Disney (DIS) shareholders were eagerly awaiting the Q2 2022 earnings call to find out how the company is doing, and the results did not fail! The Walt Disney Company reported strong growth and record revenue in its Parks and Resorts division and a huge increase in Disney+ subscribers.

Here’s a recapitulation of the recently released earnings results:

• Earnings per share: $1.09 versus $0.96 expected
• Revenue:  $21.5 billion versus $21 billion expected
• Disney+ subscriber net additions: 14.4 million versus 10 million expected
• Parks, experience and consumer products revenue: $7.39 billion versus $6.65 billion expected

As we can see, Disney’s total revenue for the quarter was up 26% to $21.5 billion, and earnings per share rose to $1.09 per share, diluted EPS for the quarter increased to $1.09 from $0.80 in the prior-year quarter. The Parks, Experiences and Products segment (which includes Disney Cruise Line) saw revenues for the quarter increased to $7.4 billion compared to $4.3 billion in the prior-year quarter.

While streaming obviously had a strong quarter, parks, experiences, and products posted very strong top-line growth of 70% despite the ongoing shutdowns at Chinese parks, with Shanghai only open for three days in the quarter.  The Parks, Experiences and Products segment (which includes Disney Cruise Line) saw revenues for the quarter increased to $7.4 billion compared to $4.3 billion in the prior-year quarter. Segment operating income increased $1.8 billion to $2.2 billion compared to $0.4 billion in the prior-year quarter. Higher operating results for the quarter reflected increases at domestic parks and experiences and, to a lesser extent, at international parks and resorts.

Operating income growth at Disney’s domestic parks and experiences was due to higher volumes and increased guest spending, partially offset by higher costs. Higher volumes were due to increases in attendance, occupied room nights and cruise ship sailings. Cruise ships were operating during the entire current quarter while sailings were suspended in the prior-year quarter. Guest spending growth was due to an increase in average per capita ticket revenue and higher average daily hotel room rates. The increase in average per capita ticket revenue was due to the introduction of Genie+ and Lightning Lane in the first quarter of the current fiscal year and a reduced impact from promotions at Walt Disney World Resort, partially offset by an unfavorable attendance mix at Disneyland Resort. Higher costs were primarily due to volume growth, cost inflation and new guest offerings.

Disney’s domestic parks and resorts were open for the entire current quarter, whereas Disneyland Resort was open for 65 days of the prior-year quarter, and Walt Disney World Resort operated at reduced capacity in the prior-year quarter.

Improved results at Disney’s international parks and resorts were primarily due to growth at Disneyland Paris, partially offset by a decrease at Shanghai Disney Resort. Higher operating results at Disneyland Paris were due to increases in attendance and occupied room nights, partially offset by higher operating costs due to volume growth. Disneyland Paris was open for the entire current quarter compared to 19 days in the prior-year quarter. The decrease at Shanghai Disney Resort was due to the park being open for all of the prior-year quarter but only for 3 days in the current quarter.

The domestic parks appear to be back to full swing, with revenue and operating income well ahead of the same quarter in fiscal 2019! Even with the current macro headwinds, occupancy and per-room spending at the domestic hotels were both higher than fiscal 2019. While worries about inflation and the strong U.S. dollar may discourage some potential visitors, they’re not fearing cancellations that much, because of the particularity of a park visit. Many families usually plan their trips for months, if not years, and will take the trip unless it’s absolutely necessary to cancel. Additionally, management noted that bookings and intent to visit are following the rhythm of pre-pandemic levels. The company said it saw increases in attendance, occupied room nights and cruise ship sailings. It also acknowledged that its new Genie+ and Lightning Lane products helped boost average per capita ticket revenue during the quarter. These new digital features were introduced to curate guest experience and allow visitors to bypass lines for major attractions.

The company said it has been able to bring back in-park experiences such as character meet-and-greets, theatrical performances and nighttime events at Disneyland, which has allowed it to increase capacity at its parks.
 

Disney+ growing big

As for the streaming provider, Disney+ recorded a huge growth in the number of subscribers, and is ranking as the third largest streaming platform, right behind Netflix and Amazon. Disney+ subscriptions rose to 152.1 million during the company’s third quarter, posting better-than-expected results. The streaming service added 14.4 million subscribers in the quarter, beating expectations of 10 million. New customer growth came almost completely from outside the U.S., with 0.1 million added in the U.S./Canada, 6.0 million in international markets.

At the end of the quarter, Hulu had 46.2 million subscribers and ESPN+ had 22.8 million. These numbers bring Disney’s DTC subscribers to 221.1 million in total, which means that the company’s streaming services combined now surpass Netflix in total subscribers. Netflix reported 220.67 million total global subscribers for its third quarter after losing almost 970,000 subscribers.

Most of Disney+ growth for the quarter occurred outside of the United States and Canada, where the service added 100,000 subscribers to reach 44.5 million. The company reports that international Disney+ subscribers increased by 6 million to reach 49.2 million. In addition, Disney+ Hotstar, its Indian brand which is available in India and Southeast Asia, added 8.3 million subscribers to reach 58.4 million.

Similarly, Disney+ subscriber numbers blew past expectations, thanks to new market launches and a robust slate of content that includes the recently debuted "Obi-Wan Kenobi."
 

How was the stock affected from the release of the Q2 report?

The Walt Disney Company stock closed for the day at $112.43 a share before reporting their earnings for the Q2. After posting the report,  Disney stock rose about 6% on Thursday. This made it the top top-performing Dow Jones stock for that day.

Despite the beat, Disney did lower its 2024 subscriber guidance. The media giant now sees 215 million to 245 million subscribers by 2024 — down from the prior 230 million to 260 million.

What are the important news (upcoming changes) which might affect its value?

On the same day they released the quarterly earnings report, Disney announced that it’s raising the price of the ad-free Disney+ subscription to $10.99 per month starting December 8 in the United States, up from the current $7.99 price. The price change will coincide with the launch of the streaming service’s upcoming ad-supported plan, which Disney says will be priced at $7.99 per month, so practically, consumers will have the option to keep the price steady by shifting to the ad-supported tier. From this, it is obvious that Disney is focusing on driving profitability through pricing and the development of ad-tiers. How this will affect the users’ sentiment is to be seen. Anyhow, they’re pretty optimistic from the company, thinking that this would not result in major canceling or pausing subscriptions, but would only help generating greater streaming revenue growth.

However, a 40% hike greatly widens the range of potential outcomes for Disney over the next two years, especially at a time when economically pressured consumers are cutting back discretionary spending.

As for the upcoming events on the platform, the following releases have been announced:

• Release of Marvel’s SheHulk, Attorney at Law, Andor, and Disney’s Hocus Pocus 2
• The second annual Disney+ Day, will occur on September 8th
• Disney received 147 PrimeTime Emmy award nominations this year, with 92 of these for shows or movies on the company’s various streaming platforms

Even though Disney relies heavily on Marvel movies, the question imposed is whether these will be losing in their popularity, as we’re definitely facing what’s called a hyperproduction, in the past couple of years. So it is disputable whether the “She Hulk” would find a warm welcome even amongst the greatest fans.

What are the predictions for Q3?

The upcoming quarter will definitely be challenging for many industries, due to the turbulent political-economic situation worldwide, but some might suffer more than others. Analysts have warned that a worsening economy could spell trouble for the parks business in the quarters to come. Investors will definitely want more clarity on how Disney's management team plans to keep up that momentum, especially in the face of macroeconomic challenges like inflation.

Much will also depend on the outcomes with Covid-19, and whether it will burst out in the coming fall, causing closings and shutdowns subsequebtly. But regardless of the price movement and effect on Disney’s stock, traders can always consider CFD trading where you are able to profit no matter in what direction the price of the financial asset (stock) is moving.