase of 15%.
Disneyland, Experiences and Products revenue was $7,234 million, up 102% from $3,588 million in the year-ago quarter. Operating profit also turned from a loss of $100 million in the same period last year to a profit of $2.5 billion.
In addition, Disney's direct-to-consumer revenue in the fiscal first quarter was $4.7 billion, up 34% year-over-year, and content sales and licensing revenue was $2.4 billion, up 43% year-over-year.
Source: Earnings report
As for the reasons why the revenue of the two major businesses has returned to the regularity, look at it separately,
On the one hand, the net increase in streaming users rebounded more obviously from the previous month.In the first fiscal quarter, Disney's streaming platform Disney+ added 11.8 million subscribers and a total of 130 million subscribers, exceeding the market's general estimate of 125 million and up 37% from the same period last year.
In addition, the number of subscribers to Disney's ESPN+ reached 21.3 million, an increase of 76% year-on-year, and the number of subscribers to Hulu reached 45.3 million, an increase of 15% year-on-year.
The "gold content" of new users is also increasing synchronously. In the fiscal first quarter, Disney+ average revenue per user (ARPU) was $4.41/month, up 9% year-over-year; ESPN+'s ARPU was $5.16/month, up 15% year-over-year; and Hulu Live TV+ SVOD's ARPU value was $87, up 16% year-over-year.
On the other hand
In the post-pandemic era, people are starting to get out of their homes, and most of disney theme parks around the world have reopened.The cruise ship set sail again, further recovering revenue from Disney's theme park and resort products business.
After the gradual popularization of vaccines, the backlog of play demand due to the epidemic began to explode. In the second half of last year, disney's experience and products revenue in the third and fourth quarters of 2021 increased by 307.6% and 99.4% year-on-year, respectively.
In the first quarter of 2022, this figure reached 102%, far exceeding the market expectation of 80.7%. And the data shows that the amount of consumption per tourist after the epidemic has also increased significantly compared with the pre-epidemic level.
This year is the last year of the first century of the Walt Disney Company, and delivering such a performance that exceeded expectations is undoubtedly a good start for Disney to achieve a beautiful finish.
But that doesn't mean the last step in Disney's centennial plan is to sit back and relax.
2 The ills remain
Or by business. First, streaming is losing its best historical opportunity for its own development. A while ago, Netflix plunged 20% after market hours, due to the slowdown in new user growth, significantly lower than market expectations.
This is partly because in the post-pandemic era people are back out of their homes and spending less time streaming.On the other hand, the outbreak of streaming media decisive battles with Netflix, Disney, Apple, Amazon, Warner, Universal, etc. as the main participants under the epidemic has also made the competition in the streaming media market more and more fierce in terms of users.
Disney and Netflix face the same situation.
In November 2019, Disney launched its streaming service, which coincided with the outbreak of the epidemic as the east that helped it take off, and a year and a half later, the total number of subscribers of Disney+, ESPN+ and Hulu exceeded 170 million, which is not far from the achievements achieved by Netflix's streaming service more than 14 years after its launch.
However, in 2021, Disney+'s user growth rate dropped sharply from 258% and 209% in the first two quarters to 101% and 60% in the third and fourth quarters.
Yesterday's disney post-hours surge is in stark contrast to the earlier Netflix, which is inseparable from the huge competitiveness brought about by Disney's rich IP lineup of "big business".
As everyone knows
The secret of streaming media to attract audiences is "to win with quantity, to be king with quality"Netflix is the most typical representative of this strategy. But wonderful episodes such as "Squid Game" can be found, which means that it is necessary to increase the horsepower on the "amount" and increase the probability of the explosion in the probability angle.
Disney's IP lineup reflects a natural advantage at this time, Marvel, Star Wars, Avatar, Pirates, Princesses and Disney animation have their own fan aura, so they can be the first to come in the streaming war, and still maintain considerable user growth data after the market growth slows down.
However, although compared with Netflix, the transformation of traditional studios such as Disney has historical advantages. However, it is also impossible to avoid the drawbacks of "high investment and low return" in the stage of the streaming media market.
Before the epidemic, Disney had a very high rate of return on capital throughout the year.On the one hand, it comes from stable theme park revenue; on the other hand, it comes from gradually growing to more than 30% of the annual box office in North America.
After the epidemic, Disney had to increase a lot of cash flow consumption in response to fierce streaming competition, resulting in a sharp decline in profit margins and the risks to profitability began to become prominent.
Source: YCharts
On the other hand, in response to declining profitability, Disney made several large acquisitions, including 21st Century Fox, to expand its library, thereby significantly pushing leverage to one of the highest levels in the past 20 years.
The above is also the reason why S&P Global Ratings 2020 downgraded Disney's rating from "A-" to "BBB+" and downgraded its rating outlook to "negative".
In addition, in terms of theme parks, Disney is also facing a crisis that needs to be solved urgently.
At the end of January, Abigail, the granddaughter of Disney co-founder Roy Disney, publicly called for a boycott of Disney due to problems with the treatment of Disneyland employees.
3 Conclusion
In 1923, the Walt Disney Company was founded. After nearly a hundred years, it has finally established the world's largest media and entertainment empire.
While there are problems that need to be addressed, the production of rich and high-quality content has always been the most trusted solution for the established entertainment giant.
At the time of the next 100 years, whether it can eradicate the "internal and external troubles" that plague the performance of the company's stock market depends on whether Disney can continue to launch high-quality content in the future and continue to become a global pop culture leader and a veritable "dream factory".