Last Thursday, the Walt Disney Company reported earnings for the last quarter of the financial year that ended on October the 3rd, 2020. The announcement came during a week when the stock market reacted positively to a possible COVID-19 vaccine that sent value stocks higher as investors dumped growth in a classic rotation.
Disney was hit by the pandemic as it was forced to close its entertainment parks. They are responsible for a big chunk of Disney’s earnings, and the company employs many people in this area. Therefore, the focus was to see how Disney managed the pandemic challenges for its Q4 and if it found a way to compensate for the loss of the income in its parks, experiences, and consumer products side of the business.
Somehow, it did. It beat revenue, reporting $14.71 on expected $14.20. Also, its adjusted earnings per share, while negative at -$0.2, were much better than the -$0.73 the market expected.
Details of Disney’s Q4 2020 Earnings
All this year, during the pandemic, Disney’s focus was to find a balance between the money-losing side of the business (i.e., parks) and the money-making one (e.g., Disney+). As always, investors focus on the period ahead, and this time their attention is centered on the number of subscribers on Disney+, ESPN+, and the rest of the media networks businesses.
The company announced more than 8 million subscribers than the market expected for Disney+. The service reached 73.7 million subscribers. Also, ESPN+ number of subscribers increased too, reaching 10.3 million on expectations of 9.19 million. As such, the media networks’ revenue grew to $7.2 billion on $6.83 estimated.
Parks, Experiences, and Products, the money-losing segment during the pandemic, lost $1.1 billion. The company announced that both Disneyland Resorts and the cruise line business were closed during the quarter. Therefore, the focus here is to cover the losses from the other segments until the pandemic eases.
All in all, Disney beat expectations, and analysts hurried to raise the share price’s forecast. RBC Capital Markets upgraded Disney from Sector Perform to Outperform. Moreover, BMO raised the price target to $165 from $150. Furthermore, Guggenheim went even further and raised the share price target to $165.
Disney had a hard time in 2020. However, unlike other companies, it found a way to manage the downfall by cutting expenses in the parks segment and aggressively promoting the media networks business. So far, the strategy did the trick. Should the pandemic ease and should Disney maintain the growth of its media networks businesses, the road to profitability is open.