DisneyU+02019s (NYSE: DIS) earnings in fiscal Q4 of 2023 (ended in September) surpassed forecasts, partly due to profits from ESPN+ and growing theme park revenues, although reduced advertising sales impacted overall sales. The House of Mouse also announced plans to intensify its cost management further, increasing its cost-saving goal by $2 billion to a new target of $7.5 billion. 

Following the earnings announcement on Wednesday, DisneyU+02019s stock value climbed over 4% in after-hours trading.

 

How did Disney perform in Q4?

In the September quarter, Disney reported revenue of $21.24 billion and adjusted earnings of $0.82 per share. Comparatively, analysts forecast revenue at $21.33 billion and earnings at $0.70 per share.

The company also ended the quarter with 150.2 million subscribers for its streaming platform, higher than estimates of 148.15 million.

Revenue saw a 5% increase, marginally missing the consensus forecasts. This marks DisneyU+02019s second consecutive shortfall in revenue, a pattern not seen since early 2018.

The quarter also marks the debut of DisneyU+02019s revised financial reporting structure, dividing the business into three segments: entertainment, sports, and experiences. The entertainment segment encompasses DisneyU+02019s media operations and streaming services, sports includes ESPN, and experiences cover theme parks, hotels, cruises, and merchandising.

The experiences division enjoyed a 13% revenue increase to $8.16 billion as the company benefited from higher park attendance and ticket pricing both in domestic and international markets. However, the report noted lower hotel rates at DisneyU+02019s Florida resorts and higher operating expenses in that region. Theme parks and related experiences accounted for about 66% of the total revenue in this division.

 

What impacted Disney sales in fiscal Q4 of 2023

The decline in Disney’s advertising revenue stemmed mainly from the ABC Network and other television stations, which saw a dip in political advertising during the quarter. Over the summer, CEO Bob Iger indicated the possibility of divesting some television assets.

In the realm of streaming, Disney+ gained 7 million new subscribers over the previous quarter, totaling 150.2 million users, Hotstar included. The streaming service also reported a reduction in losses from the previous year.

Wall StreetU+02019s anticipation was that Disney would announce a total subscriber count of 148.15 million for the quarter. The company highlighted its new additions to streaming content, including theatrical releases like “Elemental,” “The Little Mermaid,” and “Guardians of the Galaxy: Vol. 3,” and the Star Wars series “Ahsoka,” contributing to its recent subscriber growth.

Disney maintains its projection of achieving profitability in its combined streaming services by the fiscal fourth quarter of 2024.

CEO Bob Iger outlined four strategic growth pillars: securing sustainable profitability in streaming, transforming ESPN into the ultimate digital sports platform, enhancing the performance and profitability of film studios, and accelerating the expansion of its parks and experiences sector.

 

Is Disney stock undervalued?

Despite the recent uptick in share prices, Disney stock is trading at multi-year lows. In fact, it has returned less than 5% to shareholders in the past decade, trailing the broader markets by a wide margin.

Down 58% from all-time highs, Disney stock is valued at more than $150 billion by market cap. It is among the most recognizable brands in the world and the stock is priced at less than 19x forward earnings which is not too expensive.

Analysts expect adjusted earnings to grow over 25% annually in the next five years. Disney stock also trades at a discount of 15% to consensus price target estimates.

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