Walt Disney's surprise earnings beat isn't all that it appears to be. | Image: Apu GOMES / AFP
Two cheers for the House of Mouse. Few companies have been more impacted by the pandemic than The Walt Disney Company (NYSE:DIS). Yet the company managed a surprise earnings beat when it reported after the bell yesterday.
While the company managed to report a profit after accounting adjustments, revenue was nearly cut in half compared to a year ago.
Theme parks remain closed or under strict capacity limitations, and the company’s cruise ships remain docked.
The one area of strength? Streaming. Since launching Disney+ less than a year ago, the company reported that its subscriber numbers hit 60.5 million .
That’s a number that the company estimated to have five years into the service–if all went well. The strong stay-at-home trend, combined with the low price of Disney+, has been a boon to the company.
That’s the magical half of the story. The real-world closures of Disney’s banner theme parks led to a $5 billion loss in one of the company’s largest and most lucrative divisions. That’s an 85% drop.
While some parks have reopened, attendance remains lower than expected. Cruise lines remain closed, as are most movie theaters that screen Disney films. That’s more than enough to offset the rising cash flow from streaming.
While the base Disney+ has been a hit, the company is planning what it calls “one-off” event. The live-action remake of Mulan, scheduled to hit theaters this fall, will also be available on the streaming platform starting September 4.
Unlike all other content on Disney+, however, it will be priced at $30. This isn’t the first movie the company put on its platforms instead of in theaters, but it will be the first time Disney+ has a film for an additional fee.
Disney’s actions with this remake suggest that theater attendance will remain low for the foreseeable future and that the company will need to monetize produced films as best it can in today’s environment.
Expect more movies to either skip the theaters or release simultaneously on streaming , now that the precedent has been set with a big-name film like Mulan. That’s far less lucrative than the box office, which Disney dominated in 2019 .
Disney shares surged 9% on these earnings. Shares remain about 20% off their 52-week highs of $153. For a company that’s had to make radical changes and has seen revenues drop by half, the real story here is Disney’s fairy-tale valuation of 40 times earnings.
If everything goes right in the world, Disney’s stock may head higher, and the valuation may drop at the same time. From what the company is telling us, that day is a ways off.