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    DIS
    Earnings call· Dec 2024(Q1 FY25)

    Walt Disney Co DIS

    Feb 5, 2025 Source

    Executive summary

    The Walt Disney Company Q1 FY25 — Strong Studio Performance and Streaming Profitability Growth

    Disney reported a strong Q1 FY25, driven by exceptional film studio performance and continued growth in streaming profitability. The company is focused on enhancing its streaming technology, including paid sharing and personalization, and is bullish on its ability to grow subscribers and profits. Strategic moves in sports content aim to make ESPN more accessible and grow its business through the upcoming Flagship app and integration with other streaming services.

    Highlights

    4

    • Film studios delivered the top 3 movies of 2024 at the global box office, showcasing creative strength.

    • Streaming profitability grew, with DTC operating profit increasing by $400 million year-over-year to $300 million in Q1 FY25.

    • ESPN achieved historic ratings, demonstrating strong appeal for live sports content.

    • Experiences business showed stronger performance than expected in Q1, increasing confidence in the full-year 6%-8% growth guidance.

    Guidance & targets

    5
    CategoryTargetConfidence
    Experiences business growth
    up 6% to 8%
    high materiality
    High
    Direct-to-Consumer (DTC) operating profit
    a little over $1 billion
    high materiality
    High
    Direct-to-Consumer (DTC) subscriber growth
    grow them for the year
    high materiality
    Medium
    ESPN Operating Income (OI) growth
    low single-digit OI growth
    medium materiality
    High
    ESPN Flagship launch
    sometime toward the -- in the fall of this year
    high materiality
    High

    Operational metrics

    5
    Company-wide earnings growth
    over 40%YoY
    Q1 FY25

    Reported for the first quarter, contributing to confidence in full-year guidance.

    Direct-to-Consumer (DTC) operating profit
    $300 millionup $400 million YoY
    Q1 FY25

    Represents a significant year-over-year improvement in streaming profitability.

    Direct-to-Consumer (DTC) operating profit implied for Q2-Q4
    about $100 million
    per quarter for next 3 quarters

    Analyst-derived figure based on the full-year guidance of 'a little over $1 billion' and Q1 actuals, indicating a slower growth pace for the remainder of the year compared to Q1's surge.

    Content budget
    $23 billiontrimmed from $24 billion
    FY25

    Analyst-stated figure for the content budget, with management emphasizing ongoing cost-cutting and efficient resource allocation.

    Disney Treasure cruise ship profitability
    profitable
    Q1 FY25

    Expected to be profitable in its first quarter of operation, with strong sales and guest feedback.

    Industry KPIs

    4
    MetricValueDetails
    ARPU armsignificantprice increase
    Paid members subscribersmodestly upsubscribers
    Member quality and retentionbetter than expected
    Content spend title performancetop 3 moviesfilms

    Product announcements

    2
    ProductTypeDetails
    ESPN Flagship applaunch
    Lightning Lane Premierexpansion

    Deals & partnerships

    2
    DirecTV and ComcastLaunch of skinnier bundles that include ESPN

    DirecTV and Comcast have launched skinnier bundles, which Disney views as a great way to distribute ESPN content, aligning with the strategy to make ESPN as accessible as possible.

    FuboIntegration of Hulu + Live and Fubo channel business

    After the decision to launch Venu, the emergence of skinny bundles made Venu redundant. This led to an opportunity to merge the Hulu + Live and Fubo channel businesses, which will allow the combined entity to invest more in user experience.

    What to watch in Q2 FY25

    4

    Disney+ and Hulu subscriber growth

    H2 FY25
    Currentmodestly up in Q1, similar in Q2
    Targetaccelerated growth in H2 FY25

    Why it matters

    Subscriber growth is a key indicator of the success of streaming platform enhancements, paid sharing initiatives, and content pipeline, impacting the long-term profitability of the DTC segment.

    In terms of outlook for DTC subscribers, our expectation is to grow them for the year. So given we're basically sort of slightly up in the first quarter, we'll be similar in the second quarter. Our expectation is, particularly as paid sharing starts to take hold and as we add more of the movie slate that we produced in the back half of '24 into the streaming service in '25, we think that content will drive sub growth as well.

    Q&A highlights

    5

    What platform enhancements will be most impactful for Disney+ and when can investors expect tangible results? Also, an update on Experiences and Parks, particularly regarding the Epic opening and confidence in domestic parks guidance.

    Platform enhancements like paid sharing, personalization, and AdTech are rolling out and will continue throughout the next 12 months, with significant progress by year-end. The Q1 Experiences performance increases confidence in the 6-8% full-year guide, with easier comps in H2 and new cruise ships contributing. Epic opening impact is hedged in guidance.

    “I wouldn't really call out any one of them in terms of -- one of them having a greater impact than the others because it's a collection of them. You mentioned paid sharing, that's certainly one. Using technology more and more for personalization and essentially upping our game from an algorithm perspective.”

    asked by Benjamin Swinburne · answered by Robert Iger

    2 min read6 chapters

    Detailed Narrative

    01

    Streaming Technology and Engagement Focus

    Disney is actively rolling out platform enhancements for Disney+ throughout the next 12 months, focusing on paid sharing, advanced personalization algorithms, and AdTech improvements, particularly for the international ad tier. A key initiative is making the home screen more dynamic to increase user engagement and reduce churn, with significant progress expected by year-end FY25.

    02

    Experiences Business Performance and Outlook

    The Experiences segment exceeded internal expectations in Q1 FY25, reinforcing confidence in the full-year guidance of 6% to 8% growth. Easier year-over-year comparisons are anticipated in the second half of the fiscal year, especially Q4. The new Disney Treasure cruise ship is off to a spectacular start, selling out rooms and receiving excellent guest feedback, expected to be profitable in its first quarter of operation. Lightning Lane Premier is being gently rolled out as a premium product, with early results in line with expectations.

    03

    Sports Strategy and ESPN Flagship

    Disney's overarching sports strategy aims to make ESPN as accessible as possible across various consumption models, including traditional bundles, skinny bundles, and the upcoming ESPN Flagship app. The Flagship app, launching in Fall CY25, is designed to be a comprehensive sports experience with multiple enhancements, betting/fantasy integration, and high customization. It will be bundle-able with Disney+ and Hulu, offering a one-app experience and aiming to grow the sports business by catering to younger, streaming-first audiences.

    04

    Direct-to-Consumer (DTC) Profitability and Subscriber Growth

    The DTC segment achieved $300 million in operating profit in Q1 FY25, a $400 million year-over-year improvement, and is on track for over $1 billion in operating profit for the full FY25. Despite significant price increases, churn was lower than expected, and Disney+ and Hulu combined saw modest subscriber growth in Q1. The company expects full-year subscriber growth, driven by paid sharing initiatives and a strong content pipeline, positioning streaming as a profitable growth engine.

    05

    Content Strategy and Investment

    Disney's film studios delivered the top three movies globally in 2024, highlighting the success of its IP-driven theatrical strategy. The company remains committed to producing high-quality films and television series consistently. While an analyst noted a trimmed content budget from $24 billion to $23 billion, management emphasized ongoing cost-cutting initiatives and efficient resource redeployment across the company to drive growth and profitability.

    06

    NBA Contract and Linear Networks

    Disney remains bullish on the NBA, viewing it as a growth sport, and is not concerned by short-term ratings fluctuations. The company's commitment to the NBA extends for 11 more years. Management views its linear networks as assets, not burdens, and is funding them to enhance the overall television business, including streaming. While not ruling out future reconfigurations for smaller networks, the current strategy focuses on managing both linear and streaming businesses effectively.

    AI-generated summary of the company’s earnings call. Not investment advice.