Disney managed to muscle out a fiscal second quarter with total revenue of $18 billion rising 21%, edging Wall Street estimates. But earnings fell far short of the bar, showing the toll of COVID-19 as the company’s theme-park division absorbed a $1 billion profit hit.
Adjusting for items, earnings came in at 60 cents a share, down 63% from the same quarter in 2019. Analysts had been expecting 88 cents a share and revenue of $17.81 billion, according to Refinitiv.
Disney has been among the hardest-hit entertainment companies during the pandemic. Its lucrative theme parks, cruise lines and hotels all shut down, theatrical movie releases from its industry-leading studio have been halted and its sports powerhouse ESPN has been unable to broadcast games. Beyond those obvious impairments, many Wall Street analysts are predicting additional vulnerability from an expected rise in cord-cutting and softness in TV advertising.
In its earnings release, Disney estimated the impact of COVID-19 impact on operating income at its Parks, Experiences and Products unit at about $1 billion, primarily due to closures. Across all divisions, the company is pegging the hit to income at $1.4 billion.
Results for the quarter, which ended March 31, reflect the addition of assets formerly controlled by 21st Century Fox. Disney closed the $71.3 billion acquisition of those assets in March 2019. Adding in FX and National Geographic to Media Networks, for example, compensated for viewership and advertiser declines at ESPN in the quarter.
Media Networks proved a bright spot overall, with revenue rising $7.26 billion and operating income rose 7% to $2.4 billion. Broadcasting income jumped 53% to $397 million.
Studio Entertainment revenue rose 18% to $2.5 billion, with licensing revenue offsetting losses of the movie slate. Pixar’s Onward was released domestically on March 6 and then headed to premium VOD early due to theater closures, curtailing its revenue. Similarly, significant titles in the current quarter like Frozen II and Star Wars: The Rise of Skywalker had their debuts on Disney+ accelerated. Comparable titles from the year-earlier quarter were Captain Marvel, Mary Poppins Returns and Dumbo in the prior-year quarter.
Streaming continues to be a beacon of hope. Disney+, which launched last November, had 33.5 million subscribers as of the end of the quarter. With key international territories launching in April, the total is now 54.5 million as of May 4, confirming the company’s recent disclosure of passing the 50 million barrier. Barely six months after reaching the market, Disney+ has nearly reached the internal forecast for 60 million to 90 million subscribers by 2024.
ESPN+ finished the quarter with 7.9 million subscribers, while Hulu had 32.1 million subscribers, 3.3 million of which pay for both the on-demand service and a live bundle of several dozen networks.
“While the COVID-19 pandemic has had an appreciable financial impact on a number of our
businesses, we are confident in our ability to withstand this disruption and emerge from it in a strong
position,” CEO Bob Chapek said in the earnings release. “Disney has repeatedly shown that it is exceptionally resilient, bolstered by the quality of our storytelling and the strong affinity consumers have for our brands, which is evident in the extraordinary response to Disney+.”
Disney’s stock ended Tuesday trading at $101.09, down 2% and well off its 52-week high of $153.41 established last year. Shares had changed hands at more than $140 for months until the pandemic took its toll in March. They have found a base just above $100 over the past month as small glimpses of optimism were seen and some global regions began to reopen.