Disney's FY20 Q3 Earnings (8/4/20)

[brianstl]

What would be interesting to know is exactly how much the deferred rights payments to the NBA and MLB saved them and what they are paying now that both are playing. That will have an impact on the cash burn along with the NFL getting ready to start.

You got most of it...and if you thirst for more you are very “niche”

New content has become the driver of steams.

As much as I think people subscribe to get Delta Force (most awesomely bad movie ever)...‘‘tis not so

The rights fee paid by streaming services for Friends, Seinfeld, The Office, Big bang, etc. suggest that it isn't all about new content.

 

[Sir_Cliff]

Seriously, your prized dog just took a financial poop on the carpet and the market is saying "good dog" because the size of the log could have been larger.

I really don't understand this sentiment.

There seem to be people who imagine that investors hadn't realised there was a global pandemic that was hitting Disney badly before this quarterly report and this knowledge therefore wasn't reflected in the stock price already. Then it seems that the only good result for Disney in these unprecedented circumstance would be to defy reality by performing as though the pandemic didn't exist.

Isn't it positive that investors are recognising that Disney is likely a good investment in the medium term as it's well placed to survive the current crisis rather than demanding higher profits here and now? Certainly if you like the parks, it's probably a good thing investors are not pressuring Disney to throw them under the bus right away.

 

[Chef Mickey]

I truly believe the financial world has lost it's mind. 12.35% increase and still going. They announced nothing new. The "Star" streaming service is slated to stream content they already own, not new content, and won't debut until sometime in 2021...You know...right when people hope to be getting out of their homes and seeing the world again! Somehow that is worth a 12%+ increase??!!

I feel like that old person who doesn't recognize the world around them anymore...

You aren’t old. You just don’t understand stocks or Disney’s business.

 

[Chef Mickey]

Everyone questioning the stock surge should go study Netflix. Let me just explain some facts.

Netflix is valued at $222B with $1.8B in 2019 earnings.

Disney is valued at $233B (including today’s jump )and posted over $12B in earnings in 2019.

It took Netflix 16 years to make a profit over $266M and the highest profit they’ve posted in a year is less than a 6th of Disney.

Sure, sure...Netflix is growing. Different company. Different cost structure. But they don’t make nearly the profit (yet) of Disney and are essentially only a streaming service. No parks, no merchandise, no Sports, no television networks, no theatrical movies, just streaming.

And you know what? Some of that might be good! Parks are not an easy business. TV is tough and is a changing, some would argue, declining business. But is Netflix actually worth the same as Disney with less than a 6th of the earnings and being a one trick pony? I don’t know. The market today says yes. But I’m not questioning Disney’s valuation first.

The stock surge today is entirely because it was better than expected after Disney had been crushed from its highs, which I’d argue were not high enough. It’s a $200 stock, maybe more with the way markets value subscription services (NFLX).

Disney’s subscription business will be a force in time. 100M Paying subscribers across all channels And 60M in 8 months for D+, which was their 5 year goal. Losing money now, but Netflix lost money or barely made any for 16 years. It will be monetized, don’t you worry.

 

[WDW Pro]

Here is something I have been thinking about in regard to the heavy focus on Disney+ performance.

1) Disney+ is a new offering, especially oversees. Anything that is even slightly interesting gets attention when it's new. I remember the days that people were swooning over Sling TV. Heck, they have a button on Roku remotes. Their subscriber numbers are dropping. The novelty has worn off and people are finding something else they prefer. I see this happening with Disney+ sooner rather than later. I myself have already watched what I was interested in. Now we probably turn to Disney+ two maybe three times a month, and that's more because I want to get some use out of what I've paid for, not because I'm dying to watch something from their library. Our household is likely to drop it once the year subscription runs out. We may return later once new content builds to a level worth paying for a month or two, but I likely will not do another 1Y membership.

2) How many subscribers paid the 1-3 year deal upfront? I feel like it's a substantial number north of 25%. All that money was given to Disney last year. They aren't seeing any revenue from those subscribers now. Zero, zilch, nada.

3) As far as the timing for Disney+ to debut, it almost is like a marlin jumped into the fishing boat. Such incredible good fortune. They get a large number of people to subscribe using a long-term subscription. Then, just a few months later a global pandemic starts just as they have rolled out internationally. People are encouraged to stay home as much as possible. The perfect storm has arrived for increased consumers to beg you to take their money. What happens? Even as the situation slogs on, only 60mil have subscribed worldwide. And for all three of their streaming platforms they have a total of 100mil subscribers. That looks like a lot, but they were at 70 million in March. So, only 30 million more across all three platforms. Even still, the three together are dwarfed by Netflix's 182mil, almost double the subscribers for one service. Rather than Netfilx's having it's customers stolen, they had a net increase in subscriptions of 22% over the previous year.


The take-away: Disney+ will likely never have as good of an opportunity to gain subscribers than it did in the past quarter. People were just short of chained to their couches and told to watch TV for several months. Yet, only 30 million new subscribers decided they wanted to watch ESPN+, Disney+ or Hulu. Not good.

Interest rates go up as credit rating goes down. TWDC is still 2 levels above the bottom of investment grade so they have a ways to go before interest rate matters. The company I work for is a level below investment grade and we can still borrow money easily at a pretty attractive rate right now. The capital markets are flush with cash right now, not like 2008. Eventually you have to pay the piper so at some point if they take on a lot of extra debt they may consider a sale of assets to pay it down, but I would think that would be part of a strategic decision on if they want to keep those assets long term. Right now the theme parks are worth the least they probably ever were so it’s a terrible time to think about selling them. It would be like trying to sell a beach house on a barrier island the day after a hurricane while the power is still out and the only bridge to the island was knocked out and is closed for the next year. Someone may see the potential that house will have in a year when the dust settles, but most buyers would say no way, unless they got it for a rock bottom price.

Exactly right, but that also assumes the market stays steady. If in the next months - and I hope this doesn't occur - the COVID situation gets worse out looks to last multiple more years, interest rates would likely rise by default and credit ratings could be reevaluated.

90%+ decrease in revenue yields 12% increase in stock price??? Imagine how stock price would surge further if WDW had a 100% decrease in revenue.

Chapek has done a good job of securing the current financials. That's the rise in stock. Ultimately what would shift the stock negative would be A) closing WDW and B) a worse outlook for the COVID situation. But don't be confused... if God forbid the virus continue unabated into next year, cascading negative effects will occur.

 

[brianstl]

Is there a need for something new to justify a stock increase?

Maybe the numbers aren't as bad as expected, and there is the news that the parks are profitable with all the restrictions.
The company surviving well enough and the glimpse of profits in the future seems to be enough reasons for a stock increase ;-)

The quarter was actual better than anyone should have expected, but the surge in price doesn't make sense. The price of many companies don't make sense right now. While in good shape considering the current climate, they are in terrible shape compared to where they were a year ago.

 

[Chef Mickey]

Exactly right, but that also assumes the market stays steady. If in the next months - and I hope this doesn't occur - the COVID situation gets worse out looks to last multiple more years, interest rates would likely rise by default and credit ratings could be reevaluated.



Chapek has done a good job of securing the current financials. That's the rise in stock. Ultimately what would shift the stock negative would be A) closing WDW and B) a worse outlook for the COVID situation. But don't be confused... if God forbid the virus continue unabated into next year, cascading negative effects will occur.

Better get short then, Mr Doom and Gloom. The rest of us will live our lives, manage the issues (there will be many and things even harder than a respiratory virus), and get rich buying stocks for the long term.

NOTHING has stopped this country from success, and this virus won’t be the first.

Already seeing that is true. Look at the recovery in markets. Bet you can’t stand it.

 

[Chef Mickey]

The quarter was actual better than anyone should have expected, but the surge in price doesn't make sense. The price of many companies don't make sense right now. While in good shape considering the current climate, they are in terrible shape compared to where they were a year ago.

Markets look forward bro...worst is over, says Mr. Market. Parks are open...things are opening up again, companies are adapting and people are adapting. Can’t stop progress.

The Fed is also pumping trillions of liquidity into the market, so why fight it? We won’t let companies fail...too important to our livelihood.

 

[Jrb1979]

Markets look forward bro...worst is over, says Mr. Market. Parks are open...things are opening up again, companies are adapting and people are adapting. Can’t stop progress.

The Fed is also pumping trillions of liquidity into the market, so why fight it? We won’t let companies fail...too important to our livelihood.

The worst is not over. Cases are still rising in many places and deaths in Florida keep rising. People aren't traveling right now or going to theme parks. You keep living in your rose colored glasses world.

 

[peter11435]

The worst is not over. Cases are still rising in many places and deaths in Florida keep rising. People aren't traveling right now or going to theme parks. You keep living in your rose colored glasses world.

As long as the parks are open and contributing positively then as far as WDW is concerned, yes, the worst is over.

 

[DDLand]

Again correct, but just know that further debt they incur, outside of government bailouts, is likely to require greater and greater interest rates. That's why in any Corporation, at some point they go from taking on debt to selling assets in a situation such as this.

But at this point Walt Disney Co. is cashflow positive. They have piles of cash that will allow them to easily service their debt over the next few years. Disney was able to control their costs impressively. Disney does not have capital problem. Disney is not running out of cash or is even anywhere close to running out of cash.

That’s not to say Disney is “out of the woods.” Disney will need to cancel projects and be obsessive about cost controls. Walt Disney World and Disneyland will undergo draconian cuts and are in VERY real danger. I’m also concerned about Media Networks... Cost cutting was surprisingly less impactful than I was expecting. But I fully anticipate it will continue to accelerate. I also would be concerned about affiliates going belly up. Advertising dollars could squeeze them much more than Disney central. All eyes will be on ESPN moving forward. If that business collapses or has soaring costs, Disney may actually be forced into negative cashflow. Watch ESPN.

Disney Parks had a horrific, catastrophic, unimaginably bad quarter. It was awful. Next quarter will tell us how the reopening is going. I’m guessing not well... But Disney as a whole is surviving.

Here is something I have been thinking about in regard to the heavy focus on Disney+ performance.

1) Disney+ is a new offering, especially oversees. Anything that is even slightly interesting gets attention when it's new. I remember the days that people were swooning over Sling TV. Heck, they have a button on Roku remotes. Their subscriber numbers are dropping. The novelty has worn off and people are finding something else they prefer. I see this happening with Disney+ sooner rather than later. I myself have already watched what I was interested in. Now we probably turn to Disney+ two maybe three times a month, and that's more because I want to get some use out of what I've paid for, not because I'm dying to watch something from their library. Our household is likely to drop it once the year subscription runs out. We may return later once new content builds to a level worth paying for a month or two, but I likely will not do another 1Y membership.

2) How many subscribers paid the 1-3 year deal upfront? I feel like it's a substantial number north of 25%. All that money was given to Disney last year. They aren't seeing any revenue from those subscribers now. Zero, zilch, nada.

3) As far as the timing for Disney+ to debut, it almost is like a marlin jumped into the fishing boat. Such incredible good fortune. They get a large number of people to subscribe using a long-term subscription. Then, just a few months later a global pandemic starts just as they have rolled out internationally. People are encouraged to stay home as much as possible. The perfect storm has arrived for increased consumers to beg you to take their money. What happens? Even as the situation slogs on, only 60mil have subscribed worldwide. And for all three of their streaming platforms they have a total of 100mil subscribers. That looks like a lot, but they were at 70 million in March. So, only 30 million more across all three platforms. Even still, the three together are dwarfed by Netflix's 182mil, almost double the subscribers for one service. Rather than Netfilx's having it's customers stolen, they had a net increase in subscriptions of 22% over the previous year.


The take-away: Disney+ will likely never have as good of an opportunity to gain subscribers than it did in the past quarter. People were just short of chained to their couches and told to watch TV for several months. Yet, only 30 million new subscribers decided they wanted to watch ESPN+, Disney+ or Hulu. Not good.

Disney+ is a fantastic business. You’re not wrong that it was slow... But I don’t think we can read too much into it yet. Disney+ should scale. IMO if it doesn’t that would be bad.

 

[peter11435]

While in good shape considering the current climate, they are in terrible shape compared to where they were a year ago.

Yes, but even after today’s surge the stock price is still lower compared to where the were a year ago. So this isn’t exactly growth just restoring value that had been lost.

 

[VaderTron]

Yes, but even after today’s surge the stock price is still lower compared to where the were a year ago.

Money coming in is massively lower than where it was a year ago. If that were the barometer then the stock should have gone down, not up. Are you sure you want to hinge your argument on that particular reasoning point?

 

[WDW Pro]

But at this point Walt Disney Co. is cashflow positive. They have piles of cash that will allow them to easily service their debt over the next few years. Disney was able to control their costs impressively. Disney does not have capital problem. Disney is not running out of cash or is even anywhere close to running out of cash.

That’s not to say Disney is “out of the woods.” Disney will need to cancel projects and be obsessive about cost controls. Walt Disney World and Disneyland will undergo draconian cuts and are in VERY real danger. I’m also concerned about Media Networks... Cost cutting was surprisingly less impactful than I was expecting. But I fully anticipate it will continue to accelerate. I also would be concerned about affiliates going belly up. Advertising dollars could squeeze them much more than Disney central. All eyes will be on ESPN moving forward. If that business collapses or has soaring costs, Disney may actually be forced into negative cashflow. Watch ESPN.

Disney Parks had a horrific, catastrophic, unimaginably bad quarter. It was awful. Next quarter will tell us how the reopening is going. I’m guessing not well... But Disney as a whole is surviving.




Disney+ is a fantastic business. You’re not wrong that it was slow... But I don’t think we can read too much into it yet. Disney+ should scale. IMO if it doesn’t that would be bad.

You're 100% accurate. To understand what I'm saying, just understand that Disney Parks will have a significantly worse two consecutive quarters going forward that will damage the company. Why? Because projects have to be resumed, cast are being paid, and attendance is presumably very, very low until at least November.

 

[peter11435]

Money coming in is massively lower than where it was a year ago. If that were the barometer then the stock should have gone down, not up. Are you sure you want to hinge your argument on that particular reasoning point?

I never said anything about money coming in, but yeah, everyone has been well aware for months that revenue was drastically down. We didn’t need yesterday to tell us that.

The stock is not reacting to loss of revenue because that was known and expected, the market reacted to loss of revenue months ago.

 

[Dan Deesnee]

That 12% increase is really just restoring value that was lost due to Covid. It’s still lower than it was before all this started.

Markets look forward bro...worst is over, says Mr. Market. Parks are open...things are opening up again, companies are adapting and people are adapting. Can’t stop progress.

The Fed is also pumping trillions of liquidity into the market, so why fight it? We won’t let companies fail...too important to our livelihood.

Exactly. The worst is likely over. The hyperbole about our future is ridiculous but always happens.

"The Federal Reserve announced $2.3 trillion worth of new measures to prop up an economy...including plans to buy junk bonds and collateralized loan obligations"

If the Fed raises rates any time soon, they destroy themselves AND the economy. They probably can't meaningfully raise rates for at least 1-2 years. This means lower yields on other financial instruments / assets. What this all boils down to is the best place to put your money for a return IS and WILL REMAIN the stock market (for quite some time). That doesn't mean it won't have big moves downward though.

No raise in rates = a continuing upward stock market. Markets react of "better than expected news (even if the news is still bad) positively, they have trillions being pumped into them, and it's the best place to get sizable returns on your investments.

See, it does make sense!

 

[GoofGoof]

Exactly right, but that also assumes the market stays steady. If in the next months - and I hope this doesn't occur - the COVID situation gets worse out looks to last multiple more years, interest rates would likely rise by default and credit ratings could be reevaluated.

If Covid “gets extended” for multiple years then there would be an impact on TWDC credit rating for sure. Right now the vast majority of the debt expires well beyond the next 12 months so there’s not an immediate cash squeeze. If 2 or 3 years from now we are still in a Covid recession then it may be time for Disney to panic a little.

As far as availability of capital goes there’s a lot of cash out there waiting to be deployed. This is a very different recession than almost anything we have seen. Whole industries are virtually unchanged and in some cases are benefiting from Covid. The devastating impact is really tied primarily to brick and mortar retail plus travel, leisure and dining. Since Disney is in those industries it should give pause to banks to lend to them, but if the maturities on the new notes are 4 or 5 years out there’s a good chance they have no problem paying it back. It’s a strange world financially right now for sure.

 

[brianstl]

Markets look forward bro...worst is over, says Mr. Market. Parks are open...things are opening up again, companies are adapting and people are adapting. Can’t stop progress.

The Fed is also pumping trillions of liquidity into the market, so why fight it? We won’t let companies fail...too important to our livelihood.

Disney is in far worse position looking forward than they were a year ago bro. They have added almost $30 billion in debt to their books in the past 12 months. That is in addition to the debt they added when they bought Fox.

I don’t think Disney is going to have to go out of business or sell assets. It is just today’s surge doesn’t make sense. A big drop wouldn’t have made sense either.

 

[Dan Deesnee]

Disney is in far worse position looking forward than they were a year ago bro. They have added almost $30 billion in debt to their books in the past 12 months. That is in addition to the debt they added when they bought Fox.

I don’t think Disney is going to have to go out of business or sell assets. It is just today’s surge doesn’t make sense. A big drop wouldn’t have made sense either.

It makes perfect sense. See my post above.

If you really want to know why it makes sense you'd have to get into the finer details of stock trading. Maybe it's a short squeeze crucifying people that thought for sure Disney stock was going to tank after the earnings call so they went short? Maybe large companies are buying it because their 6 figure paid analysts and researchers who have spent decades studying the theme park industry (yes many financial companies have industry specific experts) and the stock market itself think it's a good buy right now?

It's moving upward due to a multitude of factors. Soon it will likely drop because it's moving up too quickly. That is how the markets work.

 

[brianstl]

It makes perfect sense. See my post above.

If you really want to know why it makes sense you'd have to get into the finer details of stock trading. Maybe it's a short squeeze crucifying people that thought for sure Disney stock was going to tank after the earnings call so they went short? Maybe large companies are buying it because their 6 figure paid analysts and researchers who have spent decades studying the theme park industry (yes many financial companies have industry specific experts) and the stock market itself think it's a good buy right now?

It's moving upward due to a multitude of factors. Soon it will likely drop because it's moving up too quickly. That is how the markets work.

I didn't think their stock would tank. The bad news was already priced into the stock. The stock shouldn't have tanked and it shouldn't have surged liked it did. And the funny thing is you admit it shouldn't have surged like it did at the end of your post.