Q3 2024 Earnings Summary
- Disney has a strong upcoming content slate, including movies like Moana, Mufasa, Captain America, Snow White, Thunderbolts, Fantastic Four, Zootopia, Avatar, Avengers, The Mandalorian, and Toy Story. This robust lineup is expected to drive significant growth in box office revenue and global streaming value.
- The company's direct-to-consumer streaming business is improving financially, with efforts to reach double-digit margins. Initiatives like bundling, price increases with only modest churn, and a password-sharing crackdown starting in earnest in September are contributing to this progress.
- Disney is experiencing strong advertising growth, with overall advertising up 8% in the quarter, ESPN up 17%, and DTC streaming up 20%. The new NBA deal secures valuable rights, including the finals for 12 years, supporting ESPN's digital strategy and expected to drive more advertising and distribution revenue moving to digital platforms.
- Softening demand at domestic parks is leading to expected flat revenues in Q4, with trends likely to continue for several quarters, potentially impacting future earnings. Lower-income consumers are under stress, and high-income consumers are traveling internationally, affecting attendance and per capita spending.
- Rising costs are a concern, with the company's cost estimate increasing from $5.5 billion to over $7.5 billion. Additionally, cruise ship startup costs are expected to more than double in fiscal 2025, which may pressure margins and profitability in the near term.
- Challenges in achieving desired margins in the Direct-to-Consumer segment, with no specific timing provided for reaching double-digit margins. There are concerns about potential consumer pushback on Disney+ price increases, slipping ARPU due to subscriber mix shifts, and the effectiveness of measures like password-sharing initiatives, which may impact streaming profitability goals.
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Disney+ Outlook
Q: Can Disney+ continue growth and maintain pricing power?
A: Disney+ is seeing significant success driven by our creative content, with 183 Emmy nominations. We've broadened the product, adding Hulu, news, sports, and international NBA rights. Price increases have resulted in only modest churn, nothing significant. We believe our pricing leverage has increased, and we're bullish about future growth, expecting it to grow nicely in fiscal 2025. Our password-sharing initiative started in June, with no backlash, and kicks in earnestly in September. -
DTC Margin Outlook
Q: What's the timing for DTC achieving double-digit margins?
A: We're making progress toward double-digit margins in our DTC business. Bundling has positively impacted churn, aiding growth. Password sharing efforts are starting, which will also drive growth. We've announced pricing and feel we've earned it in the marketplace, expecting scale benefits. While there's no specific timing update, we were losing $1 billion a quarter, and now we're making money. -
Theme Parks Demand
Q: What's the outlook for theme parks amid demand softening?
A: In Q3, we had 2% revenue growth. While there's a slight moderation in demand, it's not significant. Attendance was flat, with per caps up a little. We expect flattish revenue in Q4. The lower-income consumer feels some stress, and high-income consumers are traveling internationally more. We see a continuation of these trends. Investments in cruise ships will affect us a bit in '24 and '25. We're investing to accelerate growth, hence the term "turbocharge". -
ESPN Partnerships
Q: Any updates on ESPN strategic partner discussions?
A: We're still having conversations about strategic partnerships for ESPN. We believe there may be opportunities to partner with others, particularly on the content side. Nothing more to add at this time. -
Content Spending Balance
Q: What's the right balance of investment among sports, TV, movies?
A: We're investing significantly across sports, scripted TV, and movies due to the value they create, especially for streaming. We've secured long-term sports deals, including NBA, NFL, and college football. Our studio has improved creatively with high-quality IP. Our television business is performing great, with 183 Emmy nominations. It's a balance that will blend as our streaming platform grows. -
Advertising Trends
Q: How is advertising demand amid macro pressures?
A: The ad market is very healthy. Overall advertising grew 8% for the quarter; ESPN was up 17%; DTC streaming was up 20%. Strong performance in financial services, consumer products, services, and technology; auto is softer. Our live sports and successful streaming IP attract advertisers. We've enhanced our advertising capabilities with Disney Streaming, selling audiences effectively. -
Content Licensing
Q: Are you increasing content licensing to third parties?
A: Increased sales in Content Sales/Licensing are due to our box office success. No change in our licensing strategy; core IP is not licensed. We'll continue to tactically license nonstrategic content, but it's not a big strategy. Our focus is on producing our own IP and monetizing it. -
India Deconsolidation Impact
Q: What's the earnings impact once India is deconsolidated?
A: We'll share the impact when we close the deal. At that time, we'll lay it out clearly so you can model it effectively. -
Cruise Ship Costs
Q: What are cruise ship preopening costs for Q4 and fiscal '25?
A: Cruise ship startup costs will be a little over double in 2025 compared to this year. These investments tend to pay back quickly, and we feel positive about them. -
Disney+ ARPU Decline
Q: Why did domestic Disney+ ARPU slip this quarter?
A: ARPU decline is due to bundling effects and a shift to the ad-supported tier. Both have a small effect. From a profitability standpoint, we're happy whether users choose ad-supported or ad-free models.