Author | Eugenio CatoneCompilation | American Stock Research Society
01
Abstract
The first problem: Disney+ is spending more and more money.
Second question: Walt Disney Company Paradise is too expensive.
Although the outlook is not optimistic, I changed my rating on Walt Disney Company from selling to holding.
If you had invested in Walt Disney Company (NYSE:DIS) in early 2015 and held it to this day, you would have earned zero dollars. Therefore, a strong competitive advantage is not enough to make the company a good investment.
TIKR Terminal
The company's current free cash flow is far from its golden age. The park was closed for several months, and such a collapse was expected. However, today it has almost returned to normal, but Walt Disney Company's figure is still impressive.
The decision to fire Bob Chapec and bring Bob Iger back was welcomed by the market, but I don't think we should be too excited. Bob Iger left the company in some way, and almost three years later, a lot of things have changed. There are several problems that need to be solved, and in this article I will list two that I think are the most urgent.
02
The first question:
Disney+ is spending more and more money.
Since the park was closed during the outbreak, Bob Chapek focused on developing the Disney+ streaming platform during his tenure.
Statista
The platform has received a great response from the public in a short period of time, with 164.2 million subscribers in less than three years. At present, it is the third largest streaming media platform after Amazon.Com Inc Prime (200 million) and Netflix (223.09 million). Of course, this is a good result, but there is one problem: Disney+ is not profitable, and the company doesn't seem to care.
Our subscribers grew strongly in the fourth quarter, with total subscribers increasing by 14.6 million, including 12.1 million Disney+ subscribers. The rapid growth of Disney+ in just three years is a direct result of our strategic decisions, and we have invested a lot of money in creating incredible content and promoting services internationally. We expect our DTC operating loss to continue to shrink, and if we do not see a significant change in the economic climate, Disney+ will still be profitable in fiscal 2024.
Former CEO Bob Chapek highlighted the growth in subscriptions in his report for the fourth quarter of 2022 and expressed his confidence that Disney+ will be profitable in fiscal year 2024.
There is nothing to say about subscription growth. They are growing so fast that I wouldn't be surprised if Disney+ reaches 2-220 million subscriptions in the next two years. On the other hand, I would be very surprised if Disney+ was profitable before fiscal year 2024, and now I will explain why.
Company data
This chart shows Disney+ 's quarterly revenue from the first quarter of 2020. The first thing to note is that revenue fell in the first quarter, so we saw a slowdown in growth. Compared with new subscribers, this result is mainly due to the deterioration of the average monthly income per paying user year by year.
Statista
Overall, Disney+ had revenue of $2.8 billion, $5.2 billion and $7.4 billion in fiscal years 2020, 2021 and 2022, respectively.
So, objectively, although there was a stagnation in the last quarter, the three-year income increased a lot. The problem is that, despite such significant growth, Disney+ continues to burn money because operating costs are growing faster than revenue itself. As a result, Walt Disney Company's income increased, but his business income decreased.
Disney FY 2022
In fact, you can see from this chart that despite a 20% increase in revenue, direct-to-consumer divisions (including Disney+, Hulu, and ESPN+) suffered greater operating losses in fiscal 2022 than in fiscal 2021. In my opinion, it is worrying that a department that continues to grow rapidly has reported an operating loss of $4 billion despite revenue of $19.55 billion. People have the impression that the faster Walt Disney Company + develops, the more losses it will lose.
So, given these factors, I don't think Disney+ can make money in fiscal year 2024 by continuing to do so. What is needed now is to change the business model, which can both reduce operating costs and increase revenue. However, none of this has reduced subscriptions.
Personally, I don't think Disney+ is likely to be profitable in fiscal year 2024 based on the current situation, but I won't completely rule that out; in fact, there will be important news soon.
Christine McCarthy, chief financial officer, said that now that Disney+ had been launched globally, they were willing to "rationalize the cost base". As a result, I expect the company to spend less on licensing new Disney+ content and less on platform advertising as early as next quarter.
In addition, the change is reflected not only in operating costs, but also in revenue.
Thewaltdisneycompany.com
This is the new price list related to the direct consumer platform, and the biggest change is not the price increase, but the possibility of advertising-free or ad-supported Disney+ subscriptions. New subscriptions will begin on December 8.
So, the news about the Disney+ business model has emerged, which is a good thing, because the previous situation is not sustainable, but we do not know how consumers will react. Revenue is likely to increase significantly due to new low-cost subscriptions that include advertising, just as revenue may decline because people are unwilling to pay for subscriptions that do not include advertising.
At the same time, the reduction in operating costs due to the reduction of content in the platform may become another motivation for users to flee. It is very complicated to understand how the situation will develop after these changes, but I think we may know more as early as the next quarterly report. Of course, it won't be easy for Bob Iger to make Disney+ profitable by fiscal year 2024.
03
The second question:
Walt Disney Company paradise is too expensive.
Disney FY 2022
Looking at the results achieved in the fourth quarter of 2022, we can see a significant improvement compared to the fourth quarter of 2021. Reducing the related restrictions means that Walt Disney Company can provide maximum services in his park. However, the sharp increase in income is due not only to this reason, but also to the rise in park prices.
As ticket prices go up, so do all the costs associated with the movie experience.
If we are based on the results of the fourth quarter of 2022, the price rise is a good move, because the demand is like this, it supports them, however, I worry whether it can last for the next few years.
In terms of holidays, 2022 was a record year, mainly because people's ability to travel was limited in the first two years. Many trips that were supposed to take place in 2020 or 2021 have been postponed to 2022. The same obviously applies to Disneyland, where people are willing to spend more money after waiting for two years. 2022 is basically the best year, Walt Disney Company Paradise is very crowded.
In terms of revenue, 2022 will be successful for these parks, but we often tend to ignore things that may be more important. In fact, the high price of the park seems to live up to the expectations of fans. The following are the results of a time2play survey of 1927 fans of Walt Disney Company Paradise:
92.6% of respondents believe that the cost of a holiday at the Walt Disney World Resort is unaffordable for the average American family.
68.30% of people think that Walt Disney Company World has lost its charm because of its high cost.
66.90% of people believe that unless they upgrade to Genie+ and buy additional Lightning Lane tickets, they will not be able to get the complete Walt Disney Company world experience.
Generally speaking, these results show that for those who are not willing to spend too much money, the experience in Walt Disney Company Paradise is often negative. This may be a sign that fans will think twice before going to Walt Disney Company Paradise again.
In addition to rising prices, the current macroeconomic situation should also be taken into account. In order to combat inflation, major central banks around the world have increased significantly.interest rateThis limits access to credit and slows economic growth. Vacation is certainly not the first choice during a recession, and expensive parks like Walt Disney Company may become a luxury. This is what happened during the last Great Recession.
TIKR Terminal
As for the domestic sector, the park experienced a decline in revenue in 2009 and 2010 and did not recover until 2011. The international business encountered more difficulties, reaching its peak in 2008 only in 2012. My guess is that a similar situation may happen again in the next 2-3 years, but much depends on the severity of the recession and how Walt Disney Company will deal with it. If a substantial discount is introduced, the attendance rate of the park may still be very high, but this is by no means inevitable.
Walt Disney Company Park's income after a good 2022, on the brink of recession, and fans are not satisfied with their last Walt Disney Company Paradise experience, it is not easy for Bob Iger to improve this performance.
Although the outlook is not optimistic, I changed my rating on Walt Disney Company from selling to holding. The reason is the recent change of CEO, which gives me hope for Walt Disney Company's future management, because I personally don't like the choices Bob Chapek made during his tenure.
Bob Iger has been running the company brilliantly for 15 years, and I'm sure he can make Disney+ profitable and find the right way to rekindle the enthusiasm of disappointed fans.
ENDThe article published by meigushe does not have investment advice, so please make your own judgment.
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