According to Zhito Finance APP, recently, Disney (DIS.US) held its 4QFY24 earnings conference. The company's management indicated that they expect a growth target of 6-8% in operating profit for the experience segment in 2025. In 1QFY25, the company was negatively impacted by two hurricanes and the pre-launch costs of the 'Treasure Ship'; therefore, the first quarter will see negative growth, but as time goes on, the company will shift to positive growth in the second quarter and further growth throughout the year. The driving factors identified by the company include: 1) The upcoming launch of the 'Treasure Ship'; 2) The expectation that consumer spending will gradually increase in 2025. In addition, the company remains optimistic about subscription trends for the second half of this year and next year.

At the end of this quarter, the company had 0.174 billion Disney+ core users and Hulu subscribers. Over the past five years, the company has established Disney+ as a unique streaming platform, which now boasts over 0.12 billion core users. From a consolidation perspective, since the beginning of 2017 until the end of that year, when the company initially announced the acquisition of 21st Century Fox, it specifically mentioned doing so through the lens of streaming. The company pointed out that an environment with booming streaming necessitates a plethora of content and distribution. Furthermore, the acquisition of Hulu has created an excellent distribution method alongside Disney+, enabling the company to achieve approximately 0.174 billion global users while genuinely seeing the future of streaming with a very optimistic perspective. Currently, from both the distribution and content angles, the company does not need additional assets to grow in the streaming world.

With Hulu joining Disney+, the company can offer high-quality ultimate content to every user, ranging from brand and comprehensive entertainment program libraries to news and live events. The company has invested significantly to ensure that its profitable streaming business becomes a key growth driver. On December 4, the company will launch the ESPN channel on Disney+, further strengthening its streaming services. The company has secured broadcasting rights for many of the most popular sports programs for the coming years, providing Disney with an industry-leading sports program lineup. As the company launches ESPN's flagship DTC product in early autumn 2025, the integrated streaming experience brings the company closer to its goal of offering a complete sports programming lineup for Disney+ in the USA.

Q&A Session

Q: From many perspectives, the launch of the ESPN flagship program is the company's final significant strategic shift in turning content assets towards streaming. What does the company believe this product will bring to sports fans and ESPN enthusiasts? How does this product enhance customer experience moving forward? Additionally, could you elaborate on the reasons for the anticipated acceleration of operating profit in the experience segment in 2025?

Robert Iger, CEO

A: For the ESPN flagship program, in addition to basic services (sports live broadcasts, studio programs, and commentary), this product will also feature many additional capabilities, such as a fully integrated gambling function. It is emphasized that when technology is applied to sports presentations, almost anything is possible, for example, ai-driven personalized sports center features and customized sports experiences. Consequently, the company remains optimistic about this strategic shift. Live broadcasting is highly appealing to advertisers, especially sports live broadcasts. This product not only provides viewership ratings but also offers value to both the audience and advertisers. Therefore, it embodies a combination of high customization, high mobility, and integrated features, representing the best product consumers have seen in the sports field.

Hugh Johnston, chief financial officer.

A: The company set the growth target for operating profit in the experience department for 2025 at 6-8% because 1QFY25 was negatively impacted by two hurricanes and the upfront costs of launching the 'Treasure Ship.' Therefore, a negative growth will occur in the first quarter, but over time, the company expects to shift to positive growth in the second quarter and further growth throughout the year. The driving factors perceived by the company are: 1) the upcoming launch of the 'Treasure Ship'; 2) the expected gradual increase in consumer activity in 2025. Additionally, the company maintains an optimistic outlook regarding subscription trends for this year and the second half of next year.

Q: Could you provide an outlook on the company's overall growth in advertising business over the next few years? Will capital expenditures see a slight decrease next year?

Robert Iger, CEO.

A: Yesterday, I interviewed Rita Ferro, who is responsible for global advertising sales, to understand the latest market trends. Currently, cable television advertising is very strong, one reason being live broadcasts. Compared to streaming, cable television offers different audiences. The company's integrated business approach not only leverages programming or technology but also gains business leverage from an advertising perspective, allowing the company to offer advertisers broader and deeper advertising services. Thus, the combination of the two is very effective for the company, and it produces content in an integrated manner. As a result, audiences will see ESPN using ABC to co-produce NFL programming on Monday nights, as well as numerous college football games, and after the season starts, the NBA will also see a significant amount of broadcasts on ANC. Moreover, the company has a good collaboration with Google in inventory sales, and the company's technology enables advertisers to purchase platform-differentiated audiences through a trading platform mechanism.

Hugh Johnston, chief financial officer.

A: In 2024, advertising revenue is expected to account for 3%, and the company anticipates that advertising revenue will reach or exceed this level in 2025, as the company's established advertising technology or ability to more effectively deliver ads to consumers is a competitive advantage and proprietary technology for the company. Therefore, based on this, the company feels optimistic about its capacity to gain advertising share.

Q: The company has hired Adam Smith from YouTube. What will be Adam Smith's focus? How will this affect the future of Disney+ or other streaming products? Can the company share its confidence in achieving a strong double-digit profit margin exceeding 10% for DTC in fiscal year 2026? Since this guidance does not include Hulu Live, could you help us consider the future of that product?

Robert Iger, CEO

A: Adam Smith has made progress in improving the technology for all of the company's streaming business. The flagship product is one of its priorities, and another priority is the launch of ESPN programming on Disney+ on December 4. In addition, adding a recommendation engine feature on the homepage can enhance user engagement through personalized and customized methods.

Furthermore, the company's goal is to achieve password sharing, and this week the company launched a sharing initiative in the Latin American region, currently engaging in password sharing or anti-password sharing activities in over 130 countries. The company is unifying its technology, including media services across Disney+ and Hulu, as well as the entire advertising level. The aforementioned measures by the company aim not only to create a better customer experience but also to enhance engagement and reduce customer churn.

Hugh Johnston, CFO

A: Regarding confidence in achieving double-digit profit margins: 1) The company hopes that the number of users continues to grow as always. Given that the DTC business has many characteristics similar to software business, the profit margin for incremental users is very high due to the relatively low incremental costs. 2) The company will continue to offer value pricing to consumers. The growth achieved by the company now largely comes from the outstanding content released by the movie and television studios, which are also proprietary content of the company, and therefore the company will raise prices over time. 3) Adam has many priorities in product updates and features that will enhance engagement and lower churn rates, including improvements to the recommendation engine, which will enhance the monetization of the advertising business. 4) International businesses will also become an important opportunity.

Q: How does the company view Guidance, as it relates to some conservative thoughts of the company? Broadly speaking, the EPS growth is accelerating for fiscal year 2025 to fiscal year 2026. Does the company only consider the launch of flagship products and factors such as hurricanes? Regarding the flagship products, how does the company view the first year's release costs and ARPU? When does the company believe the product can achieve breakeven?

Robert Iger, CEO

A: In terms of the thought process regarding guidance, 1) DTC has significantly improved, mainly because the company has invested heavily in creating this product; 2) The company considers and will continue to make substantial investments in parks and cruise lines, as well as in consumer products. The company aims not only to provide operational results to investors but also to provide expectations on returns from these investments. The investments made by the company are of a long-term nature, and the company is confident in the delivery.

For flagship products, the company believes it's a bit too early to discuss the ARPU of flagship products. There will be an investment in 2025, which has been reflected in the guidance, and this product is expected to bring value to us in 2026. The company hopes to recover the investment relatively quickly in 2026.

Hugh Johnston, CFO

A: The company's visibility in content is also quite high. When the company succeeds with a feature film, or even anticipates success, the consumption of previous series of films basically increases. Looking ahead to 2025, movies will end with "Zootopia" and "Avatar", while in 2026, the company will have "Star Wars", "The Mandalorian", "Avengers", and the live-action "Moana" among other films. Therefore, the company believes that 1) films should be produced in a way that benefits the company both in quality and commercially; 2) the company realizes that these films will significantly enhance streaming performance.

Q: Firstly, similar to Comcast, there seems to be an intention to spin off cable television. The company has considered similar matters in the past, possibly regarding cable television entertainment. As part of industry actions, will the company reconsider this, or will government changes affect the company's view on merger and acquisition opportunities? Secondly, please share the latest views on the impact of the Epic Universe launch. What kind of impact does the company expect its launch in early summer will have on mid-year and experience businesses?

Robert Iger, CEO

A: From a merger perspective, from the beginning of 2017 until the end of the year, when the company initially announced the acquisition of 21st Century Fox, it specifically mentioned doing so through a streaming lens. The company noted that there would be an environment of streaming surges, and it realized the need for a large amount of content and distribution. Additionally, the company acquired Hulu, establishing a strong distribution method with Disney+, allowing the company to achieve about 0.174 billion global users and to genuinely see a very optimistic perspective of the future of streaming. Currently, from both distribution and content perspectives, the company does not need more assets to grow in the streaming world.

Hugh Johnston, CFO

A: Regarding asset divestiture, the first thing I did after taking on the role of CFO at PepsiCo was to explore whether there were opportunities to create value through divestiture. Frankly, I did not see such opportunities at Disney. I spent a considerable amount of time researching from a financial perspective, considering two things: 1) What price can be obtained? 2) What are the operational friction costs of divesting these assets? After analysis, Disney did not present such opportunities.

Regarding Epic, the company has indeed incorporated it into its expectations for future experiences. The early subscription situation for next summer is actually optimistic. The company has also studied the historical openings of other attractions in Florida and other parks. Overall, this is beneficial for the company, which has detailed explanations in the guidance provided.

Q: First of all, in content production, the company has always focused on quality over quantity. How does the company consider the growth rate of content in 2025 and beyond? And what is the expected growth in spending? Secondly, for the experience department, when you think about the long-term return on investment, how much of that is driven by truly expanding capacity and accommodating more visitors, and how much is driven by the company having these great new attractions that enhance the park's pricing power?

Robert Iger, chief executive officer.

A: In terms of content production, as the streaming business develops, the company believes there is an opportunity and necessity for selective investments outside the USA, particularly in europe, the middle east and africa, and the asia-pacific region. The company has slowed down investments in these markets and is cautious about overall investments until it masters and improves the technology, as reducing customer churn through technology translates into a return on investment in content. Therefore, the company will not invest in content until it achieves necessary returns from existing investments. However, during the development of the streaming business, prioritizing markets outside the USA and providing specific content in these markets will become part of the company’s global strategy.

Hugh Johnston, chief financial officer.

A: The company has established some incremental models in content, but they are not enough to significantly impact the company's overall cash flow or algorithms. However, the company indeed sees international markets as a great opportunity. Regarding experiential issues, the company predicts a balance between the two, as the company develops, it will be able to flexibly handle both aspects, and the company already has a relatively conservative model.

Q: First, cable networks are a less emphasized area in the outlook. How does the company conduct multi-year forecasts? Also, what is the company’s business management like in the coming years? Secondly, First Call released an agreement regarding DIRECTV; what impact will this have on disney? How should this transaction structure be viewed as a template for the future? And not like other transactions recently made by the company, such as Charter?

Robert Iger, chief executive officer.

A: Regarding cable television, the company's model forecasts a continued decline. The company currently has approximately 0.175 billion streaming consumers, and its advantage lies in having a portfolio that provides a natural hedge. Therefore, if people abandon cable television in favor of streaming, the company will have good ways to monetize these shifts. As consumer choices continue to change, the company can respond well whether users choose cable television or streaming platforms. In many ways, disney is an essential platform for most families. About DIRECTV, like all these trades, they are essentially finely crafted according to the specific circumstances of particular partners. Therefore, the company does not try to understand it as a template for other trades.

Q: First, what does the company believe is the foundation for the continued development of the streaming business and the expansion of profit margins? Please introduce the ratio of user growth to pricing growth in the foreseeable future, especially in fiscal year 2025. Secondly, local language content is crucial for enhancing engagement in local markets. We see that the company's competitors may have more local content expansion than what is seen on the disney platform. So, does the company have more proactive plans? (To increase more locally relevant content while expanding internationally)

Robert Iger, CEO

A: Regarding streaming, the company will interpret the market and react according to market conditions. However, the company hopes to slightly lean towards pricing in the balance between pricing and user growth.

Regarding local content, the company's local content is very valuable. The company has produced a considerable amount of local content, especially some Korean dramas made in the Asia-Pacific region, and has also produced some content in Latin America. The company does not want to invest too much before being satisfied with their products, allowing them to keep the churn rate at an appropriate level.

As of now, the company has two films that have grossed 1 billion dollars at the box office, which are actually the only two in the industry. The box office for these films comes from all over the world, and they have resonated in the market. Regarding pricing, what the company has done is not just about pricing issues, but also about transferring consumers to advertising-supported streaming platforms. Currently, about 60% of new users in the usa will purchase the company's streaming services, advertising-supported, or AVOD. Now, 37% of the total user base in the usa are AVOD users, and 30% of the global user base are AVOD users. Therefore, the company's recent price increase is actually to encourage more people to choose AVOD, as the company realizes that ARPU and the interest from advertisers and streaming are increasing.

Q: Please discuss the asset divestiture issue in india. How should we adjust for the sale of your assets in india as mentioned in the company's guidance? What does the company think about the business prospects in india? We believe the company will retain its stake in Reliance. After the divestiture or partial sale of assets, how does the company's business in india look?

Hugh Johnston, CFO

A: The company is very satisfied with the trade with Reliance. Reliance has a huge business in india. Looking ahead, the company's shareholding will reach 30%, and Reliance's employees will manage the business with their shares. Regarding the specific financial impact on disney, the company has incorporated the conclusion of the trade into its guidance plan.

Q: Is the weakness in the domestic theme park in the usa now over? It seems that the domestic performance is better than expected in the August report. Meanwhile, internationally, it appears that there is some new weakness in the fourth quarter for international theme parks. Based on this, how should the company view future international growth? This quarter, Disney+ showed strong growth in international core subscriptions. Were there any significant events this quarter, such as establishing wholesale relationships? Or was it seasonal factors? There was similar growth in the fourth quarter of 2023.

Robert Iger, chief financial officer.

A: Domestically, the company does feel that consumers are strengthening. As previously mentioned, the company has clearly seen growth in domestic theme parks, and it feels very optimistic about it. Therefore, the company's expectation for the future is a gradual increase in consumers. Regarding international, there are two factors: 1) the Paris Olympics; 2) some weakness in consumers in shanghai. However, the company expects this to be temporary and not a concern in the long run. There has not been much change regarding international subscriptions. This represents good growth in the international user base.