Disney Q1 FY2022 Earnings Preview

Earnings Expectations

They Walt Disney Company will release its financial results for the first fiscal quarter of 2022 (Q1 FY2022) after the close of regular trading on Wednesday February 9, 2022.

According to investing.com Earnings Calendar [1] on Monday February 7, Disney is forecasted to report Revenue of $20.27 billion, compared to $16.25 billion in the same quarter last year and $18.53 billion in the prior quarter.

Earnings/Share are projected at $0.7319 for Q1 FY2022, higher than the $0.32 reported a year ago and the 0.37 of the previous quarter.

The previous financial results (for Q4 FY2021) had disappointed investors, mostly because of the subscriber growth slowdown on the ever important, DisneyPlus streaming service.

The report included some bright spots, such the profitability of the "Disney Parks, Experiences and Products", for second quarter in a row.

The streaming business and the parks results, are expected to be once again in the spotlight during Wednesday's report, with the covered period, being the one that includes the holiday season.

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DisneyPlus

In the pre-pandemic era, Parks and Resorts used to be the largest contributor to Disney's overall revenues, but Covid-19 lockdowns dealt a huge blow the segment. The Studio business was also negatively affected, since distancing measures caused problems is the movie/show production.

The firm however, pivoted towards media consumption and focused on Direct-to-Consumer (DTC) services, which were boosted by the fact that people stayed home. It also changed its reporting, to include just two segments: "Disney Media and Entertainment Distribution" and "Disney Parks, Experiences and Products".

For full fiscal year 2021, the first segment generated the $50.866 billion, out of the firm's total Revenues of $67.418 billion, with DTC being the second largest sub-segment. [2]

The crown jewel of the Direct-to-Consumer services is DisneyPlus, the company's streaming service and Netflix rival. It has just little over two years of life, as it launched in November 2019, having seen meteoric rise since then.

As of October 2 2021, Disney+ had an impressive 118.1 million paid subscribers, but the addition of only 2.1 million users in the last reported quarter (Q4 FY2021) had disappointed markets, since it marked a significant slowdown in subscriber growth.

This slowdown was in-line with CEO Bob Chapek's September warning however, while the firm still expects to reach between 230 and 260 million paid Disney+ subscribers globally by the end of fiscal year 2024 and for the service to break into profits that same year. [3]

Streaming Saturation

The undisputed king of streaming is Netflix, with 15 years of service. In January, it offered disappointing subscriber growth guidance, which caused the stock to plunge. Netflix projected the addition of just 2.5 million paid users in Q1 2022, while its total subscribers stood at 221.84 million globally at the end of the fourth quarter of 2021. [4]

Netflix's low projection and Disney+ slowdown in the last reported quarters, could constitute signs that the world and investors are moving away from the Work-from-Home era, and such streaming companies in general may find it harder to keep adding new users.

The other potential cause of this slowdown, may be increased competition, as Disney, Apple, HBO, Amazon and others have jumped on to the streaming bandwagon.

Netflix made a rare and subtle hint that "added competition may be affecting our marginal growth some", in the January quarterly results announcement.

Disney, however has some content that its rivals may have a difficult time competing with: Star Wars and the Marvel cinematic Universe (MCU), as well as Sports coverage via ESPN+.

Potential Headwinds

After last month's shockingly low user addition for the first quarter of the year by Netflix and Disney+ subscriber growth slowdown, we will looking forward to the new figures on Wednesday, to see how market will react and weather headwinds will persist or abate.

Another area that has been challenging for Disney in our view, is the successful "blend" of its legacy business such as cable networks, movie theater distribution, with the new streaming services.

Back in July 2021, the MCU long-awaited "Black Widow" movie had debuted simultaneously on both theaters and Disney+. The move had caused the National Association of Theatre Owners to protest [5] and the film's lead-actress Scarlett Johansson to sue Disney for breach of contract, highlighting the aforementioned challenges.

Disney had since announced exclusive theatrical windows for the remainder of 2021 [6], so it will be interesting to see how the new year will progress, while the dispute with Ms Johansson was settled as Reuters reported in October [7].

The "Disney Parks, Experiences and Products", has been recovering from the pandemic hit, having posted two straight profitable quarters. However, with the Omicron variant spreading, the momentum may prove hard to maintain and extend.

Stock Movement

DIS.us had lost more than $10 in the first trading day (Thursday November 11), after the last quarterly results and the Disney+ disappointment.

During the last quarter of the past year, it had recorded a loss of 8% in an overall negative 2021, while the new year started on the defensive and a January drop to its lowest level since late 2020.

DIS.us comes from two profitable weeks and this may give it the opportunity for a larger recovery past the 150.00 region, but it will meet a return above its EMA200 (currently at around 162.00) for downward risks to abate, whereas the descending trend-line from the 2021 multi-year highs follows (at around 173.00).

Despite that, it is in a precarious position and in risk of fresh year lows (129.09-126.50), which could open the door for a larger retreat towards and below 108.37-10.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 07 Feb 2022 https://www.investing.com/equities/disney-earnings

2

Retrieved 07 Feb 2022 https://thewaltdisneycompany.com/app/uploads/2021/11/q4-fy21-earnings.pdf

3

Retrieved 07 Feb 2022 https://thewaltdisneycompany.com/app/uploads/2021/10/q4-fy21-earnings-transcript.pdf

4

Retrieved 07 Feb 2022 https://s22.q4cdn.com/959853165/files/doc_financials/2021/q4/FINAL-Q4-21-Shareholder-Letter.pdf

5

Retrieved 07 Feb 2022 https://www.natoonline.org/wp-content/uploads/2021/07/BLACK-WIDOW-SHOWS-THEATRICAL-EXCLUSIVITY-IS-THE-WAY-FORWARD.pdf

6

Retrieved 07 Feb 2022 https://thewaltdisneycompany.com/disney-announces-exclusive-theatrical-windows-for-remaining-2021-slate-of-films/

7

Retrieved 25 Jun 2022 https://www.reuters.com/business/media-telecom/disney-resolves-dispute-with-johansson-over-black-widow-movie-2021-10-01/

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