The Walt Disney Co. at Wednesday’s Closing Bell on Wall Street released its fiscal Q2 2022 financial report. And, while revenue climbed by 23%, net income and Earnings Per Share for its continuing operations sank by 48%.
Don’t look to the theme parks for reasons as to why this transpired. The answers lay within the Disney Media and Entertainment Distribution segment and, specifically, its direct-to-consumer income.
Uh, oh, Disney+.
Faced with tremendous pressure from investors following the recent quarterly earnings report from Netflix, which was largely lackluster at best, all eyes are on Disney’s DTC business.
In fiscal Q2 2022, revenue for DTC increased to $4.9 billion from $4 billion. However, the operating loss widened to $887 million from $290 million, a greater than 100% ballooning.
The increase in operating loss was due to higher losses at Disney+ and ESPN+ and lower operating income at Hulu, Disney said, putting all three OTT platforms in a potentially delicate position in the eyes of an increasingly wary investment community.
The key issue is higher programming and production expenses for Disney+, higher sports programming cuts, higher sports programming costs at ESPN+, and higher programming and production, marketing and technology costs at Hulu.
This clouded subscriber growth, as shown below:
Unfortunately, this dip was not offset by Linear Networks dollars. Revenue increased to $7.12 billion from $6.75 billion, but Linear Networks operating income slipped by 1% to $2.82 billion from $2.85 billion. The culprit for the Linear Networks? International Channels. The Domestic Channels enjoyed a 3% income rise, to $2.35 billion.
In contrast, International Channels income dropped by 30%, to $245 million.
Breaking the Domestic Channels dollars down even further, and it becomes clear that ABC owned stations are driving the revenue and income gains. Network activity saw only so-so growth compared to the O&Os. Lower operating income was seen at Cable, Disney reported. “The decrease at Cable was due to higher programming and production costs, partially offset by growth in advertising and affiliate revenue.”
Meanwhile, Parks and Experience dollars exploded thanks to beneficial comps tied to post-pandemic reopenings. Revenue climbed to $6.65 billion from $3.17 billion as Operating Income moved ahead to $1.76 billion from a fiscal Q2 2021 operating loss of $406 million.
Overall, Disney saw fiscal Q2 ’22 net income of $470 million ($0.26), as revenue came in $19.25 billion, rising from $16.25 million one year ago. After adjusting for restructuring costs, amortization and other effects, the company’s EPS was $1.08. Analysts surveyed by FactSet had expected adjusted EPS of $1.19 on revenue of $20.05 billion, MarketWatch reports.
How did investors react? Bargain seekers bought DIS, taking it from Wednesday’s paltry closing price of $105.21 to $108.30 in immediate after-hours trading.
Disney shares started 2022 at $155.73 per share and were in the low $184 range in September 2021.
