Disney Parks Lose $967 Million
Walt Disney Company reported its second quarter earnings for January through March and forward-looking forecast for Summer 2021 and beyond on an investor call held by CEO Bob Chapek. In this post, we’ll cover the good & bad of these results, with a focus on the Disney Parks, Experiences and Products segment, which includes Walt Disney World, Disneyland, Disneyland Paris, and Disney Cruise Line.
Before we get started, there was an interesting article in Variety yesterday that otherwise wouldn’t be covered here since it’s palace intrigue that mostly doesn’t concern the parks. However, it’s tangentially relevant here, and the release timing is likely not coincidental, so here it is: “Disney’s New World Order Leads to Confusion and Bruised Egos.”
While the emphasis placed on streaming might give theme park fans pause, that’s nothing we didn’t already know. Back when that reorganization happened, Disney explicitly said as much. If it wasn’t clear then, it certainly should’ve been at the Investor Day when dozens of big-budget shows were announced for Disney+ and Hulu.
The more interesting corporate drama revolves around Iger’s waning influence and Chapek’s assertion of authority. Everyone is becoming more and more deferential to Chapek,” according to one Disney executive who asked not to be identified. “Things are radically different than they were six months ago.”
It’s an interesting read, and I can’t help but wonder whether Iger regrets his decision to abruptly step down as CEO and effectively jump ship. It’s pretty clear his decision was motivated by the looming pandemic, and Disney wasn’t the Fortune 500 company to make a CEO change around that time. With the benefit of hindsight, that seems like a bad decision, but keep in mind that at the time, many feared the economic recovery would take years and some companies wouldn’t weather the storm.
Not only did the Walt Disney Company weather the storm, but it has emerged more valuable–and arguably stronger. On that note, let’s start with a look at the earnings results…
The second quarter of the Walt Disney Company’s fiscal year (the first quarter of the calendar year) should be the final one of negative results and abysmal year-over-year comparisons. The quarters to come should flip the script on that, showing marked improvements even as the phased reopening continues due to the closures providing the baseline.
To give a little context to the numbers, Disneyland and Disneyland Paris were closed for the quarter’s entirety and Disney Cruise Line was still nonoperational, Hong Kong Disneyland was open for 30 days of the quarter. Meanwhile, Walt Disney World Resort and Shanghai Disney Resort were both open for the entirety of the quarter, albeit at reduced capacity. (Tokyo Disney Resort is not owned in whole or in part by the Walt Disney Company.)
Against that backdrop, let’s start with a look the Walt Disney Company’s fiscal second quarter 2021 financial results. This was both better and worse than expected.
Forecasts called for revenue of $16 billion, but the actual total was $15.–that’s down as compared to $20.86 billion year over year, but still better than expected. Earnings per share (EPS) for the quarter increased 32% to $0.79 from $0.60 in the prior-year quarter; that beat expectations of $0.27.
Unsurprisingly, Disney+ was once again highlighted during the earnings call–but wasn’t the usual bright spot. Subscribers to Disney+ surged to 103.6 million subscribers by the end of the quarter, missing estimates for 110.3 million.
Disney’s direct-to-consumer streaming platforms lost $290 million in the quarter, which is not unexpected. Disney+ and other streaming services are currently in “user acquisition mode” and are not expected to be profitable until fiscal 2024, Disney’s management has said. During this quarter, two Marvel hits debuted on Disney+, WandaVision and The Falcon and the Winter Soldier.
Of particular interest to us is Parks, Experiences and Products (or Parks & Resorts). Revenues for the quarter decreased 44% to $3.2 billion, and segment operating results decreased $1.2 billion to a loss of $406 million. Lower operating results for the quarter were due to decreases at the theme parks, partially offset by growth at our consumer products business.
Breaking things down a bit further, the domestic parks lost $587 million and the international parks lost $380 million. That’s a total of $967 million, which is offset for the entire segment by consumer products $561 million profit. That’s still a loss, but it’s significantly better than any quarter since the closure began.
On a positive note, the Q1FY21 results document revealed that Disney spent $1 billion on capex in the parks in the second quarter of fiscal year 2021. That’s down from $1.99 billion spent in the previous year’s second quarter. However, it’s up from $760 million in the previous quarter. The breakdown is $656 million for the domestic parks and $355 million in the international parks.
For the former, this is likely in large part due to work at EPCOT kicking back into high gear. For the international parks, it’s probably the Zootopia expansion at Shanghai Disneyland, Arendelle: World of Frozen at Hong Kong Disneyland, and the expansion of Walt Disney Studios Park at Disneyland Paris.
While discussing the theme parks business, Disney CFO Christine McCarthy stated that at Walt Disney World, guest spending per capita again grew by double-digits versus the prior year.
She also stated that bookings for both Walt Disney World and Disneyland are strong, with higher demand as travel rebounds. In terms of the parks demand domestically, “intent to visit” at Walt Disney world is growing and is already flat with 2019, which is obviously the last normal year.
As with the previous two quarters, all theme parks that were open for a portion of the quarter covered their variable costs and made a net positive contribution towards fixed costs. Once again, this does not mean Walt Disney World or any other park is profitable. It simply means the parks are losing less money by being open than they would lose by being closed.
If the parks were profitable, they would’ve said “Walt Disney World is profitable” rather than the more arcane verbiage. It’s unlikely that Walt Disney World can achieve profitability without reopening more resorts (and achieving higher occupancy rates at those that are operational) and increasing the attendance cap above 35%.
Ultimately, the financial results were about on par with what was anticipated. Familiar beats were hit–the success of and enthusiasm for Disney+ and consumer products, with continued losses from the closure and scaled back operations of the theme parks. Some results were better than expected, others were worst. All things considered, no colossal surprises.
For most Walt Disney World fans, the earnings calls are less about the financials and more about the trajectory and future prospects of the parks. More of that was covered during the Q&A, which covered an increase of attendance limits and Disney’s reaction to today’s news from the CDC. More on that shortly…
Planning a Walt Disney World trip? Learn about hotels on our Walt Disney World Hotels Reviews page. For where to eat, read our Walt Disney World Restaurant Reviews. To save money on tickets or determine which type to buy, read our Tips for Saving Money on Walt Disney World Tickets post. Our What to Pack for Disney Trips post takes a unique look at clever items to take. For what to do and when to do it, our Walt Disney World Ride Guides will help. For comprehensive advice, the best place to start is our Walt Disney World Trip Planning Guide for everything you need to know!
What do you think of Walt Disney Company’s second quarter earnings and future forecast? Are you likewise optimistic for October 2021 and beyond, or think even that is premature? Are you worried about the future of Walt Disney World, Disneyland, or the company in general? Excited by Disney+ continuing to grow its subscriber base? Think things will continue improving in 2021? Do you agree or disagree with our assessment? Any questions we can help you answer? Hearing your feedback–even when you disagree with us–is both interesting to us and helpful to other readers, so please share your thoughts below in the comments!
I feel no sorrow for. Disney they have continued to do this to themselves. 50 % if not more of their show cases are closed and shows as well as rides and eateries. They blamed so much on covid but knowing and living here we tell people don’t waste their money. If we as pass holders are seriously disappointed why should we have family and friends pay the outrageous prices for nothing. We are told we can park hop but still can’t figure out how we do that and we have sat on hold hell for literally over an hour at any single time. When you go to epcot all you see are black walls same at so many other parks. Our family came in from Kansas and were disappointed. And to wear mask outdoor and claim they were following cdc all lies cdc stated and I quote “outdoor fresh air is actually better than to be masked while outside”. So disney your woes are noones fault but your own. And to top it off they were already cutting shows way before covid years before. Don’t play the sorrow card when your poor management has nothing to do with covid.
The transition of power in a company always creates winners and losers – and Having been on both sides I can attest that you view those you win with as great transformations and strategic moves and those you lose are terrible and chaotic ( and in both cases the company goes on). Bob Iger has made his wishes to step down known for several years so I would be surprised if he regretted his “rash” decisions. The last thing you want to do as the previous CEO is stick around and impede your chosen successor – turn over quickly and get out, especially if you are more charismatic. Reorganization’s associated with CEO succession are also common to reflect the goals and mission of the oncoming leader. I do still believe Disney has a major issue with keeping/growing Disney+ subscribers in the next year or two- and having reorganized to emphasize this part of the business may come back to bite them in the end.
I don’t weep for Disney and their losses. Lots of it can be written off. But it seems that they are more interested in becoming a media company with Parks as a side business.
I feel like I say this after every earnings report, but I wonder what the long term cost goal/vision is for WDW. They are proud, again, when guest spending per capita is up double digits Ina time of record unemployment and flat wage growth. Wage growth in general has been 2 to 3 percent for a decade. It feels unsustainable at some point if that’s your model.
That to me was the biggest red flag with the Disney + subscriber growth was it was driven by that Verizon deal. I switched to the bundle so I have another year, but still would have dropped it. That should be winding down and are probably seeing it now with the growth miss. I think once the casual viewers get their fill of old Disney movies, they will cancel.
I still cannot believe the price of $DIS considering all of its divisions (Movies, Parks/Resorts, ESPN) we’re hampered this past year and it still surpassed pre-covid stock price.
I think the Disney+ number will be interesting over the next year. As with me I got a year free with my Verizon cell phone account. My year will be up the end of this month and they will bill me on my Verizon bill or I have to cancel before the end of the month.
I won’t be keeping the the service. There are to many streaming services to keep up with and we have seen all the movies many times on the platform. Not enough content and a lot of the movies are on other services we have.
I think they will churn or loose people when these free trials end! I think it’s a lot of smoke and mirrors when you have free subscriptions and looks like paying customer’s. Would be interested to see how many people stay on the service after a free trial.
Only thing that was good to me was the Mandalorian and Kennedy jack it all up!
Thanks Tom for providing this summary. I’m trying to read your tea leaves. Do you think Chapek’s authority and operational changes are a good thing? After reading the variety article I’m concerned about the creative team operating under a financially and operationally focused (aka expense reducing) leadership team. They will be fueled by “revenge travel profits” cutting off their nose despite their face.
If they are going to increase capacity right away, without allowing fast passes, seems unfair for those of us who booked trips based on current capacity and wait times. Any suggestions how to make the most of our trip since there is no way to extend it for more time this late in the game….
Good news, overall. As a fairly new stockholder, I missed this call. Guess I should read my mail more frequently… Here’s to hoping for no masks by end of September!