The Walt Disney Company (DIS 1.62%) pleasantly surprised shareholders on Feb. 9 when it reported better-than-expected revenue, earnings, and subscriber growth. The House of Mouse was devastated at the pandemic's onset and has only recently made good progress in its recovery.
With billions of doses of an effective vaccine administered worldwide, people are leaving their homes more often, and that's great news for Disney. Attendance at its theme parks is already above 2019 levels, and the rest of its business is catching up.
Image source: Getty Images.
Disney is bouncing back
Disney delivered revenue of $21.8 billion in its fiscal first quarter ended Jan. 1 when Wall Street analysts expected $18.6 billion. Similarly, Disney reported earnings per share of $1.06 in Q1 when Wall Street expectations were $0.61. CEO Bob Chapek of The Walt Disney Company said:
We've had a very strong start to the fiscal year, with a significant rise in earnings per share, record revenue and operating income at our domestic parks and resorts, the launch of a new franchise with Encanto, and a significant increase in total subscriptions across our streaming portfolio to 196.4 million, including 11.8 million Disney+ subscribers added in the first quarter.
Changes such as mobile ordering, Genie+, Lightning Lane (ability to skip lines), and the Disney Park Pass reservation system could make parks more profitable in the long run. Already, the combination of revenue-enhancing and cost-reducing features has Disney's theme parks on pace to outperform revenue and operating income levels from 2019.
That highlights the effectiveness of management's improvements to the theme park business. With quarterly revenue of $7.2 billion and operating income of $2.5 billion, the segment that includes theme parks is on pace to surpass 2019's annual revenue of $26.2 billion and operating income of $6.7 billion. That's despite a still-raging pandemic and muted attendance by international visitors (typically 20% of its business).
Meanwhile in the streaming business, subscriber growth accelerated in the quarter, and management noted that the second half of the year would be better than the first. That's impressive considering the company added 11.8 million subscribers to Disney+ alone, not to mention the growth in Hulu and ESPN+. Overall, Disney has reached 196.4 million streaming subscribers, not that far behind the market leader, Netflix, with 222 million.
Indeed, Chapek reiterated his confidence that Disney+ will have between 200 million and 230 million subscribers by 2024.
Is Disney stock a buy?
Disney shares are trading at a forward price-to-earnings ratio of 35, near their lowest in the past year. Interestingly, several catalysts can push earnings higher over the next several years, for instance by increasing attendance and spending at theme parks, scaling the streaming services, returning to a normalized box office, and reducing the number of restrictions on cruise ships and international travel.
Investors can feel good about adding Disney shares to their portfolios for all those reasons. Of course, the near term could be volatile because the pandemic is unpredictable and could change directions. That's why it's important to invest for the long term.
