Disney posts Q2 revenue miss as Disney+ subscribers fall short

Tim Nollen, Macquarie Media Tech Analyst joins the Yahoo Finance Live panel to discuss Disney’s latest earnings report.

Video Transcript

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- Another stock that we're seeing under pressure in the session today is Disney. Shares they're down more than 3% right now. The company earned $0.79 a share in the quarter on revenue of $15 billion. But it missed on subscriber numbers for Disney Plus. That number came in at roughly $104 million versus the $109 million that was expected.

REPORTER 1: Let's bring in Tim Nolan Macquarie Media Tech Analyst. Tim, it's interesting how quickly the sentiment shifts around Disney. Because if you think about a year ago that was when we started to see this stock increasingly trade on the strength of Disney Plus given where the parks business was. You think there's a bit of an overreaction here in the selling of the stock and how big of a concern should that number be, given that it's just one quarter?

- We're not concerned about that particular number, it's you know, it's had a great run given all this really, really strong subscriber growth ever since Disney Plus launched. And this was a softer than expected number for some reasons which I think they explained, including HOTSTAR in India slowing down as they had delayed cricket competition, which is generally a very strong driver of that. You also had RPU slowing because HOTSTAR had previously become so large in India and that's at a much lower price point.

- So a number of reasons I think why the numbers slowed a bit. There was also a push out in the launch of STAR in Latin America given the sports calendar later this year. So this is nit picky, I think this is a quarter by quarter thing. The general trend is still very, very, very positive. And there's a number of other factors which we could talk about coming into Disney's P&L now with parks and box offices reopening. So there's a whole lot of moving parts here any one quarter I think is not a basis of changing your decision.

REPORTER 2: It's kind of difficult to kind of compare quarters here given everything that we've seen, regardless of what sector you choose. But when you dig in Disney and you kind of talk about maybe some of those things that might be missed, it sounded like you were kind of teasing out some of the way that the blockbusters that a giant like Disney is shifting that around you the pandemic, because it is potentially at fault of a piece of this here. So talk to me about maybe what that looks like moving forward as they get back to more normal business at Disney.

- Well you know this has been one of our thesis on Disney stock for some time as they've got on the one hand, you know during COVID, very strong-- or even pre-COVID-- very strong subscriber numbers for Disney Plus and ESPN Plus, and Hulu. And that's great for the new streaming world which these traditional media companies have been embracing finally and Disney has led the way.

TIM NOLLEN: But in addition coming out of COVID, you've got you know two very large components of Disney's business certainly in people's minds and as well as in the PNLs-- the parks business and the box office releases. And both of those were of course, completely all or almost completely shut down for the last year.

TIM NOLLEN: Now you've got parks reopening you've got Disneyland in California, Disney World in Florida both at capacity, which is still somewhat constrained. You'll have, I just saw a headline today about the CDC saying those vaccinated won't need to be wearing masks anymore. I mean that's going to be very positive for driving attendance at the parks and lifting capacity restraints. And so you see parks growth is going to return more or less to normal in terms of the total numbers, let's say within a year or two, and I think ramping up nicely toward that in the meantime.

- Meanwhile, the box office is reopening. I think the first Disney box office release will be coming up in the next couple of weeks. And they've laid out a nice interesting new strategy in terms of some box office exclusive, some box office plus Disney Plus a premium window, and some movies going straight to Disney Plus.

- So they really have kind of all sides covered I think. And so you've got a cyclical rebound I think for those businesses, which will be coming out now over the next few quarters.

- That does come with some costs of course, a lot of rehiring at the parks filming, and the promotional impacts of the box office releases coming out. So that bears some costs and then you've got sports rights costs coming on too, so it's really a mixture of factors.

REPORTER 1: You've got a $210 price target or 12 month price target. Right now we're seeing the stock trading at 172. How much of the catalyst to get to that level you think really is about the recovering the parks business to your point, yes they're open but they're at, in the case of California about 25% capacity. We're expecting a full reopening in the summer months. Is this a Q2- Q3 story or do you think the recovery will take a bit longer on that front?

TIM NOLLEN: Yeah, well I mean, it'll take a while to get back to parks regaining their full capacity attendance where they were pre-COVID. I mean, I would say that takes at least a year.

- But the trajectory I think is positive, the more people visiting parks over the course of the spring and summer now and into the fall, the more optimistic one can get about the strength of that business.

- There is this upcoming quarter, this June quarter is kind of a soft spot because you've got all of the sports that were shut down during the June quarter last year-- now is pretty much full force. Things like the NBA season rolling even into the fiscal fourth quarter of Disney, the September quarter with the playoffs. So, you know, a lot of that cost involved is going to weigh on the numbers.

TIM NOLLEN: But I think probably more important than the actual earnings figures that they will be reporting at the time is the sentiment. And I think the parks and the box office recoveries will be very positive in people's minds. And also again the streaming services are still in a very, very good growth mode, and I think those numbers as Disney goes to the next couple of quarters will be picking up again.

- I'll be watching it, at the very least missing those estimates right now, but we'll see what happens. Tim Nolan, Macquarie Media Tech Analyst, appreciate you coming on here to chat with us today, be well.

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