The Walt Disney Firm has reported its second quarter fiscal yr 2023 earnings, beating income expectations however falling in need of Disney+ subscriber numbers. This covers the great & dangerous of those outcomes as they associated to Walt Disney World & Disneyland, and why regardless of the sturdy headline efficiency for parks, there’s a slowdown forward.
Disney Parks, Experiences and Merchandise revenues for the quarter elevated 17% to $7.8 billion and phase working earnings elevated 23% to $2.2 billion. Larger working outcomes for the quarter mirrored will increase at worldwide and home parks and experiences companies, partially offset by decrease outcomes at merchandise licensing enterprise.
Breaking this down additional, the home parks & resorts–Walt Disney World, Disneyland, and Disney Cruise Line–reported income of $5.57 billion, up by 14% over the prior-year quarter. Worldwide parks carried out even higher, with income of $1.18 billion as in comparison with $574 million within the prior yr quarter. Shopper merchandise, which is merchandise on the whole that’s for no matter motive lumped in with theme parks–and never souvenirs within the parks–truly reported barely worse outcomes relative to the prior year-quarter.
Earlier than we share the outcomes from the report, it’s price establishing a contextual background. The Walt Disney Firm’s fiscal second quarter of 2023 ran from early January to late March. At each Walt Disney World and Disneyland, this encompassed a very busy winter break, Presidents’ Day/Mardi Gras/Ski Week, and early spring breaks for native faculty districts on each coasts. It additionally included some softness in January and early March, however clearly didn’t embody Easter (nor did the prior-year).
Through the quarter, Disneyland opened Mickey & Minnie’s Runaway Railway and began the Disney100 Celebration with the brand new World of Coloration – ONE and Wondrous Journeys nighttime spectaculars. Disneyland additionally resumed Magic Key Annual Passes gross sales and introduced again the Southern California resident ticket deal. All of this helped drive attendance.
For its half, Walt Disney World launched extra resort reductions–and extra aggressive ones–as in comparison with the prior-year quarter. Technically, TRON Lightcycle Run gentle opened in direction of the tip of the quarter and had affiliation previews for a few month previous to that. Walt Disney World additionally had the not-so-grand finale to its fiftieth Anniversary “celebration.” It’s laborious to think about that both of those latter two issues truly drove attendance or spending within the quarter.
In line with the corporate, working earnings progress at home parks and experiences was principally attributable to a rise at Disney Cruise Line. Larger outcomes at Disney Cruise Line had been resulting from a rise in passenger cruise days together with the addition of the Disney Want, which launched within the fourth quarter of the prior yr, partially offset by greater prices related to our ongoing fleet growth.
Not talked about within the report, however Disney Cruise Line nonetheless had important well being security protocol in the course of the prior-year quarter. Reductions had been plentiful and by anecdotal remark, the ships weren’t even near filling up. So in different phrases, an enormous a part of this 17% income progress for parks & resorts comes right down to a good comparability. There’ll in all probability be a bit of that within the subsequent quarter with DCL and the worldwide parks, nevertheless it’s gone for the home parks.
To that time, the corporate reported greater working outcomes on the worldwide parks and resorts resulting from progress at Shanghai Disneyland, Disneyland Paris, and Hong Kong Disneyland. The rise at Shanghai Disney Resort was resulting from greater volumes and visitor spending progress. Larger volumes had been attributable to elevated attendance whereas visitor spending progress was resulting from will increase in common ticket costs and meals, beverage and merchandise spending.
The rise in working outcomes at Disneyland Paris was resulting from quantity progress, which was attributable to greater attendance, and elevated visitor spending, partially offset by greater prices. Visitor spending progress was resulting from will increase in common ticket costs, common day by day lodge room charges and meals, beverage and merchandise spending.
The rise in prices was primarily resulting from inflation and better prices related to new visitor choices. Larger outcomes at Hong Kong Disneyland Resort mirrored extra working days within the present quarter resulting from COVID-19-related closures within the prior yr quarter.
Lastly, the corporate reported outcomes at home parks and resorts that had been barely unfavorable to the prior-year quarter, as a lower at Walt Disney World Resort was largely offset by progress at Disneyland Resort. The lower at Walt Disney World Resort was resulting from greater prices, partially offset by elevated volumes. Larger prices mirrored price inflation, elevated bills related to new visitor choices and better depreciation.
The rise in volumes was resulting from attendance progress and better occupied room nights. Elevated working earnings at Disneyland Resort resulted from progress in attendance and visitor spending, partially offset by greater prices. Larger visitor spending was resulting from will increase in common ticket costs and common day by day lodge room charges. The rise in prices was primarily resulting from greater operations assist prices and elevated prices related to new visitor choices.
Through the Q&A, CFO Christine McCarthy talked about Genie+ and Lightning Lanes as a driver of per visitor spending will increase, but in addition famous that it began to reasonable as a result of the comparability was towards the primary full quarter of providing Genie+ and Lightning Lane at each parks within the prior yr. She declined to supply a share, however gone are the times of boasting about 40% will increase on this beloved metric.
This doesn’t inform the total story. Traders who should not park lovers in all probability take this at face worth, however the apparent distinction between this quarter and final yr is date-based pricing for Genie+ at Walt Disney World. On common, the day by day price of the Genie+ was up considerably within the quarter; costs ranged from $15 to $29, however there have been fewer than 10 days in the course of the quarter on the $15 base worth.
That is particularly fascinating as a result of each attendance and lodge occupancy had been up at Walt Disney World, which means that extra individuals had been spending much less. The simplest rationalization for that is that common day by day lodge charges had been down; this rationalization is smart on its face, and is kind of confirmed by Disney not saying in any other case (like they did for Disneyland). However it might additionally stand to motive that fewer company had been buying Genie+ on the greater costs or shopping for much less merchandise or in any other case minimize one thing from their trip budgets.
McCarthy additionally gave phrases of warning concerning the coming quarter (April by means of June) at Walt Disney World: “Please understand that within the again half of this fiscal yr, there can be an unfavorable comparability towards the prior yr’s extremely profitable fiftieth anniversary celebration at Walt Disney World. We sometimes see some moderation in demand as we lap a majority of these occasions, and third quarter-to-date efficiency has been in keeping with these historic traits.”
Readers, please understand that the aim of those earnings calls is to border issues in essentially the most favorable gentle doable to Wall Avenue, whereas being cautious to not run afoul of the SEC or current one thing that strains credulity within the eyes of buyers. (The latter was a part of Chapek’s downfall, as he tried to spin a transparent destructive right into a optimistic throughout his final earnings name.)
Once more, this can be a state of affairs the place you are probably extra educated than the common investor; it’s secure to say that the majority of you’d name BS on the declare that the “profitable” fiftieth Anniversary Celebration was a serious driver of attendance within the second half of final yr. Even in the event you give the advantage of the doubt and assume the fiftieth advertising and marketing was nonetheless doing its job to a point, that has been supplanted by the return of Fortunately Ever After, opening of TRON Lightcycle Run, and kickoff of the Disney100 celebration. I don’t learn about you, however I’ve a tough time believing that midway into its run, the fiftieth had extra drawing energy than all of that has or can have.
Clearly, McCarthy will not be going to return out and say that attendance and bookings are gentle for the rest of the fiscal yr, even after they’ve introduced again Annual Passes and began getting much more aggressive with reductions. Truthfully, although, I’m a bit stunned the softness wasn’t a minimum of attributed to an externality: exhaustion of pent-up demand. (A phenomenon of which each and every investor on the decision is conscious because it has been mentioned by most different similarly-situated firms.)
Maybe Disney didn’t wish to suggest that the efficiency of the final couple years is a factor of the previous? That would clarify framing this as a blip whereas lapping the fiftieth. Whatever the motive, making ready buyers for an unfavorable comparability is a transfer to ‘soften the blow’ earlier than subsequent quarter’s outcomes arrive and underwhelm. Provided that Walt Disney World already barely underperformed within the present quarter, when there have been no apparent indicators of a slowdown within the parks, it’ll be fascinating to see what occurs with April by means of June.
We’ve already mentioned post-spring break attendance traits in Sharp Shoulder Season Slowdown at Walt Disney World and Low Pre-Summer time Crowds at Walt Disney World. Regardless of the deluge of disagreeing feedback on Fb (first rule of Fb: Walt Disney World is *all the time* busier than ever), there was a big slowdown prior to now a number of weeks.
This pattern is typical between spring break and summer time, however the diploma to which it’s at present occurring will not be. The parks are slower proper now–and that goes for each coasts–than they had been on the identical time final yr or in 2021. It’s simple and apparent. (I’m sorry in the event you encountered massive crowds at both in the previous few weeks, however there has been a drop.)
Trying ahead, there are different indicators of softness. As we’ve talked about repeatedly, Walt Disney World already has launched 14 completely different reductions for 2023, which is greater than had been out there for everything of final yr. Most of those reductions have been launched sooner than regular by historic requirements, and supply higher financial savings than their counterparts from the final two years. Some are superior to 2018 or 2019, however baseline costs and perks have additionally modified since then.
We’ve additionally heard anecdotal studies that, regardless of the discounting, resort occupancy numbers are nonetheless under expectations for this summer time. This explains why Walt Disney World has began pulling “levers” to assist in giving demand a shot within the arm and buoy bookings. One lever is new Annual Cross gross sales resuming. (Bear in mind Disney’s warning that tiers had been anticipated to promote out on launch day? A number of weeks later, all the pieces remains to be out there.)
It wouldn’t shock me if extra summer time ticket offers are launched for Floridians or DVC members, and maybe extra focused room offers. One exterior risk is a summer time celebration or shock leisure. We’ll know issues are dangerous if Disney trots out the drained previous Important Avenue Electrical Parade, which is the telltale signal of sentimental demand.
That is additionally a part of the motivation in making 5 main adjustments to enhance the visitor expertise when asserting 2024 Walt Disney World trip packages. Clearly, that doesn’t do something concerning the speedy future, nevertheless it ought to assist with subsequent yr’s bookings. It stands to motive that if pent-up demand has fizzled out for this summer time, it’s additionally impacting future quarters and years.
Another excuse McCarthy’s ‘warning’ was extra measured is as a result of the state of affairs remains to be fairly removed from dire. This can be painted as a five-alarm fireplace by these cheering for Disney’s downfall, however that’s not actuality. A slowdown from unprecedented demand will not be a disaster, it’s a normalization. In fact, Walt Disney World would’ve beloved to keep up record-breaking numbers or that progress trajectory, however even internally, they knew a slowdown was on the horizon.
All of that is what we’ve been anticipating and hoping to see for some time. Pent-up demand lasted longer than I anticipated, and admittedly, it was a distortion that had unhealthy penalties for the broader economic system (past Disney). Placing that within the rearview mirror could also be dangerous for the corporate, nevertheless it’s good for customers and the nation as a complete. Walt Disney World not doing record-breaking numbers whatever the guest-unfriendly choices and adjustments they make–and as an alternative having to truly compete for patrons–may be very a lot a great factor.
Different stuff was stated on the decision, with essentially the most noteworthy matter to buyers being the Disney+ streaming service. I don’t wish to fixate on this an excessive amount of since this can be a parks-centric weblog, however there’s no avoiding the truth that Disney’s streaming providers have an outsized influence on all the pieces else–together with investments at Walt Disney World and Disneyland.
Analysts had anticipated Disney+ subscriptions to succeed in 163.17 million customers, progress of <1%. As a substitute, Disney+ noticed a lack of 4 million subscribers to 157.8 million–a lower of roughly 2%. Affirmation bias being what it’s, many “followers” are going to level to this drop and attribute it to questionable content material choices or [insert personal grievance].
In actuality, except your private grievance entails cricket (the game, not the bug) that isn’t the true rationalization. Disney ceded the costly rights to Indian Premier League, which has resulted in an exodus of subscribers from India. That’s why nearly all of the above-referenced losses got here from an 8% drop in subscribers at India’s Disney+ Hotstar.
This doesn’t actually matter, although, as a result of Hotstar is tremendous low cost. As Disney+ has shifted from a progress in any respect prices mentality to at least one targeted on profitability and sustainability, extra of the sort of factor will occur. The corporate will preserve pulling again spending in areas that had been by no means economically viable within the first place.
Income for streaming rose 12% to $5.51 billion for the quarter, reflecting current worth will increase. The corporate additionally noticed greater subscription income at Disney+, the place common income per consumer rose 20% to $7.14 for home subscribers. This acquire was offset by a 20% fall in income for Disney+ Hotstar, which pushed international Disney+ ARPU to simply $4.44.
On a optimistic observe, Disney’s streaming losses had been smaller than anticipated, with a lack of “solely” $659 million in the course of the quarter, in comparison with a lack of $841 million projected. That is the primary quarter shortly that quantity has been underneath $1 billion. That’s in all probability essentially the most significant quantity from our perspective, as the corporate doesn’t have a lot leeway for main capex funding at Walt Disney World or Disneyland till streaming stops hemorrhaging cash and a few debt is paid down.
Disney additionally introduced that it might add Hulu content material to the Disney+ streaming service, whereas additionally asserting it might elevate the worth of its ad-free streaming service later this yr. Integrating Hulu into Disney+ suggests to us that Disney intends upon shopping for out Comcast’s stake within the streaming service. Between this and all the pieces else, the chances have elevated of Disney spinning off ESPN. (Simply my private take–not mentioned on the decision.) That may be excellent news for future funding at Walt Disney World and Disneyland.
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What do you consider Walt Disney Firm’s Q2FY2023 earnings and future forecast? Shocked that Disney+ misplaced 4 million subscribers, or unconcerned about cricket? What about per visitor spending at Walt Disney World and Disneyland, or different theme park outcomes? Ideas on a slowdown at Walt Disney World or Disneyland? Predictions about different “levers” the corporate will pull to spice up demand and buoy bookings? Suppose issues will enhance or worsen all through this yr? Do you agree or disagree with our evaluation? Any questions we may help you reply? Listening to your suggestions–even if you disagree with us–is each fascinating to us and useful to different readers, so please share your ideas under within the feedback!