Disney Shows Signs of Recovery in Second Quarter Financials

Disney+ grows to 103.6 million subscribers

After a very difficult year, The Walt Disney Co. is showing signs of recovery. Though second quarter revenue was down 13% at $15.6 billion, net income from continuing operations was $912 million, a 95% increase year-over-year. Diluted earnings per share from continuing operations was $0.50, a 92% increase compared to diluted earnings per share of $0.26 in the second quarter of 2020.

“We’re pleased to see more encouraging signs of recovery across our businesses, and we remain focused on ramping up our operations while also fueling long-term growth for the company,” said Bob Chapek, CEO of The Walt Disney Co. in a May 13, 2021 news release. “This is clearly reflected in the reopening of our theme parks and resorts, increased production at our studios, the continued success of our streaming services, and the expansion of our unrivaled portfolio of multiyear sports rights deals for ESPN and ESPN+.”

Quarterly highlights

Other highlights for the quarter ended April 3, 2021 include the following:

  • Total segment operating income was $2.5 billion, a 2% increase of the second quarter of 2020.
  • Free cash flow was $623 million, a 67% decrease compared to $1.9 billion in free cash flow for the same period last year.
  • Total cash and cash equivalents at the end of the quarter was $15.9 billion.
  • In the Disney Media and Entertainment Distribution segment, Linear Networks brought in $6.7 billion in revenue, a 4% decrease year-over-year; Direct-to Consumer brought in $4.0 billion, a 59% increase year-over-year; and Content Sales/Licensing and Other brought in $1.9 billion.
  • The operating loss in the Direct-to-Consumer category decreased from $0.8 billion in the second quarter of 2020 to $0.3 billion in the second quarter of this year. This was primarily due to improved results at Hulu and ESPN+.
  • Hulu’s revenue grew in terms of subscriptions and higher advertising revenue, which was offset in part by programming and production costs.

Subscriber and ARPU totals

Subscribers for the company’s Direct-to-Consumer business were as follows at the end of the quarter:

  • Disney+: 103.6 million, compared to 33.5 million in Q2 2020
  • ESPN+: 13.8 million, compared to 7.9 million in Q2 2020
  • Hulu, SVOD Only: 37.8 million, compared to 28.8 million in Q2 2020
  • Hulu, Live TV + SVOD: 3.8 million compared to 3.3 million in Q2 2020
  • Total Hulu subscribers: 41.6 million, compared to 32.1 million in Q2 2020

Average monthly revenue per subscriber was as follows:

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  • Disney+: $3.99, compared to $5.63 in Q2 2020 (a 29% decrease)*
  • ESPN+: $4.55, compared to $4.25 in Q2 2020 (a 7% increase)
  • Hulu, SVOD only: $12.08, compared to $12.06 in Q2 2020
  • Hulu Live TV + SVOD: $81.83, compared to $67.75 in Q2 2020 (a 21% increase)

*The decrease in average revenue per subscriber is due to the launch of Disney+ Hotstar.

Revenue for Disney Parks, Experiences and Products decreased 44% to $3.2 billion for the quarter, due to the continued restrictions and closures of Disney parks and cruises during the COVID-19 pandemic.

Chapek addressed some of these operational results during the earnings call last week.

“Our steady cadence of new, high-quality branded content, along with our robust collection of library titles, allows us to continually attract new subscribers and retain existing ones. At the same time, we are also closely monitoring the recovery of theatrical exhibition as consumers begin to return to theaters…,” Chapek said. “…we are focused on the ongoing recovery of our parks business and the resumption of Disney Cruise Line. There have been some encouraging developments in recent months, particularly with the ongoing rollout of the vaccine and the gradual lifting of government-mandated restrictions.”

Chapek also discussed the company’s three-pronged approach to the release of new films:

  • Disney+ Premier Access
  • Releases straight to Disney+
  • Traditional exclusive theatrical releases

For example, Cruella will be released in theaters and through Disney+ Premier Access on May 28. On June 18, Pixar’s Luca will to be released exclusively on Disney+. Black Widow will be released in theaters and on Disney+ vis Premier Access on July 9, and Disney’s Jungle Cruise will be in theaters and available on Disney+ Premier Access on July 30.

Insider Take

Disney has had a very challenging year because of the pandemic, but they pivoted quickly with a company-wide reorganization and significant investments in their direct-to-consumer streaming businesses. While Disney cannot control when its cruise lines and theme parks can resume normal operations, they can control their streaming services, and content and licensing business segments, which have helped them diversify. We are particularly interested to see how their business model adapts to their three-pronged approach to theatrical releases. Is this a temporary fix, or will this new model carry over to post COVID life?