Disney CFO Acknowledges Lower-Income Customers Are "Stressed & Spending Less Time At Parks"

Walt Disney Co. Shares Dip in Premarket Trading

Following mixed third-quarter results on Wednesday, Walt Disney Co. shares have taken a dip in premarket trading. Despite the streaming and movie businesses of Disney reporting their first-ever profitability a quarter ahead of schedule, the company's park attendance and per-visitor spending have been negatively affected by a worsening consumer downturn.

Analysis of Third-Quarter Earnings

Michael Ng from Goldman Sachs provided clients with a breakdown of third-quarter earnings this morning. He highlighted that while the streaming and movie businesses are thriving, a decrease in park demand and a "moderation of consumer demand" could impact experiences in the upcoming quarters.

Disney's Financial Performance

Disney's F3Q24 EPS of $1.39 surpassed the Goldman Sachs/consensus (Visible Alpha) of $1.20/$1.19. This was largely due to the Entertainment and Sports segment outperforming the Experiences segment. Despite this, Disney has revised its F2024 EPS growth outlook to 30% (from 25%) due to better-than-expected profitability at Entertainment DTC, ESPN+, and Content Sales/Licensing and Other. However, the Experiences EBIT underperformed in the quarter, and Disney now predicts a decline in F4Q24E Experiences EBIT.

Consumer Demand and Streaming Businesses

Domestic attendance in F3Q24 was relatively flat, and per capita was slightly up. The downgraded outlook in Experiences reflects a moderation of consumer demand toward the end of F3Q24. This trend is expected to continue impacting the next few quarters. However, the combined streaming businesses, including ESPN+, reached EBIT profitability in F3Q24, a quarter earlier than expected. Disney+ Core subscribers of 118.3 mn beat GS/consensus of 118.1/117.4 mn, with strength in domestic, and Hulu subscribers of 51.1 mn beat consensus of 50.7 mn.

Disney Shares and Consumer Spending

Disney shares have remained stagnant for the past decade. If you had invested $10,000 in Disney shares in 2014, you would still have $10,000. On Bloomberg TV, CFO Hugh Johnston explained that park revenue was actually 2% higher in the quarter, and the segment is still growing. However, he noted that lower-income consumers are feeling the pinch and spending less time at the parks, while higher-income consumers are traveling overseas.

Future Expectations and Market Trends

Johnston expects "a few quarters of slight perturbation in numbers," and believes that "we'll be back as we get to the middle of next year." This comes as Airbnb shares plummeted following an earnings report that warned of "shorter booking lead times globally and some signs of slowing demand from US guests." Additionally, travel website Booking Holdings reported worse-than-expected guidance, indicating a "mild moderation" across the European travel industry and consumers seeking lower-star hotels and shorter stays.

Bottom Line

In conclusion, consumers are cutting back on experiences, whether at theme parks or rental houses at the beach or lake, as the downturn worsens for the working poor and middle class amid the failure of Bidenomics, which has financially crushed tens of millions of households. What are your thoughts on this matter? Do you think this trend will continue, or will we see a shift in consumer behavior? Share your thoughts and this article with your friends. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.