Disney Inc.

Despite a challenging quarter, Walt Disney managed to deliver an all-around beat and expanded internationally. The company’s diluted earnings per share for this quarter decreased as continued strength in its Products, Experiences, and Parks business was offset by a decline in its Distribution and Media Entertainment segment. ESPN’s advertising revenue was down. However, the total domestic affiliate revenue increased. The sequential improvement was driven by lower SG&A costs and higher revenue at DTC. Operating income in Linear Networks decreased, whereas domestic channels grew. At Domestic Parks and Experiences, significant operating income and revenue growth in the quarter was achieved. Per capita guest spending at its domestic parks showed strong growth. Avatar: The Way of Water was the most successful film this quarter and the fourth-largest film of all time globally. Disney Cruise Line was also a significant contributor to the increase in domestic operating income, and Disney Wish generated positive operating income as well. The operating income in the quarter in the Media and Entertainment distribution segment decreased, driven by a decrease across Linear Networks, Direct-to-consumer, Licensing, Content Sales, etc. At both Hulu and ESPN+, ARPU and subscribers grew sequentially. We give Disney a ‘Hold’ rating with a revised target price.