Entertainment powerhouse Walt Disney Co. (DIS) earned $0.80 per share in Q3, versus the analyst consensus estimate of $0.55, reports Jason Clark, value investing expert and contributing editor to The Prudent Speculator.
Revenue came in at $17.02 billion, versus the $16.80 billion estimate. The overall Disney streaming subscriber count (Disney+, ESPN+ and Hulu) was 174 million.
Disney+ leads the group with 116 million subscribers, a figure management expects to grow as the media company regularly launches new content on the platform.
Domestic advertising revenue grew on a year-over-year basis for cable and broadcasting thanks to the return of live sports and a resurgence in marketing budgets.
And, with the theme parks operating again, the Parks, Experiences and Products segment saw a massive year-over-year revenue ($4.3 billion vs. $1.1 billion) and operating income ($356 million vs. a $1.9 billion loss) improvement for the period.
We think Disney is faring quite well, all things considered, and we appreciate the company remaining cautious on the resumption of dividend payments and buybacks. Of course, we love a good yield, but the company needs to retain some operating cash in case the pandemic situation worsens again.
At present, we do not expect lockdowns like last year, but we do expect continued challenges with infection rates, particularly in locales that have low vaccination rates.
Government officials have the final call, but Disney’s corporate policy is that all non-union and salary employees are required to provide proof of vaccination to work, which we think will help keep the parks open and, as Mr. Chapek pointed out, otherwise mitigate the impact of the pandemic.
Disney’s parks are a cash machine and we were excited to see the company’s Magic Key annual pass program is not cost prohibitive (we agree, it’s far from inexpensive, but we feared that the price could have been much higher to keep it elite).
Analysts expect DIS earnings per share this year to come in around the $2.50 level, but think that number will swell near $5 in 2022 and above $6 in 2023. Of course, that makes DIS look very expensive in the near term, and less expensive over the long term.
We continue to like management’s choices to leverage Disney’s deep content portfolio, while we think that rest of the business lines are poised for a great rebound as the pandemic recedes. Our Target Price for DIS has been increased to $213.