Disney
Disney, the owner of the happiest place on earth (Disneyworld) and major children’s entertainment IP, reported fourth quarter results which beat revenue and earnings projections as growth in its new streaming service business remained strong.
Revenue was $14.71 billion, a 23% fall from the same period a year ago.
In terms of the segmental revenue breakdown Parks, Experiences and Products really got hammered by global lockdown restrictions and stay-at-home orders as sales fell 61% year-on-year to $2.58 billion. Disneyland California is still closed due to Covid-19, and Disneyland Paris was forced to re-close in late October and will only reopen in 2021. Disney has however managed to reopen its theme parks in Florida, Shanghai, Japan and Hong Kong, although to a limited capacity. Cruise ship sailings and guided tours have been suspended since Q2 and retail stores have also been closed for a significant portion of the year. Disney estimates the Q4 and FY2020 net impact of the Covid-19 interruptions to be around $2.4 billion and $6.9 respectively on the operating income of the parks division alone. However impacts to the other divisions was less significant. Across all segments including Parks, for the quarter and full-year, Covid-19 cost Disney $3.1 billion and $7.4 billion, respectively.
The Media Networks division, comprised of cable networks and broadcasting, saw revenue climb 11% to $7.21 billion in Q4. Advertising sales improved but was partially offset by higher sports programming costs as securing rights for rescheduled NBA and Major League Baseball programming from the previous quarter weighed.
Studio Entertainment, last years’ big winner with "Toy Story 4", "Avengers: Endgame" and "The Lion King", had revenue plunge 52% to $1.60 billion due to fewer theatrical and blockbuster movie releases and theatre closures. The lower revenue was partially offset by savings on marketing and distribution costs.
The Direct-to-Consumer and the International segment had revenue climb 41% year-on-year to $4.85 billion. Lower advertising revenue was partially offset by lower costs including the deferral of sports programming costs into fiscal 2021. The segment operating loss decreased from $751 million to $580 million primarily due to improved results (and more subscribers) at streaming services Hulu and ESPN+, which was partially offset by higher costs at Disney+ for its rollout. Disney+, had over 73 million paid subscribers as of the end of the fourth quarter. ESPN+ subscribers increased from 3.5 million to 10.3 million. And Hulu saw subscriber gains of 7 million to 32.5 million for Subscription Video on Demand (SVOD).
Operating Income for all segments combined fell 82% to $606 million. Disney posted an adjusted loss per share of 20 cents for Q4 2020 compared to a $1.07 profit in the prior-year quarter.
Free cash flows for the quarter were more than double what they were in the same period a year ago coming in at $938 million. Disney ended the period with cash and cash equivalent of $17.95 billion, a 229% increase from the year ago period. Capex for FY2020 fell from $4.9 billion to $4 billion on lower spending on the theme park attraction Star Wars: Galaxy’s Edge at both the Disney World and Disneyland resorts. Current liabilities fell 15% to $26 million, but long term debt surged 26% to over $86 billion from the year-ago period.
Disney CFO Christine McCarthy announced in the conference call that Disney would cancel its semi-annual dividend in January. The decision to pause the dividend came after activist investor Dan Loeb said the company should scrap the dividend in order to fund the growth of Disney+ content. Disney is a well-managed, diversified entertainment giant with a massive library of intellectual property assets. It is currently restructuring the business to make Disney+ streaming the centerpiece of its content delivery system. It will be a beneficiary of a post-Covid-19 normalization of economic activity and is a share which one could buy into market weakness.
