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Text | Geekmovie

After releasing its third-quarter 2024 financial report, Disney fell again.

Disney's financial data for this quarter is good, with revenue, profit and earnings per share showing significant improvement over the same period last year:

• Quarterly Revenue: $22.3 billion => $23.2 billion

• Quarterly pre-tax profit: $100 million loss => $3.1 billion profit

• Quarterly diluted earnings per share (EPS): $0.25 loss => $1.43 profit

△ Disney's third quarter financial report for 2024

Both the financial and market performance exceeded market expectations. Why did the stock price fall after the financial report was released? Is this fair?

As I discussed last time I analyzed Netflix's earnings report,Now is a time when financial performance is not important, and "market sentiment" has become a more important factor affecting stock prices。

If we look back at Disney's stock price this year, we will find thatCurrently alreadyFour-month decline。

△ Disney's stock price has been falling for four consecutive months

This decline actually has no direct correlation with Disney's financial performance.More directly related to external economic conditions。

After adjusting its business structure, Disney is currently divided intoExperience business (including theme parks and licensed merchandise)、Entertainment (including TV networks, streaming media and content licensing)、SportsThree big blocks.

At the end of 2021, as the epidemic gradually passed, restrictions on going out and travel were basically lifted; coupled with the fact that governments around the world relaxed monetary policy and provided large subsidies to their citizens during the epidemic, this resulted in a surge in consumer travel and entertainment consumption, and demand for theme parks surged.

As of March 2024 (12 months), although global theme park revenue only accounts for 1/3 of Disney's revenue,But theme parks contribute 52% of Disney's total profits。

Of course, this is also due to Disney's recent two yearsCrazy price hikes's credit.

Compared to before the epidemic, Disney's profits are extremely dependent on theme parks.

In the five years before the pandemic, Disney theme park operating profits accounted for only 26% of Disney’s total operating profits;The reopening of theme parks after the epidemic contributed more than 50% of Disney's total operating profit。

Therefore, business expectations for theme parks directly affect the profit forecast of the entire Disney Group.

Entering 2024, inflation has caused consumers to spend less on entertainment, and the risk of economic recession has always existed, soConsumers gradually cut back on their spending and began to prepare for "hard times"。

One of the typical signals is that fast food giants such as Burger King and McDonald's are competing to launch the "$5 minimalist meal" (also known as the poor man's meal).

Disney is no exception. At this investor conference, Disney warned that the revenue of its theme park business "was impacted by weakening consumer demand, and this impact was greater than we previously expected."

In the U.S. market, Disney expects slowing consumer demand for theme parks could continue until 2025.

Reflected in financial indicators,Disney's theme park quarterly operating profit fell 3% to $2.2 billion compared with the same period last year.; Theme park consumer goods sales fell 5% year-on-year。

Another traditional business segment of Disney is also declining.

We know that traditional cable TV networks have been losing subscribers and their revenues have been declining. This is an industry-wide problem, and Disney is no exception.

In the most recent quarter,Disney's traditional cable TV revenue decreased 7% YoY, which also affected the company's overall revenue.

△ Disney's third quarter business revenue

Half is sea water, half is fire,Disney's biggest bet for the future - streaming media business, revenue officially turned positive this quarter and began to make a profit。

Disney Group's streaming business had total revenue of US$6.38 billion and operating profit of US$47 million.

△ Disney's streaming business begins to make a profit

Total streaming revenue includes the flagship platform Disney+, the comprehensive entertainment service Hulu, and the sports-focused ESPN+.

In the same period last year, in the third quarter of 2023, Disney's streaming business had an operating loss of $512 million;

After that, we took one step at a time, from a loss of $400 million, $200 million, to break-even, to the current "profit of nearly $50 million"...

It can be seen that Disney continues“Hardly reduce expenses and marketing costs to improve streaming profitability”Still the effect is remarkable.

If we further break down the streaming revenue and compare entertainment streaming and sports streaming,The most obvious improvement is in entertainment streaming, which lost $500 million in the previous year and only lost $19 million this year.。

As for sports streaming, it turned from a loss of $7 million to a profit of $66 million in one year, which seems to be a good result at first glance.

△ Disney's entertainment and sports streaming business profitability has improved compared to 2023

However, the growth of streaming ESPN+ and the decline of traditional ESPN TV are complementary.

ESPN's television operating profit fell by nearly $130 million from $860 million a year ago to $740 million in the quarter.

If we combine the operating profits of ESPN TV and streaming media, the total has decreased by 9%, indicating thatDisney has not found an effective way to develop streaming in the sports field。

Streaming media profitability has improved, but is the user base continuing to grow? This question is also what the capital market is most concerned about.

Just two years ago, at this time in 2022, Disney made a bold statement that it would maintain a good growth rate of Disney+ user growth, and predicted that by October 2024, Disney+'s global subscribers would reach 215 million to 245 million (equivalent to Netflix's user base in 2022).

But unfortunately, after reaching an all-time high of 164 million, the number of Disney+ subscribers has decreased instead of increased, and has remained around 150 million.

△ Disney predicts that the number of Disney+ global subscribers in 2024 is quite different from the reality

Friends who have been paying attention to the development of the streaming media industry for a long time know that as the impact of the epidemic disappears completely,The streaming media industry has entered the stage of "stock competition" from "rapid development"。

Everyone who should watch streaming media has already done so, whether or not they are actually paying for it.

If streaming media wants to expand its user base, it must either "revolt" from its competitors or "tap the potential" within its own customer base.

As can be seen from the figure,As of the second quarter of 2024, the growth rates of almost all major streaming platforms are close to a flat line - except for Netflix。

△ Growth of mainstream streaming platforms in the second quarter of 2024

Why Netflix can maintain continuous growth?

First, it depends on the new"Package with ads"Secondly, it depends on“Crack down on account sharing”。

Since the leader Netflix’s “crackdown on account sharing” has been so effective, Disney+ will naturally follow suit and start “crackdown on account sharing” as well.

In late 2023, Disney+ announced it would restrict password sharing for user accounts in Canada, the United States, and the United Kingdom.

Disney+ will begin sending emails to US users in February 2024 to notify them of policy changes in advance;

The company later confirmed that the new rules will take effect in some countries starting June 1 and will officially take effect in the United States in September.

This means that if you share your Disney+ account with someone who doesn't live at the same address, you will be blocked from the account from September, or purchase an "extra membership" in order to share (similar to Netflix's policy).

It should be pointed out that another streaming service owned by Disney, Hulu in the United States, will also launch relevant policies at the same time.

So Disney is serious about cracking down on "account sharing" on streaming platforms this time.

Can Disney follow Netflix’s lead this time and achieve the same results?

I am cautiously optimistic:

The market had expected the number of Disney+ subscribers to decline in the third quarter, but the company unexpectedly added about 700,000 new subscribers. It is not clear whether this is related to the crackdown on "account sharing" that took effect on June 1;

However, it should be pointed out that whether the crackdown on "account sharing" in the next two quarters can drive a rapid increase in subscribers is the key to whether Disney's stock price can get out of the downward channel, without a doubt.

Of course, Disney itself is confident, and the company expects both the profitability of its streaming business and the number of Disney+ core subscribers to continue to grow in the fourth quarter.

Disney has recently used another trick to boost profitability - raising prices.

The company will increase the prices of Disney+, Hulu and ESPN from October 17, with the monthly fee for Disney+, the ad-supported package, increasing from $7.99 to $9.99;

The monthly price for the ad-free plan will increase from $13.99 to $15.99, and the annual price will increase from $139.99 to $159.99.

△ Disney Group’s streaming platforms all raised prices

The monthly fee increase for Hulu's ad-supported and ad-free packages is similar to that of Disney+, while the monthly fee for ESPN+'s ad-supported package has increased by $1.

However, the price increase will occur in the first quarter of 2025, so the financial performance of streaming media in the fourth quarter of 2024 will not be affected by the price increase.

Finally, let's talk about Disney's traditional arts -Film Business。

Since its release on June 14,Inside Out 2 has grossed nearly $1.6 billion worldwide, making it the highest-grossing animated film of all time.。

The box-office performance of "Inside Out 2" directly boosted Disney's third-quarter earnings and restored the company's confidence in Pixar Animation Studios.

In its third quarter financial report, Disney proudly listed the ten best-selling animated films in history, seven of which were produced by Disney.

△ Disney's ten most popular animated films in history

Of these seven films, except for the two "Frozen" films, the other five are from Pixar Animation Studios (two "Spy" and three "Tom Clancy's The Force Awakens").

After the end of the third quarter, Disney's film business continued to thrive during the summer season.

The Marvel movie "Deadpool vs. Wolverine" released on July 26 became another box office blockbuster. Its global box office has exceeded 1 billion US dollars so far, ranking second in the global box office this year, following "Inside Out 2".

△ The top ten global box office movies in 2024, source: Boxofficemojo

In addition, "Deadpool vs. Wolverine" has also been introduced to the mainland market, and the box office has exceeded 400 million yuan as of today.

△ The film's creators came to China to promote the film

Looking ahead, overall, Disney's profitability will be further improved driven by "cost reduction and efficiency improvement" - after all, Disney's adjusted earnings per share reached US$1.39 in the most recent quarter, much higher than US$1.03 in the same period last year.

Separately, Disney will add three new ships to its cruise business over the next 18 months.

Disney's cruise business currently has five cruise ships (Disney Magic, Disney Wonder, Disney Dream, Disney Fantasy, and Disney Wish).

△ Disney's cruise product line

The entire cruise industry has performed well after the epidemic, and after adding three new ships, bookings are expected to grow significantly in the coming year.

This business revenue will boost the revenue and profitability of Disney's experience business segment.

Overall, I think the days of Disney being "half seawater and half fire" are almost over. In addition to traditional cable TV, other businesses are developing in a positive direction in the long run.