Walt Disney Company released his financial results for the first quarter of fiscal year 2020 this morning, Beijing time.

According to the financial report, Walt Disney Company achieved operating income of US $20.86 billion, an increase of 36.3% over the same period last year and 9.2% month-on-month growth, which was basically in line with market expectations. The net profit of continuing operations under non-general criteria (Non-GAAP) was US $2.83 billion, and diluted earnings per share was US $1.53, which was higher than analysts' expectations of US $1.44.

At the same time, this is also Walt Disney Company's first report card since the launch of Disney+, the streaming business.

The results show that Disney+ had 26.5 million paid subscribers at the end of the quarter, higher than the market expectation of 25 million; single subscribers generated an average of $5.56 a month.

Affected by earnings per share and the number of Disney+ users exceeding expectations, Walt Disney Company's share price rose slightly in after-hours trading.

On the whole, Walt Disney Company this quarter in addition to the eye-catching performance of Disney+, there are not many bright spots in other aspects.

The company's traditional business revenue growth is slow; at the same time, affected by long-term losses in businesses such as HULU and ESPN+, the company's profit growth rate is much lower than that of revenue growth. Although the company's diluted earnings per share under Non-GAAP exceeded market expectations in the current quarter, it was still down 16.8 per cent compared with the same period last year.

Traditional business revenue pressure appears, theme park growth is weak

Let's first look at the financial situation.

In the quarter, Walt Disney Company made a total revenue of $20.86 billion, up 36.3% from a year earlier, mainly due to the company's acquisition of 21st Century Fox in March 19.

From the perspective of segment income, media network income and theme park, experience and surrounding income are still Walt Disney Company's main sources of income, with the combined income of the two parts accounting for more than 70%, accounting for 70.8%.

Media network revenue was $7.36 billion in the quarter, up 24.3% from a year earlier, mainly due to an increase in revenue caused by Walt Disney Company's merger of 21st Century Fox.

Revenue from theme parks, experiences and surrounding areas was $7.4 billion in the quarter, up only 8.4% from a year earlier, below the company's overall average growth rate. The increase in this part of the income is mainly due to the increase in licensing income from peripheral products such as Frozen, Star Wars, and Toy Story. On the other hand, part of the revenue from theme parks and hotels has been dragged down by Walt Disney Company's business in Hong Kong, resulting in slow growth.

Film and television entertainment revenue totaled $3.76 billion in the quarter, up 108% from $1.82 billion in the same period last year, mainly due to the release of Frozen 2 and Star Wars: Skywalker Rises in the current quarter, while copyright sales of film and television content related to Disney+ also increased film and television entertainment related revenue.

However, since the content revenue with Disney+ belongs to the group's overall internal sales, it will be offset at the group revenue level, which is also the reason for the significant increase in internal offset revenue in the quarter.

For the direct to consumer & international business, which mainly includes Disney+, HULU and ESPN+, revenue reached $3.99 billion in the quarter, up 334.3% from a year earlier. This is mainly due to the popularity of Disney+ after its launch this quarter, as well as the increase in the number of members of ESPN+ and Hulu.

On the profit side, Walt Disney Company's total segment operating profit in the first quarter was $4 billion, up only 9% from $3.82 billion in the same period last year, well below the 36.3% increase in overall revenue, while the net profit from continuing operations under Non-GAAP grew even lower, up 2.7% from a year earlier.

Walt Disney Company achieved a substantial increase in revenue after the acquisition of 21st Century Fox, but did not improve much in terms of operating profit and net profit. The two core problems are Walt Disney Company's investment in the streaming media business and the pressure on the operational integration cost of acquiring 21st Century Fox.

Although Walt Disney Company achieved more than three times the year-on-year revenue growth in the streaming business this quarter, its operating loss reached $690 million, five times that of the same period last year, which is also the main reason for the low overall operating profit growth.

In the second quarter of 19, Walt Disney Company spent about $400m to lay off Fox employees. Prior to the release of the third-quarter results, Walt Disney Company continued to deal with Fox's assets intensively through consolidation and selling. According to the results, $207 million was spent on business integration in the third quarter.

This quarter's results show that restructuring expenses related to severance and corporate consolidation are also as high as $150 million.

In terms of cash flow, Walt Disney Company's net cash flow of operating activities in the current quarter was $1.63 billion and the net free cash flow was $290 million, both lower than the same period last year. The overall decline in cash flow is mainly due to the substantial increase in cash expenditure on film and television series production expenses and business integration and restructuring after the merger of 21st Century Fox and Hulu.

Analysts had previously said that if losses directly to consumer international businesses (Disney+, Hulu and ESPN+) were higher than the previously expected $800m, or if the expected turnaround was later than 2023-2024, it would put substantial pressure on share prices.

Therefore, under the pressure of funds, Walt Disney Company's life may not be easy.

After reading the finance, then look at the business.

In terms of content, Walt Disney Company is still very stable, but there is nothing new. Last year, Walt Disney Company grossed more than $11.1 billion at the global box office, becoming the first company in film history to exceed $10 billion.

During the Q1 reporting period, Walt Disney Company's two films Star Wars: the rise of Skywalker and Frozen 2 both grossed $1 billion at the global box office. "Frozen 2" grossed a total of $1.42 billion in North America, surpassing "Frozen" with $1.28 billion.

Walt Disney Company currently plans to release as many as 24 films in 2020, including much-anticipated content such as Mulan and Black Widow.

Offline, the situation is much worse. The decline in the number of tourists has been a common key word for Walt Disney Company theme parks and resorts in recent years.

In 2016, the number of visitors to 13 of the 14 Walt Disney Company theme parks around the world was declining, with visitors to Hong Kong and Paris falling by more than 10 per cent. This quarter, due to the geographical factors of Hong Kong, Walt Disney Company international plate theme parks and hotel business declined significantly.

Although the growth of Walt Disney Company's Shanghai business in the first quarter has to some extent offset the decline in other international regions, due to the vacancy of the Spring Festival holiday caused by the novel coronavirus epidemic in January 2020, the revenue situation of the international theme park business is likely to decline further.

According to the announcement, the Shanghai Walt Disney Company Resort will temporarily close Shanghai Walt Disney Company Park, Walt Disney Company Town (including the Walt Disney Grand Theater) and Star wish Park from January 25, 2020. The timing of the resumption of opening is not yet clear.

And there is more than one "bad luck".

In August last year, Sandra Quba, a former senior financial analyst for Walt Disney Company, submitted a series of materials to the Securities and Exchange Commission, claiming that during her 18 years in office, Walt Disney Company's theme park and resort business took advantage of loopholes in the company's accounting system to systematically exaggerate billions of dollars in revenue.

Quba's revelations show that Walt Disney Company's financial fraud is mainly concentrated in two aspects:

• In terms of tickets, free tickets for free golf tournaments and promotions will be falsely recorded at face value.

• At the gift card level, gift cards purchased at a discount of $395 will also be recorded at the original price of $500, and the amount will be recorded twice when the customer buys and uses the gift card.

As for the actual situation, we still need to wait for the results of further investigation by the relevant departments. And this once again sounded the alarm for Walt Disney Company's offline business.

The hope of the whole village:Disney+

The two trading days in which Walt Disney Company's share price rose most in 2019 were April 12 and November 13, the day after the company released the Disney+ content library and Disney+ launched.

There is no doubt that people are pinning their hopes on Walt Disney Company's new streaming business.

It is understood that there has been some speculation in the option market that expires on February 21. On Jan. 16, the number of outstanding call options contracts rose to about 7000.

The contract price for 4500 call options is $4.15, according to data from Trade Alert. This will indicate that traders have bought call options and bet that the stock will rise to about $149.20 on the maturity date. In addition, the number of open contracts for $155 call options rose to about 8500 on January 17. The call option traded at about $1 per contract on Jan. 21, meaning the buyer would have to raise the call price above $156 to make a profit.

Traders are betting that Walt Disney Company's share price will rise after the quarterly results are released, and the core logic of the rise is Disney+ 's room for development.

According to the data released by the financial report, the number of subscription-paying households in Disney+ has reached 26.5 million by the end of the quarter, which is very close to HULU's 27.2 million subscription-paying households (SVOD) at the end of the quarter.

Market research firm Sensor Tower also reported that Disney+ was the most downloaded app in the United States in the fourth quarter of 2019.

This is indeed an admirable cold start, given that Netflix has cultivated the American market for so many years and currently has only more than 60 million paying subscribers.

However, everything is just beginning, in addition to Netflix,Disney+ in the global streaming media competition will also encounter AT&T Inc, Amazon.Com Inc Prime Video, Apple Inc Apple TV+, Comcast (NBCU) Peacock and other first-class platforms.

Disney+ itself also faces many challenges.

First of all, Walt Disney Company's new service has taken the "cost-effective" route.

Disney+ currently costs $6.99 a month or $69.99 a year (about 490.51 yuan). If you are willing to pay $12.99 per month for Walt Disney Company's family bucket, you can also watch Hulu and ESPN+ (entertainment and sports network platform) at the same time.

The monthly fee of $6.99 is only $2 more than Apple TV+, and the $12.99 bundle is only $3 more expensive than the basic Netflix package and $3 cheaper than the Netflix high-end 4K package.

This low-price strategy determined that Disney+ did not intend to make money from the business in the first place.

Second, the content of Disney+ is still "eating the old money".

We can see that Netflix has taken the lead with 14 Oscar nominations, and Apple TV+ has also brought works of conscience such as "Morning News," but Disney+ 's appeal does rest on classics such as "High School Musical and Dance" and "the Simpsons."

If the network sense content can not keep up, I am afraid it will lose the city in the content position that it is proud of.

Of course, Walt Disney Company will also face internal management problems. Walt Disney Company's acquisition of Fox further integrated the content library of streaming platform Hulu, which directly led to the departure of Hulu CEO Randy Freer. How to clarify the relationship between its multiple streaming platforms is also the focus of the market for the company.

All these are Walt Disney Company's "danger" and Walt Disney Company's "opportunity".

At present, the company is already standing on the highest price-to-earnings ratio since 2015, whether the market has overestimated Walt Disney Company's energy, or whether the "industry conscience" is standing at a new starting point in the new world.