Walt Disney Q3 Earnings: Investors ignore falling subscribers, Bob Iger’s cost cut assurance drives shares higher!

Walt Disney reported a loss of subscribers in this quarter, and posted a net loss of $460 million, shares of Disney rose by around 2.24 % to $89.45 in after-hours trading and was up 2% in premarket trading on August 10, 2023. 

The loss in subscribers was mainly attributed to the loss of streaming rights for the Indian Premier League (IPL). Disney+ Hotstar managed to attract a large part of the subscriber base because of the IPL cricket tournament and because they lost digital streaming rights to Reliance-backed Viacom18 for the 2023-27 cycle, they saw a significant decline in their paid subscriptions. 

Further, there has been an ongoing Hollywood writers' strike in the US which has had negative impacts on TV shows and films. Around 15,000 screenwriters and members of the Writers Guild of America (WGA) are on strike which has led to delays in production, leaving viewers concerned about the upcoming seasons of their favorite shows. In fact, the writers’ strike has affected two biggest franchises on Disney+ which are Star Wars and MCU. 

On a positive note, Bob Iger who stepped back into the CEO position has reaffirmed in the earnings call the company’s outlook of reaching streaming views and profitability by the end of 2024.

Aided by new revenue streams like Disney's recently launched ad-supported tier, in addition to new price increases to help losses and lift metrics like ARPU, Iger mentioned how the company managed to excessively reduce costs and is on track to achieve $5.5 billion in savings, ultimately leading to higher profitability. 

In regard to Disney Entertainment Studios, they aim to be more focused on the quality of films, reducing the cost per title release and enabling access on multiple platforms. 

For example, Avatar: The Way of Water, which is now the third highest-grossing film of all time will have an electric home video release soon. Whereas, both Shanghai Disney Resort and Hong Kong Disneyland have experienced stronger-than-expected revenue growth and the company plans to add more theme attractions/events to reach more customers.

Walt Disney Q3 2023: Historical Share Price Performance

(As on Aug 9, 2023)

Walt Disney Q3 2023: Key Highlights

• Net loss of $460 million this quarter ending June 2023
• Low domestic Disney+ subscriber count by 0.3 million from last quarter Q2 2023, while international Disney+ subscribers grew by 1.1 million from the previous quarter. 
• EPS from continuing operations for the nine months ended July 1, 2023, decreased to $1.14 from $1.66 in the prior-year period.

Walt Disney Q3 2023: Total Revenue

Walt Disney Q3 2023: Segment Revenue

Disney Media and Entertainment Distribution

There are 3 aspects under this segment: Linear Networks, Direct-to-consumer, Content sales/licensing, and others (CSLO). 

• Linear networks experienced a $580 million drop in revenue year-on-year to $6.7 billion. Domestically, increased costs from NBA and the new F1 deal impacted cable earnings, and TV networks saw less advertising revenue. Internationally, lower ad revenue from the IPL and unfavorable currency exchange contributed to the decline.
• Direct-to-consumer revenue increased by 9% to $5.5 billion. Thanks to the improved results of Disney+, higher operating income at Hulu, and a lower loss at ESPN+. 
• CSLO revenue remained the same, however operating income saw a decrease by $200 million YoY at -$0.2 billion due to lower TV and theatrical distribution income.

Disney Parks, Experiences, and Products

There are three aspects that contribute to this segment: Domestic parks and experiences, International parks and experiences, and Consumer products.

• Domestic Parks and Experiences revenue increased to $5.6 billion, however operating income declined by 13% YoY to $1.4 billion. This was due to a decrease in Walt Disney World mainly because of high ticket costs resulting from inflation and as a result lower volumes. This was offset by an increase in Disney Land and Disney Cruise Line. 
• International Parks and Experiences saw a rise in revenue to $1.5 billion and a rise in operating income to $0.4 billion. This reflected strong growth in Shanghai and Hong Kong Disneyland resorts with increased guest spending and higher volumes.
• Consumer Products saw a decline in revenue from $1.2 billion to $1.1 billion because of lower merchandise licensing revenue on certain franchises.

Walt Disney Q3 2023: Disney+ Subscribers and their Average Monthly Revenue per Subscriber (ARPU)

In the U.S. each Disney+ subscriber on average paid a little more each month, increasing from $7.14 to $7.31. This happened because Disney made more money from ads shown to these subscribers. For Disney+ outside of the U.S., the increase happened because prices for subscribers were raised and the currency exchange rates were favorable for Disney.

Walt Disney Q3 2023: Net Loss

Walt Disney saw a net loss of $460 million this quarter ending June 2023. 

Walt Disney Q3 2023: Outlook

• The company promised to address the issue of password sharing next year
• Disney has said that it would soon launch an ad-supported version of its streaming service in Europe, Canada, and the US.
• They also plan to raise the price of its ad-free Disney plan by $3 or about 27% to $14. The cost of its ad-free Hulu plan is also expected to rise by $3, taking it to $18 per month and making the service even more expensive than Netflix.
• Disney also said it would resume paying a dividend by the end of 2023.