Disney earnings: Theme parks gain momentum, streaming business adds subscribers

Yahoo Finance Live anchors discuss second-quarter earnings for Disney.

Video Transcript

BRIAN SOZZI: All right, well, let's continue picking apart all things markets here. Disney shares are under pressure this morning as the media giant warned that China's COVID shutdowns and inflationary pressures will weigh on theme park profits. On the flip side, though, Disney+ is giving rival Netflix a run for its money. The streaming service reported better than expected subscriber growth, which is much different than what Netflix reported a few weeks ago.

And I know, guys, there's so much focus, or there has been over the past year and a half, two years of the pandemic, on these Disney+ streaming numbers. I don't care about those right now, even though I think that's what the stock is trading off of. You really have to lock in on this parks business because the parks business is starting to gain momentum despite a key park like Disney Shanghai not even being open yet.

A couple of numbers here worth pointing out-- sales at Disney's parks were up 14% above 2019 or pre-pandemic levels. Operating margins for the parks business up 440 basis points versus pre-pandemic levels. They also said that spending in the parks was quite strong, up about 40% versus the same quarter pre-pandemic. So these were very encouraging signs on a business that is, again, profitable and is the Hallmark bread and butter business for this company.

BRAD SMITH: Look, I think-- I know you're not interested in the--

BRIAN SOZZI: But we have to talk about it. We have to talk about it. We have to talk about it.

BRAD SMITH: One thing that is appealing to me is the fact that with this new tier that they're going to have, advertising supported, that's going to, as they expect, the Disney CFO, Christine McCarthy, saying that the company expects the advertising revenue earned will be a significant contributor to their average revenue per user, as they look to achieve that long-term profitability goal.

We know how heavy of a margin business-- margin driving business advertising can be. It's evidenced by Apple leaning more into advertising, Amazon leaning more into advertising, and trying to catch up on the digital front. This is that new frontier for advertisers to have insertion orders that speaks specifically to the number of streaming content subscribers that are increasingly growing at Disney, even if some of their competitors are seeing some of those headwinds right now.

JULIE HYMAN: What I think is interesting here is that people are having to rethink the whole streaming proposition because of Netflix, right? So, yes, they can concentrate on the theme park stuff, but Disney had staked its whole future on streaming. And now our investors are going to have to rethink that. I don't know the answer to that. But the operating losses in that division of $887 million, that division that includes not just Disney+, but the other streaming services, Hulu and ESPN+, I mean, that's obviously an issue and something that investors are focused on.

Something else that is interesting to me is, we were talking yesterday about reading the room, so to speak, right? And it seems like Bob Chapek is a little bit reading the room because the company is going to be cutting its spending on content. But they're not cutting it by that much. They're cutting their projection for film and TV spending by a billion dollars this year. It's still $32 billion, so they're still going to be spending big on that. So kind of interesting, and spending did rise in the last quarter. So that's something to keep in mind here.

Something that was interesting from this quarter, you guys, that I didn't realize, a lot of their subscriber growth is in India. And it has to do with cricket, Premier-- Indian Premier League Cricket. Did you know that their Disney+ Hotstar is about 50 million of their total Disney+ subs? That's like-- that's-- I mean, it's not half, but it's a lot of their subscribers.

BRAD SMITH: Right.

JULIE HYMAN: So that's kind of interesting, too, that we're so focused here, but obviously, there's a lot going on growth wise around the globe.

BRIAN SOZZI: Yeah, and I don't mean to disregard what's happening in the streaming business. And Disney did come out here and reiterate their 2024 goals, I believe, for Disney+, and that's a great thing. But you do have to wonder at what point does Disney shares go back to trading on the theme park results, which were very, very strong. And, you know, I look at the results this morning out of Six Flags. The attendance was up 25% in the most recent quarter. Disney's attendance was up strong.

To me, these are the numbers that I think Disney's stock should be trading on, but I get it because in this market, everyone is focused on that Netflix earnings blow up from a couple of weeks ago. Hence, that's why you're seeing Disney shares down.

BRAD SMITH: How much are investors also pricing in a revamping of that theme park experience, too. You need more flippies and chippies to essentially make--

BRIAN SOZZI: You need an extra wallet because it's getting expensive down there.

BRAD SMITH: Right, exactly.