Here’s How Wall Street Reacted to Disney’s Earnings

Disney (NYSE: DIS) reported its fiscal Q4 2023 earnings earlier this week and the stock soared almost 7% to mark its biggest gain of the year as markets have a thumbs up to the report. Here are the key takeaways from the report and how analysts reacted to Disney’s earnings.

Disney reported revenues of $21.24 billion in the September quarter which was 5% higher than the corresponding quarter in the previous year but slightly short of the $21.33 billion that analysts expected.

Disney’s earnings surpassed estimates

The company’s EPS however rose from $0.30 to $0.82 over the period and was ahead of the $0.70 that analysts expected. In his prepared remarks, Disney’s CEO Bib Iger who took over the position for the second time around a year back said, “Our results this quarter reflect the significant progress we’ve made over the past year.”

He added, “While we still have work to do, these efforts have allowed us to move beyond this period of fixing and begin building our businesses again.”

Key takeaways from Disney’s earnings report

It was the first quarter where Disney reported its earnings under the new reporting structure. Its Entertainment business which includes Linear Networks, Direct-to-Consumer, and Content Sales segments reported revenues of $9.52 billion which were 2% higher YoY. However, while the Direct-to-Consumer business which houses the streaming vertical reported a 12% YoY rise in revenues, the other two segments reported a YoY fall.

However, the situation almost flips when we look at their operating incomes, and while the Linear Networks segment reported a $805 million operating income in the quarter which was similar to the corresponding quarter last year despite a 9% fall in revenues, the losses at Content Sales segment widened to $149 million.

The Direct-to-Consumer posted an operating loss of $420 million which is almost a quarter of the record operating loss of $1.42 billion in the corresponding period last year.

Streaming subscribers beat estimates

Disney ended the fiscal year with total Disney+ subscribers of 150.2 million which was higher than the 148.15 million that analysts expected. The company had 46.5 million subscribers in the U.S. and Canada and another 66.1 million in international markets – where the subscriber count incidentally increased 11% as compared to the previous quarter.

The company however lost Disney+ Hotstar subscribers and the metric fell 7% to 37.6 million. There have been reports that Disney is looking to sell its streaming business in India. Responding to an analyst question about the plans for the India business, Iger said that Disney is “considering our options in the country.” He added, “We’d like to stay in that market. But we’re also looking to see whether we can strengthen our hand obviously, improve the bottom line.”

Iger outlines Disney’s four building opportunities

Iger also outlined “four building opportunities” for Disney. These are

• Achieving significant and sustained profitability in the streaming business
• Transforming ESPN into the “preeminent digital sports platform”
• Improving the output as well as the economics of Disney’s film studios
• Turbocharging the growth of the Experiences business

Iger added, “We have already made considerable progress on these four opportunities, and we will continue to move forward with a sense of purpose and urgency.”

Ad-supported tier is driving Disney’s streaming growth

During the fiscal fourth quarter, Disney added 2 million subscribers for the ad-supported tier which took the total above 5 million. After Netflix – which until not long back spoke against ads on streaming platforms – announced an ad-supported tier last year, both Disney and Amazon have followed suit.

According to Iger, “We have the best advertiser technology in the streaming business globally, and we have just introduced new tools that will make this an even more attractive platform for advertisers, much as we’ve done with Hulu.”

Iger enhances cost-cut program

Meanwhile, Disney has now increased the targeted cost cuts from $5.5 billion to $7.5 billion. During the earnings call, Iger said, “Our new structure also enabled us to greatly enhance their effectiveness, particularly in streaming, where we’ve created a more unified, cohesive, and highly coordinated approach to marketing, pricing, and programming. This has helped us improve the operating results of our combined streaming businesses by approximately $1.4 billion from fiscal 2022 to fiscal 2023. And we remain confident that we will achieve profitability in Q4 of fiscal 2024.”

Disney also expects its free cash flows to increase significantly on a YoY basis this year and said that fiscal year 2024 free cash flows should rise to pre-pandemic levels.

Iger on the movie business

Some of Disney’s releases over the last year have disappointed, to say the least. During the earnings call, Iger admitted, “at the time the pandemic hit, we were leaning into a huge increase in how much we were making. And I’ve always felt that quantity can be actually a negative when it comes to quality. And I think that’s exactly what happened. We lost some focus.”

He however added, “I feel good about the direction we’re headed, but I’m mindful of the fact that our performance from a quality perspective wasn’t really up to the standards that we set for ourselves.”

How analysts reacted to Disney’s earnings

Goldman Sachs analyst Brett Feldman reiterated his buy rating and $120 target price on Disney shares. In his note, he said, “Our key takeaway from the report and call is the same as last quarter, which is that DIS is making progress against management’s lengthy to-do list. The most notable area of traction, in our view, is against DIS’s cost savings initiatives.”

Bank of America also reiterated Disney shares as a buy with a $110 target price and said “DIS’ F4Q results were mixed with revenues below our forecast while operating income was above our expectations.”

Bank of America’s Jessica Reif Ehrlich added, “While several strategic questions remain, we remain confident in Bob Iger’s ability to navigate the company through this transition period.”

Jim Cramer on DIS earnings

According to Jim Cramer, Disney “stole the show” in the quarter and added, “After earnings season, it’s worth reassessing the independent media plays, because some of them are doing much better than expected.”

Meanwhile, despite the post-earnings pop, Disney’s shares are in the red this year and are underperforming the markets by a wide margin.