Disney CEO Addresses Staffing Shortages, Genie+ Popularity, Record Revenue, Attendance Caps
Disney reported its first quarter fiscal year 2022 earnings for last October through December on an investor call held by CEO Bob Chapek on February 9, 2022. This covers the good & bad of these results from “the final year of the Walt Disney Company’s first century,” including Genie+ sales at Walt Disney World & Disneyland, record revenue from theme parks, surprising Disney+ subscriber numbers, and more.
Let’s start with the numbers. The first quarter of the Walt Disney Company’s fiscal year (or the fourth quarter of the calendar year) is another quarter of positive results, especially as the previous year offers an weak comparison due to ongoing closures and soft attendance last year.
In fact, this was the Walt Disney Company’s best quarter in two years, exceeding Wall Street estimates across the board during the quarter, sending the stock up more than 8% in after-hours trading. Forecasts called for revenue of $20.91 billion, but the actual total was $21.82 billion. Earnings per share for the quarter were $1.06 versus $0.63 expected in a survey of analysts. The biggest bright spot was Disney+, which rebounded in a big way after a disappointing fourth quarter…
Disney announced added 11.8 million subscribers, as compared to 2.1 million in the previous quarter. The number exceeded Wall Street expectations, with average forecasts estimating between 7 and 8 million new subscribers. Analysts on average expected Disney Plus to reach 125.1 million subscribers for the quarter. In actuality, Disney+ had 129.8 million paid subscribers worldwide. The company also reiterated its guidance of of reaching 230 million to 260 million Disney+ subscribers by 2024.
This has caused an after hours spike to Disney’s stock in after hours trading, as this bucks the narrative of slowing streaming growth. That has been the story of earnings calls for many other legacy media companies in recent quarters, as AT&T’s WarnerMedia (HBO Max), ViacomCBS (Paramount+), and NBCUniversal (Peacock) all added fewer new subscribers than anticipated.
Even Netflix reported disappointing results a couple of weeks ago, dragging down its stock price and that of its competitors. Netflix also lowered its forward-looking forecast in its latest company outlook, citing heightened churn, delayed content, and pulled-forward demand in the past two years. Investors also believe that market maturity and heightened competition from Disney and other platforms could be playing a role.
For their part, Disney executives predicted this during the last quarterly earnings call where they noted that the Disney+ slate was fuller in Q1 than Q4 FY2021. Chapek also praised the launch of a new franchise in Encanto. He has further stated that the second half of this year is expected to be stronger, with the massive investment in original programming starting to pay off with regular releases from Marvel, Star Wars, and more.
Of particular interest to us is Parks, Experiences and Products (or Parks & Resorts). Revenues for the quarter increased to $7.2 billion compared to $3.6 billion in the prior-year quarter. This also beat analyst expectations of $6.13 billion. Segment operating income results were $2.45 billion, as compared to a loss of $119 million in the prior year-quarter.
For the first time in…a while (sorry, I’m not sure how long)…theme parks outperformed consumer products. Domestic theme parks revenue was $4.8 billion (versus $1.49 billion in the prior-year quarter), whereas the international parks made $861 million. Income for the domestic parks was $1.56 billion, versus a loss of $800 million in the prior-year quarter.
The earnings document also revealed that capital expenditures increased from $760 million to $981 million year-over-year, driven by the temporary suspension of certain capital projects in the previous year. Capex increased for Walt Disney World and Disneyland year-over-year by $121 million, and for all of the international parks combined by about $20 million.
Spending has increased in the last couple of quarters as projects have started to resume and kick into higher gear. Work has resumed at Epcot and on Tron Lightcycle Run. For the international parks, 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 are all underway again.
In an interview with CNBC prior to the earnings call, Chapek indicated that the cheapest days have stayed the same price for 3 years at both Walt Disney World and Disneyland, offering those on a budget an opportunity to visit the parks. He also said that there were a range of upgrade options, pointing specifically to Genie+ and Lightning Lanes.
Chapek indicated that between one-third and half of all guests at Walt Disney World are upgrading to those paid line-skipping services. He said that this has surprised even Disney, which did not anticipate uptake that high for Genie+ and Lightning Lanes.
The CNBC interviewer asked about online backlash among fans to pricing for vacation packages, and what was the primary cause of the increases. She offered Chapek a range of palatable options, from labor shortages to inflation.
Chapek didn’t take the cop-outs, instead bluntly stating that demand was the driver. He said that Disney’s theme parks are seeing unprecedented demand, and they have pricing power as a result. (During the CNBC interview, he didn’t mention labor costs or inflation.)
During his prepared remarks on the earnings call, Bob Chapek expressed a lot of enthusiasm about Encanto, the breakout Disney+ hit. He covered its popularity in the parks (specifically, DCA–I don’t think it’s anywhere else yet), boasting that merchandise is flying off the shelves, and how proud he was that the franchise was launched by the Disney+ streaming service.
At this point, it’s probably not premature to fire up the rumor and/or speculation mill about how and when Encanto comes to Walt Disney World and Disneyland in full form. Every CEO tends to make their mark on the parks, and Encanto is the company’s biggest success under Chapek’s stewardship thus far. I wouldn’t be surprised if there’s an announcement at or before the D23 Expo.
When directly discussing theme parks, Chapek said that Disney’s “domestic parks and resorts achieved all-time revenue and operating income record despite the Omicron surge.” He said that this stellar performance was achieved at lower attendance levels than 2019, which was due to carefully managing demand via the ticket and reservation systems.
He also said that during the holiday season, over 50% of guests bought Genie+ at Walt Disney World and Disneyland.
Disney CFO Christine McCarthy stated that attendance at Walt Disney World and Disneyland was up 10% as compared to the prior quarter. That’s not particularly significant since the prior quarter was the off-season and also saw a Delta-driven downturn in Florida.
Honestly, I would’ve guessed attendance was up way more than 10% for the quarter, which encompassed the start of the 50th Anniversary, Thanksgiving, Christmas, and New Year’s Eve.
More notably, McCarthy stated that per capita spending at the domestic parks was up more than 40% versus fiscal first quarter 2019, an absolutely staggering number. (It was up 30% as of the prior quarter.)
She said this was driven by a more favorable guest and ticket mix (read: fewer Annual Passholders), plus higher food & beverage and merchandise spending, as well as contributions from Genie+ and Lightning Lanes. Putting these factors together, domestic parks and resorts delivered Q1 revenue and operating income exceeding pre-pandemic levels, and that’s even as Disney continued managing attendance.
The increase in per guest spending should be unsurprising–it’s been a similar story in the past few earnings calls. You don’t even need to follow earnings calls to observe it: resort discounts are virtually nonexistent and prices of everything else–from tickets to food to souvenirs–is all up. On top of that, merchandise is flying off of the shelves and Advance Dining Reservation availability is minimal for most table service restaurants.
What’s notable is that revenue and income are now exceeding pre-pandemic levels, as this was not the case before. And again, this is with Disney “managing attendance.” The company notes in the earnings report that “our domestic parks and experiences are generally operating without significant mandatory COVID-19-related capacity restrictions.” Mandatory is the operative word there–Disney is now self-limiting capacity at the parks and resorts for a different reason: staffing shortages.
During the Q&A, McCarthy was essentially asked whether per guest spending would increase even more as bigger-spending international guests return. In response to that, she basically said yes–and that technology plus “creativity at our parks” was driving incremental spending increases and helping the margins get to this quarter’s level. Your guess is as good as mine as to what that latter quote means.
Joking aside, it’ll be interesting to see how that plays out. The return of international guests in full force definitely could drive those per guest spending numbers higher. However, that could also be offset by the return of more hotel rooms to the inventory. No one knows how many rooms are currently out of commission at the operational resorts, but at some of them, it’s a lot. Pent-up demand among domestic visitors could also fizzle out, and spending could decrease as household savings decreases and stimulus money dries up.
Chapek actually addressed the staffing issues directly later in the Q&A when asked about attendance caps. He stated that “the two areas that have been difficult is hospitality, and right now we’ve got 90% of our hotels at Walt Disney world open, all hotels at Disneyland open, and all sorts of cooks, short-order cooks. The capacity constraints are self-imposed capacity constraints and are really a function of our food and beverage sort of mitigation, if you will…because people spend a long time in our parks and Resorts, the food and beverage component is a big one.”
He did not specifically mention the housekeeper shortage, which we addressed a couple weeks ago in this post. That’s a significant impediment for resort occupancy, and is one reason hotels aren’t filling all of their rooms. The causes of the current labor shortages are multifaceted, and the analysis in the above post more or less applies to both housekeepers and cooks.
In that same answer, Chapek also addressed entertainment: “One of the last things to come back for us in a post-COVID world–that we hope is a post-COVID world–is actually live entertainment. Because much of the live entertainment is close proximity, we are self-regulating that. We are self-managing that, because we don’t want our guests to feel an excessive level of density.”
“The place that you get [excessive density] is parades, fireworks shows, and things like that. I suspect that over time we’ll start to regain some of the capacity drop off we’re kind of self-imposing on ourselves.” (Note: fireworks shows returned to Walt Disney World and Disneyland in July 2021.)
Ultimately, it’s always interesting to listen to these earnings calls to get an idea of the company’s results and expectations for the future. While there was no bombshell news during this one, it was particularly illuminating on the topics of per guest spending, record revenue, capacity constraints, and forward-looking expectations about demand and revenue.
It’ll be interesting to see whether per guest spending actually can maintain or exceed the incredible 40% growth over 2019 levels, even as Walt Disney World and Disneyland return to full operational capacity. That number is absolutely staggering, especially since there’s still more pent-up demand among international guests.
Personally, I’m skeptical–which is exactly what I wrote in response to the last earnings call when per guest spending was up “only” 30% over 2019 levels. At some point, pent-up demand fizzles out, inflation on necessities influences discretionary spending, and the stimulus money plus what people saved during the pandemic is depleted.
When all of some of that happens, consumers will return to being more cost-conscious and price sensitive, and things will normalize to at least some degree. However, there don’t appear to be any signs of those things happening anytime soon. So, get used to high prices, heavy crowds, and nickel & diming at Walt Disney World and Disneyland as this record run of revenue and income continues for the foreseeable future.
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YOUR THOUGHTS
What do you think of Walt Disney Company’s Q1 FY2022 earnings and future forecast? Thoughts on the company’s claim that xxx? What about the sharp spike in per guest spending? Are you worried about the future of Walt Disney World, Disneyland, or the company in general? Think things will improve or get worse throughout this year? 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 don’t know how you can say your per day average is low when you consider you visit all year? Not all WDW guests stay for 19 days or stay on WDW property? I have noticed an increase, however, in large parties traveling together spending $25,000 on one trip. Chapek is ruining WDW. It’s so obvious that are getting away with things because they CAN. Lack of services, dirty grounds and parks, cost cuts and increases across the board. I think they will get away with it because of revenge travel but that will wear off eventually. Lots of regulars who spend lots of money are beginning to get disgruntled. As for capitalism, the great irony here is that Disney claims to believe in equality (ha) and supports socialist platforms. I guess they could be described as socially liberal and fiscally conservative. Everyone is ok with giving away money as long as it’s not their own. I agree with those that say the value is just not there anymore if you are paying full price. But until these die-hards who come 4x a year and drop tons of cash reconsider and STOP, it will continue to offer mediocrity. It’s so very sad when you consider what Disney was built on: superb Guest experiences and company morale. Now they are just like everyone else.
We spent thousands at DW at Christmas and the experience of their new SOP was so incredibly disrespectful of the customer that I will never bother buying an AP again.
I’d love to know what the DLR Genie+ adoption numbers are, currently.
Chapek squeezed out numbers by screwing Disney customers by charging more while delivering less. What a piece of trash he is.
Probably the least popular Disney CEO ever.
This makes me want to push back any future DW trips even further into the future. My family wont be back until the experience is worth the costs again. Our favorite is the live entertainment. We spent several weeks in Iceland this past summer for the cost of a trip to DW and it was awesome. Planning a trip to Italy, Japan, and several other locations. Will check back on DW in 3-4 years and see how things are going.
Disney CEO must think we have a cash crop… Let’s wait for pent-up demand to pass, the 50th anniversary celebration to end and…. Universal’s 4th park to open. This D23 promises, either they’re planning something big or they’re going to take a well-deserved trip!
“It’ll be interesting to see whether per guest spending actually can maintain or exceed the incredible 40% growth over 2019 levels”
How? 40% is a lot, closer to half again than a quarter increase. I *could* talk myself into a 30% baseline figure, since AP prices have drastically changed at both parks, maybe a lucky break where people helped by inflation are more likely to spend their additional money at WDW or DLR for some reason, the decision not to limit Genie+/ILL purchases (which may be able to bear more increases, as Tom noted before), and maybe more upper class guests who are attracted to the equivalent of a short cruise in the Star Wars Cinematic Universe. BUT, in my most ridiculous best case for WDW’s money bin, I can’t see 40%. These aren’t high rollers who were skipping the Grand Floridian for the values and the moderates!
I’m sorry, I’m clearly agreeing with Tom’s take, but I really just wanted to say “How?” Even accounting for higher inflation, forty percent growth over 2019 seems like an accounting trick, like, say, counting Star screaming subscribers whose accounts were converted to Disney+ as new subscribers.
I don’t know Disney’s methodology, but minimizing APs (often no hotel, no per day ticket, and likely less food spending) would definitely have a notable impact on per guest spending. I’m not sure I’d call that an accounting trick per se, but it’s definitely not an apples to apples comparison, either.
Seeing that kind of record revenue while being nickel and dined is just…disappointing, frustrating, infuriating…all the things. But what else do we expect in capitalistic America? *shrugs* And as far as stimulus money, just how far do we assume people are stretching $1400 from two years ago? Lol!
It will be interesting to see if the increase in sales continues after the 50th Anniversary merchandise hype calms down. Supply chain issues and uncertainty regarding availability of 50th Anniversary items has likely amped up interest, especially after people had little to purchase when so much was shut down. Add to that the price increases for just about everything.
It is interesting to analyze the new entertainment world we now live in. Two months ago many branded the performance of “Encanto” as modest at best – earning a fraction of what recent WDAS releases made (i.e. the Frozen films, Coco, Big Hero 6, Moana, the Wreck-it-Ralph films, etc) and being overshadowed by a much more successful and robust theatrical release over the holidays by Disney’s chief animation competitor (Sing 2 – Universal)
Fast forward a few weeks and the success that Encanto had on Disney+ is unprecedented. 2 billion streaming minutes during Christmas week with no signs of slowing down, a #1 soundtrack beating the likes of Adele, a #1 song beating the likes of Adele (and several other songs from the movie hitting the charts with no radio support whatsoever), Tik Tok, YouTube, and on and on…
No longer will we view box office receipts in a vacuum when it comes to the success of a film. Yes, in the past one always had to view ancillary revenue to look at the big picture (i.e. VHS, DVD, retail sales)… but that was AFTER the film had been in the theaters for months and had proven its “worth”. This is all new territory. We can’t look at Encanto’s box office performance as “disappointing” because it truly is just a small part of the whole picture.
Chapek’s comments have me wondering if Encanto is even bigger than any of us had every imagined.
Something about hearing of their success this quarter, while watching prices rise, discounts being non-existent, entertainment missing, etc. makes me feel a little sick. This kind of stuff creates a lot of ex-capitalists. Just sayin’.
I guess I can hope that greater profits means more justification for investing in the parks, but I’m not sure that I believe that. There’s always the push to increase their margins and squeeze out just a little more money from their customers, and I don’t see that changing unless demand drops. Which is depressing, because I don’t know that it will.
Tom, I suspect your right. Not only will the stimulus money dry up and inflation will damper sales, but I think you also have to consider all those canceled vacations that are being taken now. Throw in the level of guest dissatisfaction and I think by September attendance will slow down. People that went this January thinking that it would be slower had a big surprise. Food quality has to be improved. I have had better food in a high school cafeteria. Also, I am wrong or didn’t they say that they were limiting the amount of Genie+?
I’m a little interested in more numbers from Disney, which I know we won’t get. We used our Disney Visa rewards dollars for at least half of our food the week after Thanksgiving. We did get G+, but only for one day, so I guess we are in the 50%, but that’s kind of a gray area considering we only bought for 1 day out of 6 park days. We tried it and didn’t think it was worth it for our family of 5. No one asked us why we only did 1 day, but I guess Disney thought it was successful because we purchased it on our trip.
We aren’t planning another trip for a long time. That was a make up trip from May 2020. Next stop in Florida will probably be a Universal/Kennedy Space Center/some other theme park outside of Disney trip.
Wonder how long it will last for them. We went recently and spent way more than any previous trip due to Genie+, Lightening Lanes, way more expensive meals, etc. Also no house keeping or trams at that time. Just not worth the price to go as often as we have in the past. We will be taking fewer trips to WDW as a result.
Im a dvc member as well as ap holder we love Disney and we choose Disney as our go to vacation spot but im very disappointed in the way things are going i get it they are a corporation and they answer to the shareholders but little by little what we loved about coming is slowly being taken away if they don’t like annual passholders or DVC members then why sell either
LOL, so much Genie+ blowback. What will they take away from the guest experience next? As long as the money is rolling in, cost-cutting will continue.
I think that the lack of live entertainment excuse is pure nonsense at this point. Anyone who’s been on a bus, in a preshow room, or in a theatre at Disney World recently can tell you that they are packing every single one of these things to (and sometimes beyond) capacity. They have zero concerns about crowding and social distancing. Any missing entertainment is either a cost cutting measure or a lack of staffing (read: unwilling to hire enough people or pay enough to get enough qualified applicants).
In fact, more live entertainment, particularly outdoor live entertainment, would actually help alleviate crowding concerns by drawing guests away from crowded indoor areas.
Oh, it’s absolutely nonsense. That’s why there’s the note about fireworks returning last July. The reduced entertainment is mostly a cost-cutting measure at this point. Just like the lack of trams, they’re doing it because they can get away with it for now.
Per Encanto, the quickest and most obvious way to get it in the parks in a significant way (beyond shoehorning it into a segment of a nighttime spectatular) would be creating a stage show — for example, replacing the Beauty and the Beast show at Hollywood Studios with an Encanto show.
I’ve seen the calls to add Columbia to World Showcase, which I wouldn’t be opposed to. But if Brazil is still in play down the line, it’s hard to imagine two South American countries being added simultaneously.
What makes a TON of sense is adding a South America themed land to Animal Kingdom, and incorporating an Encanto-themed ride and restaurant (I want some arepas right now!). South America is already conspicuously missing and would be a natural fit regardless of whether Encanto remains popular for years/decades to come. There is plenty of other IP to choose from (like “Up”) that would fit perfectly, and likely more IP on the way since Disney will be eager to set more stories in S.A. https://disney.fandom.com/wiki/South_America
This would be the thing that finally takes Animal Kingdom into a “full day” park (meaning closing at 9pm more often than 7 or 8). Might even pave the way for more lodging (like an Encanto Casita-themed lodge) in that area of WDW.
My expectation is that we’ll see some form of Encanto entertainment pretty quickly. In typical WDW fashion, they declined the meet & greet (paid for by the studio marketing budget) that DCA got, so there’s nothing for now. I’d expect that to be remedied before Spring Break/Easter.
As for the longer-term, I think repurposing the Brazil concept for World Showcase makes a lot of sense, but the company might feel that Epcot is “fixed” even without that pavilion and that Animal Kingdom is next on deck for a major projects. Unless both parks are slated to get more big additions, I’d expect Encanto’s placement to be dictated not by where it’s the best fit, but what needs the attendance boost more.
Personally, I’m starting to expect a splashier D23 Expo…
Great thoughts, Tom. As popular as Pandora is already, you’ve got to believe Disney is not happy with the Avatar sequel(s) being delayed so long. And there isn’t much more to get people excited about Animal Kingdom. We’ve seen major new lands/attractions just completed or in progress at MK, DHS, and Epcot….so what’s the missing piece? I see you hinting at this but at this point I’d actually be surprised if they DON’T announce a major expansion of AK at D23….
they really do need ot replace dinoland with south america, to go along with asia and africa. retheme the dinosaur ride to indiana jones, restaurantosaurus into an encanto restaurant.
I would be curious to see how many guests buy genie+ for their next trip. If they deemed it was worth it. Time will tell.
Parks need live entertainment. That’s part of the magic and energy in the parks.
I love that chopak nonchalantly mentioned he prefers non-APs because of better guest spending. I’m guessing that means AP gouging will continue.
This has come up several times on past earnings calls, including when Iger was CEO. It’s not a secret that international guests spend the most, followed by first-time domestic guests, followed by regular non-local domestic guests, and finally, Annual Passholders.
APs often argue this point, claiming that they personally spend a lot. Collectively, that simply is not true. Sarah and I spend a ton of money each year at Walt Disney World, but I know that our per day average is low as compared to those other demos.