Disney's Back In Business Thanks To Its Enduring Magic

Although the parks alone are not yet profitable, the parks, experiences and products segment returned to profitability for the first time since the Covid pandemic began for Walt Disney Company DIS who is finally recovering from an invisible enemy that crushed its perfectly exposed business model. On Thursday, it reported a sharp jump in sales for the June quarter as more visitors are going to its parks whereas viewers are going back to theaters and subscribing to its Disney+ streaming service.

Fiscal Q3 Figures

For the quarter that ended in June, sales quarter sales amounted to $17 billion, topping Fact Set expectations of $16.76 billion, increasing 45% from the year-ago quarter when the pandemic had the world on pause, but below the $20.2 billion posted in the third quarter of fiscal 2019. Earnings per share amounted to 80 cents, greatly exceeding the 55 cents expected in a Refinitiv survey of analysts.

The Resurrection Of The Parks, Experiences, And Products Segment

Revenue skyrocketed 307.6% to $4.3 billion, as parks were reopened. Operating income of the consumer products business reached $564 million as attendance and consumer spending rose.

After a loss in operating income over each of the previous five quarters because of the Covid-19 pandemic, the segment earned $356 million. What a difference compared to last year's quarter loss of $1.87 billion. Domestic parks reported supplemental operating income of $2 million whereas international parks ended up with a loss of $210 million.

This resurrection of this segment is critical to Disney's bottom line and not just to Disney. In 2019, it made 37% of Disney's total revenue of $69.6 billion. In late July, rival COMCAST, which owns and operates several Universal Studios theme parks also in the US and internationally, also reported its parks turned a profit the first time since the first quarter of 2020.

The Streaming Star

At the end of the quarter, Disney+, ESPN+ and Hulu gathered nearly 174 million subscriptions, increasing revenue for its direct-to-consumer segments 57% to $4.3 billion.

Disney+ subscriber base expanded from 103.6 million as of April 3^rd to 116 million, exceeding Fact Set expectations of 115.2 million. Experimenting with distributing movies on its streaming service created a new avenue for revenuegeneration. The summer release "Black Widow" collected more than $60 million in fees when it simultaneously premiered in theaters and on Disney+ for an additional $30 million. Unfortunately, this move also led to a lawsuit by the protagonist Scarlett Johansson.

A Bombshell On The Entertainment Industry

Ms. Johansson certainly isn't the only movie star concerned about artist compensation in the streaming age, she's just the one that went public. Disney finds her claims of breaching the contract and hurting her financially has no merit. Such disputes are usually kept under wraps to avoid damaging relationships between the artist and the other entertainment companies owned by the same corporate parent as the studio. However, it hasn't impacted Disney's stock price, and analysts don't seem overly concerned.

The Model Is Changing In Real Time

Studios are moving toward the Netflix NFLX system which revolves around big upfront payments to talent and no profit participation. This so-called "all-you-can-eat subscription model" makes it pretty much impossible to attribute revenue to a particular release because Wall Street's valuation is based on the number of subscribers and growth potential, not the individual contribution of a specific content.

Outlook

The Delta variant of Covid-19 is forcing live-entertainment companies to abandon or readjust plans for this fall and winter and the number of cases is rising dramatically in Florida, one of Disney park's locations. Both parks are still open, but could be subject to capacity restrictions or other measures if the spread continues.

Disney publicly fought with California governor as he kept Disneyland closed for much of 2020. Although requiring visitors to wear masks while indoors, Disney is not demanding proof of vaccination. Considering the $1 billion-plus hit that Covid caused to Disney's parks last year, investors will be looking at infection rates closely.

See also: How to Buy Disney Stock

Disney Is Writing A New Story With Streaming

According to Bob Chapek, Disney has just begun its journey with its spectacular content, told by the best storytellers, against its powerhouse franchises. In a nutshell, its enchanting magic has endured even the devastation caused by a global pandemic. The total addressable market is 1.1 billion households across the globe.

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Image by Lisa Bunzel from Pixabay