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Disney shares plunged after the release of its fiscal second-quarter 2023 results on Wednesday, May 10, after the U.S. stock market had closed. The park business recovered well, but the number of active people in the streaming business fell short of expectations. $Disney.US

I. Financial analysis: Disney's second-quarter results play stable, streaming business operating loss narrowed significantly

In terms of revenue, benefiting from the drive brought by the improved offline entertainment scene after the global epidemic, the park side of the product had excellent performance, Disney achieved revenue of $21.82 billion in the second fiscal quarter, up 13% year-on-year, basically in line with expectations.

Disney's revenue is composed of two main parts, the first part is the oldest business, mainly Disneyland, involving Disney Parks, Experiences and Products business, the second quarter revenue in this area was $7.776 billion, up 17% year-on-year.

The second part is the new business mainly in streaming media, mainly covering media and entertainment distribution business, the second quarter revenue of $ 14.04 billion, only to achieve 3% year-on-year growth, which is still Disney in giving up subscriber growth in exchange for improved performance, which is mainly dragged by the weak play of traditional businesses such as cable network television, specific data will be explained in the subsequent analysis of operations one by one.

In terms of profit, Disney reported net income of $1.49 billion in the second quarter, up 150 percent year-over-year, while adjusted earnings per share were $0.93, in line with expectations, compared with $1.08 in the same period a year earlier. Overall, Disney's profit performance was little changed. The main concern is that the operating loss in Disney's streaming business narrowed significantly by 26% year-over-year to $659 million, much less than the $850 million loss previously expected by the market, mainly due to Disney's enhanced streaming profitability through price increases and the implementation of ad-laden low-cost packages, but user activity performance was much less than expected.

Second, the operational analysis: Disneyland play excellent, streaming media in pursuit of profits under the user data growth is weak, the

1. Disney Parks, Experiences and Products business

With the global epidemic largely declared over, Disney's traditional business of Disney Parks, Experiences and Products is picking up, with second-quarter revenue of $7.776 billion, up 17 percent year-over-year. Operating profit was $2,166 million, up 23 percent year-over-year. Disneyland brings more value shares than the media and entertainment distribution business, and the steady earning power is the cornerstone of Disney's ability to invest in new properties.

In terms of regional revenue mix, the international markets of Shanghai Disneyland Resort, Hong Kong Disneyland and Disneyland Paris became the main growth drivers. Especially the low base under the Shanghai epidemic last year, in front of this quarter's growth is more obvious.

Compared to the strong growth of the international market, the growth of the U.S. domestic market appears to be more general, after all, the recovery after the epidemic in the United States will come a little earlier than our domestic, has passed the earliest and fastest of the batch.

2. Media and entertainment distribution business

Media and entertainment distribution business as the bulk of Disney's revenue, mainly including cable network television, direct-to-consumer business (streaming media business) and sales and licensing, other businesses.

Operations of the three major businesses

Cable networks is the old business that Disney made its fortune in, but it has underperformed in the past few years and the cap space is clear, with revenues of $6.625 billion in the second fiscal quarter, down 7% year-over-year. Operating profit for the business plunged 35% year-over-year to $1.828 billion, in line with market expectations. Clearly, weakness in Disney's cable network business was the biggest reason for the overall underperformance of the media and entertainment distribution business this time around.

In the second quarter, revenue from Disney's content sales and licensing and other businesses increased 18 percent year-over-year to $2,197 million, with an operating loss of $50 million, compared to an operating profit of $16 million in the same period last fiscal year.

In the second quarter, Disney shifted its focus from subscriber growth to healthy profitability through a series of initiatives in the streaming business, which is of primary concern to the market, with revenue up 12 percent year-over-year to $5.514 billion and operating loss narrowed by 26 percent to $659 million, far less than the $850 million loss previously expected. Strengthened the profitability of streaming media this and Disney through price increases and the implementation of low-cost packages with advertising has a lot to do with, but the corresponding is the total number of Disney operating years of streaming media subscribers began to go downhill.

As of the end of the second fiscal quarter, the total number of Disney streaming subscribers exceeded 231 million, a downward trend. More visually, the decline in subscribers is accelerating as Disney+ is down to just about 158 million subscribers, the second quarter of continued decline after hitting an all-time subscription record of 164 million in the fourth fiscal quarter of 2022, compared to 162 million last fiscal quarter.

But in the face of this situation, Disney is showing more certainty to continue to raise the price of ad-free packages and ad-inclusive packages in the next quarter, even if the stock of ad-inclusive packages will likely not offset the overall decline in subscriptions, Disney's choice to focus more on profits is clear.

Detailed subscription numbers for each of Disney's streaming segments: Disney+ subscriptions of 157.8 million, down 2% year-over-year and below market expectations of 163.1 million; ESPN+ subscriptions up 2% year-over-year to 25.3 million, slightly below market expectations of 25.5 million; overall Hulu subscriptions of 48.2 million, below market expectations of 48.6 million and essentially unchanged from the end of last quarter. Overall Hulu subscriptions of 48.2 million were lower than market expectations of 48.6 million and essentially unchanged from the end of the previous quarter, with Hulu-only subscriptions at 43.7 million, essentially unchanged from the end of the previous quarter, and Hulu+ live TV subscriptions at 4.4 million, down 2 percent year-over-year and below market expectations of 4.5 million.

In this regard, it is clear that Disney+'s average monthly revenue per user (ARPU) has increased significantly, reaching $7.14 in the U.S. and Canada compared to $5.95 in the previous quarter.

3. Compare to Nifty

When discussing Disney's streaming business, we usually compare it to Nifty, but the two companies currently have one thing in common, in that both are proposing to focus their future operations more on profitability rather than just subscriber growth.

But the difference is that Disney has already put the pursuit of profits into action, and is ready to face a slowdown in subscriber growth or even decline. But Nifty is still sticking to its original direction, continuing to ensure the continued growth of paying subscribers through product mix optimization and price adjustments.

The two streaming giants, to part ways, the future will be which one performs better, for the time being inconclusive.

Third, the news

Disney said on its earnings call that it plans to merge Disney+ and Hulu into one app, which it plans to launch in 2023. Although Disney previously acquired Hulu through its 21st Century Fox purchase, Hulu remains a separate service and a part of Disney's streaming landscape.

Considering that Disney already offers a discounted bundle of Hulu and Disney+, the new app is aimed at those who have already paid for the bundle. Putting the two services in the same app is also intended to bring in more advertising revenue for the company. It's also an important step for Disney to strengthen its profitability in the streaming business, and hopefully won't further depress the number of paying subscribers.

IV. Technical side

Disney's poor trend in the past two years, not only the negative impact of the epidemic, but also the factors of the streaming business user growth to the top, the stock price has now come to the lower-middle level in the past decade.

And in the earnings report, the stock price immediately fell rapidly, it seems that the market is not very optimistic about Disney's approach to shed growth and protect value. The stock price is now falling below multiple supports in a row, so enter with caution.

V. Personal summary

1. after the epidemic of consumer recovery to Disney Park's performance brought growth, coupled with Disney's strategic adjustments to the streaming media business effectively improve the profit side, the overall performance of a good trend of improvement, but the market for Disney to change the strategy of a large divergence.

2. Disney's payroll numbers have come out of a downward trend, according to the management, the next will continue to decline, for many investors, means a change in valuation system, which may accelerate the departure of funds.

3. Although I admire Disney management's determination to change, compared to the next door Nifty is still around the door, Disney has taken the lead in firing the first shot, but the current market disagreement is difficult for me to have the determination to game, personally, I think it is better to wait for a while.

This article is a personal quarterly report interpretation analysis, are personal in the ability to think about the experience, but also hope that you criticism correction. In addition, this article does not constitute an investment reference advice, I hope you readers think independently.

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