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Disney - subscribers better than forecast, extra $2bn in savings

Disney's fourth quarter revenue rose 5% to $21.2bn.

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Disney's fourth quarter revenue rose 5% to $21.2bn. That includes a 13% increase in streaming revenue to $5.6bn, which offset declines in Linear Networks, meaning overall Entertainment revenue was up 2%. The number of global Disney+ subscribers, excluding Hotstar internationally, rose 7% to 112.6m. Subscriber numbers overall were better than expected.

Experiences revenue of $8.2bn was 13% higher, reflecting a strong rebound in international parks.

Group operating profit of $3.0bn was much higher than last year's $1.6bn, helped by the improvement in theme parks, as well as narrowing losses from streaming.

Free cash flow more than doubled to $3.4bn, while net debt of $32.2bn was lower than $36.8bn at the same time last year.

Disney expects to reduce costs by a further $2bn, but this won't be coming from further widespread job cuts.

The shares rose 3.3% in after-hours trading.

View the latest Disney share price and how to deal

Our view

Momentum is moving in the right direction for Disney. But it's not all a fairytale and challenges persist - especially on the cost side.

Bob Iger was brought out of retirement at the end of last year to supercharge efforts and stem losses in streaming. We understand the rationale for keeping costs in-line, but in a time when competition in streaming is hotting up, it's a tough balance to get right. Cost-saving measures, which to be fair are progressing well, have also meant drastic action, including the loss of 7,000 jobs. A further $2bn is set to be lopped off the cost base too.

Yet, we're broadly optimistic about the group's streaming business. Brands include Disney+, ESPN+ and Hulu. And we're cautiously hopeful the group will come good on its plans to create profit by 2024, but we're reserving judgment until we see results.

An excellent content catalogue - whether that's princesses on Disney+ or quarterbacks on ESPN - is one thing - but Disney's ability to sell those products through a variety of channels, multiplies the benefit many times over. Theme parks, computer games, Disney Stores - all help the group squeeze maximum benefit from its content.

Propelling growth from elsewhere is important, because we've probably seen Cable's last hurrah. Disney's so-called linear TV businesses like ESPN and ABC are acting as a drag on profits. We still think cable has room to run, but it's unlikely to be a profit booster.

Instead, theme parks are propping up the bottom line. As travel normalises and tourism resumes, high customer volumes are offsetting the enormous costs that come with running these parks. Disney cruises are filling up again and profits are sailing. Over the long-term, we view parks and experiences as highly resilient assets.

The balance sheet's carrying over $30bn in net debt, which will need monitoring. It could limit the scale of the dividend - which is due to be reinstated at the end of the year. No dividend is ever guaranteed.

With time as its ally, Disney has an excellent offering and should hopefully be held in good stead. It's a media powerhouse. The main driver of market reactions will be the speed at which it can grow its streaming business. As we've seen with recent results, the market will be quick to react to disappointing news on that front, so we can't rule out ups and downs.

Disney key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Article history
Published: 9th November 2023