Walt Disney Company reported its second-quarter earnings and future forecast for 2020 on an investor call held by CEO Bob Chapek and Chairman Bob Iger. In this post, we’ll cover some of the good & bad of these results, plus updates from the call on the closures of Walt Disney World, Disneyland, and Shanghai Disneyland.
The earnings call comes after several investors have downgraded the Walt Disney Company’s stock in recent weeks. The most notable of these we discussed in Will Walt Disney World Stay Closed Until 2021? which covered the bold prediction made by Swiss bank UBS analyst John Hodulik that the US parks would not reopen until January 2021 at the earliest.
Just yesterday, more analysts downgraded their ratings on Disney’s stock or trimmed price targets. Morgan Stanley analyst Benjamin Swinburne did the latter, lowering the near-term forecast on Disney specifically due to a more conservative outlook on initial theme parks utilization. While analysts differ on the timeline, the consensus is that Disney faces near to medium-term challenges with attendance at Walt Disney World and Disneyland, among other things…
MoffettNathanson analyst Michael Nathanson took a similar view prior to the earnings call, downgrading his rating on the Walt Disney Company’s stock from buy to neutral and cutting his price target by $8 to $112. In a report (via Hollywood Reporter), he elaborated at length on his justifications, stating: “Our Disney downgrade is also an admission that we believe the economic impact on the company will be longer than most anticipate, especially given the risks of a second wave of infections after reopening.”
The analyst further reduced his earnings forecasts for Disney, explaining: “We do expect Disney to be given a pass from investors on fiscal year 2020 (which ends in September) earnings and to some degree fiscal year 2021 as the impact of the pandemic likely lingers. However, we are also reducing our fiscal year 2022 forecasts to factor in the additional risk and uncertainty about what a new normal will look like across most of Disney’s businesses. Looking at those fiscal year 2022 forecasts, the risk-reward is just not that compelling.”
To those points, Nathanson is forecasting a 33% drop in revenue for this fiscal year (which ends in September), from $26.2 billion to $17.7 billion. He’s predicting a 1% decline for the next year (beginning on October 1, 2020) and a 22% rebound in fiscal 2022 to $21.3 billion.
That would mean the road to recovery lasts multiple years, and Walt Disney World’s 50th Anniversary year results in $4 billion less revenue than last year, which saw the debut of Star Wars: Galaxy’s Edge (but also depressed attendance in the lead-up to the land’s debut). To contextualize that, that’s roughly the same result as two years ago, but still double the revenue during the Great Recession lows (here’s the division’s historical revenue data).
Turning to the Walt Disney Company’s fiscal second quarter 2020 financial results, there was good and bad. Profits were down 91% to $475 million, and earnings per share for the quarter decreased 63% to $0.60 year over year. Of the results, CEO Bob Chapek said that while there was an “appreciable financial impact on a number of our businesses, we are confident in our ability to withstand this disruption and emerge from it in a strong position.”
Of particular interest for Parks, Experiences and Products is that the closure cost Disney $1 billion primarily in terms of lost revenue. This is especially noteworthy given that the second quarter only covered 16-18 days of Walt Disney World, Disneyland, and Disneyland Paris being closed. The numbers were higher for Shanghai and Hong Kong Disneyland (just over 2 months of each being closed)–per previous estimates, those parks account for roughly $300 million in lost revenue.
The Parks, Experiences & Products division saw a 10% drop in total revenue, which sounds bad. However, considering the circumstances–and that the parks were closed for 18% of the quarter, it’s actually somewhat of a bright spot in the long-term.
Additionally, per capita guest spending was up 13% at the domestic parks & resorts, with attendance similarly up. In total, results across the board were trending upward year over year considerably. Of course, this is before things were “derailed” which caused more numbers to turn negative.
Suffice to say, we’ll have a much better idea of the financial impact of the closure on Parks, Experiences and Products once the third quarter results are released. The second quarter’s $1 billion lose for that division will pale in comparison to those for the current quarter, which will likely be exponentially higher.
The call itself did offer illuminating insights as to how Disney views its present situation and future prospects. On the call, CEO Bob Chapek indicated that they could not share a specific date for fully reopening Walt Disney World and Disneyland, but noted that they continue making plans, and evaluating scenarios for reopening in accordance with government and health safety standards. More on this in Chief Medical Officer Announces Considerations to Reopen Walt Disney World & Disneyland.
Speaking of which, Chapek indicated that Disney is seeing signs of hopes for a return to normalcy for the US parks based upon what the company is observing at Shanghai Disney Resort. On the call, he also announced that Shanghai Disneyland Reopens Next Week With Limited Capacity & Health Measures. Approaches for operating Walt Disney World and Disneyland may include implementation of capacity limitations and health screening measures, including those that will be utilized at Shanghai Disneyland.
While the lack of live sports plus theater & theme park closures hurt several divisions, there was one huge bright spot: the Disney+ streaming service.
Disney+ grew its subscriber count by 26% to 33.5 million subscribers in the second quarter, driving revenues up 260% in Disney’s direct-to-consumer and international division. Disney Plus has added another 21 million subscribers since then, with a total of 54.5 million subscribers as of May 4, 2020. This far outpaces even the best expectations and projections, and is a significant source of optimism for the Walt Disney Company in the long-term as it tries to compete in this increasingly crowded space.
The Walt Disney Company also announced that it would take the rare step of skipping its dividend payment for the first half of the 2020 fiscal year. That will save Disney over $1 billion, and provide the company with necessary liquidity during the ongoing closures that have resulted in significant lost revenue.
All things considered, the earnings call was more upbeat than we probably would’ve expected given the circumstances. Long-term, there are plenty of reasons for optimism, and both Bob Iger and Bob Chapek projected confidence that Disney is positioned to weather the current storm and emerge stronger out the other side. They spoke repeatedly on the brand’s resilience and affinity among consumers, and if the passionate comments we’ve seen here over the past several weeks are any indication, they’re not wrong.
What do you think of Walt Disney Company’s second-quarter earnings and future forecast for 2020? Does this signal to you that Disney wants to reopen the parks sooner rather than later to stem the bleeding? Think Walt Disney World will reopen by Summer 2020? If not, what’s your predicted date/month? Keep comments respectful, apolitical, and on topic. Anything not following these requirements will be removed.