Disney Q2 FY2022 Earnings Preview: What Investors Should Watch

Key attention will be on Disney's Parks, Experience and Products revenue alongside Disney+ subscriber trends as the company reveals its Q2 FY2022 financials.

Highlights to Watch

• Analysts forecast adjusted EPS at $1.17, up from $0.79 in Q2 FY2021.
• Strong year-over-year growth expected in Parks, Experience and Products revenue.
• Disney+ subscriber growth anticipated to continue but at a slower rate.
• Overall revenue projected to rise steadily as Disney strengthens its post-pandemic recovery.

The Walt Disney Company (DIS) is demonstrating a swift financial rebound following the disruptions caused by the COVID-19 pandemic. Both earnings and revenue returned to growth last year, with expectations for accelerated growth this year. However, challenges remain. While the Parks, Experience and Products segment is rapidly recovering, Disney+—a cornerstone of the company’s long-term growth strategy—has seen decelerating subscriber growth amid rising competition.

Investors will closely monitor Disney's ability to overcome these hurdles and capitalize on its pandemic recovery momentum when the Q2 FY2022 earnings are announced on May 11, 2022. The company’s fiscal year 2021 concluded on October 2, 2021. Analysts predict a healthy increase in both adjusted earnings per share (EPS) and revenue.

Two critical metrics will be in focus: revenue from Disney’s Parks, Experience and Products segment, and the subscriber count for Disney+. The Parks segment, encompassing theme parks, resorts, cruise lines, and vacation clubs, suffered significant setbacks due to pandemic-related closures but is now rebounding robustly. Analysts expect this segment’s revenue to grow strongly year-over-year.

Conversely, Disney+ subscriber growth, while still positive, is slowing as the streaming market becomes increasingly competitive. Since its November 2019 launch, Disney+ has expanded rapidly but now faces challenges maintaining momentum. Analysts forecast continued subscriber growth at the slowest pace in recent quarters.

Disney shares have underperformed the broader market over the past year, with a notable decline following the Q4 FY2021 earnings report in November 2021. The stock’s total return is -42.0%, significantly trailing the S&P 500’s -1.6% return.

Disney’s Earnings Trajectory

Disney’s Q1 FY2022 earnings surpassed expectations with adjusted EPS up 232% year-over-year, marking the fifth consecutive quarter of positive earnings. Revenue increased 34.3% year-over-year, the third straight quarter of growth after four quarters of declines. The company highlighted strong performance in domestic parks and resorts, reporting record revenue and operating income.

In Q4 FY2021, Disney missed revenue and earnings estimates. However, adjusted EPS remained positive for the fourth consecutive quarter after losses in FY2020. Revenue grew 26% year-over-year but at a slower pace than the previous quarter. The reopening of parks and resorts contributed to improved financial results, though capacity restrictions continued to impact operations.

For Q2 FY2022, analysts predict solid yet decelerating growth with adjusted EPS expected to rise 48.9% year-over-year and revenue growing 28.9%. Full-year FY2022 forecasts show adjusted EPS increasing by 90.7%, signaling a second year of growth after declines, with annual revenue projected to rise 26.1%, the fastest pace in at least five years.

Source: Visible Alpha

Key Performance Indicators

Investors will focus on the Parks, Experience and Products segment, which includes theme parks, resorts, cruise ships, and vacation clubs. This segment closely reflects consumer spending trends and was severely impacted by pandemic restrictions, experiencing revenue declines from Q2 FY2020 through Q2 FY2021.

Recovery is underway, driven by vaccine rollouts and eased restrictions allowing increased park capacity. The segment's revenue surged 307.6% year-over-year in Q3 FY2021, slowed to 99.4% in Q4, rose 101.6% in Q1 FY2022, and is expected to grow 101.1% in Q2 FY2022.

Another point of interest is Disney’s transition from traditional line-skipping programs like FastPass+ to Disney Genie, a paid digital planning service introduced in December 2021, which may impact park revenue and guest experience.

Disney+ subscriber numbers remain a critical metric. Launched in November 2019, Disney+ offers content from Disney, Pixar, Marvel, Star Wars, and National Geographic. By Q1 FY2020, it had 26.5 million subscribers, growing nearly fivefold to 129.9 million by Q1 FY2022.

Subscriber growth has slowed amid fierce competition from Netflix, Amazon, and Apple. Growth rates declined from 258.1% year-over-year in Q1 FY2021 to 36.9% in Q1 FY2022. Analysts expect further deceleration to 30.7% in Q2 FY2022. Netflix’s recent subscriber losses highlight the competitive streaming landscape challenges Disney+ faces.

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