Disney Earnings: Experiences Softness Weighs on Results, but Much of Business Has Turned Up

Key Morningstar Metrics for Walt Disney

• Fair Value Estimate: $115.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Walt Disney’s Earnings

Strength in experiences has been Walt Disney’s DIS salvation over the past few years as the traditional media business has struggled with secular challenges. The script largely flipped during the company’s third quarter as its streaming business continued gaining momentum, a return to box office success drove sizable licensing profits, and strength at ESPN blunted struggles throughout the rest of the linear television business. In experiences, waning demand and high costs stood out, but we see this as a cyclical bump rather than a structural crisis. We’re maintaining our fair value estimate of $115 per share, and we are more comfortable with Disney’s business now than in recent years. We believe the stock is undervalued.

Experiences revenue grew only 2% year over year, as a slowdown in attendance and guest spending internationally has now joined the domestic trend that has persisted over the past year, following rapid growth after the pandemic. Moreover, operating income in the segment fell by 3% on 150 basis points of margin contraction. Management expects these tepid results to persist for the next several quarters, as it has seen consumer demand drop off. It cited several factors that led to higher expenses, but startup costs associated with new projects will also require higher spending. However, we expect demand to be cyclical, and with new cruise ships and park extensions set to open over the next couple of years, we still expect plenty of room for long-term growth.

The firm finally reached streaming profitability across ESPN+ and its other entertainment streaming services while seeing revenue accelerating to 15.5% year over year. Between Hulu and Disney+, the firm added over 1.5 million subscribers, all in North America. Average revenue per user for Disney+ was down 5% year over year, which we attribute largely to the full-quarter effect of the Charter cable subscribers who began receiving access earlier this year.