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The Walt Disney Company Releases First Quarter 2022 Financial Report

The Walt Disney Company - Burbank

Yesterday The Walt Disney Company held a conference call to release the company’s first quarter financial report detailing earnings and losses from the parks to movies to streaming and more.

It was a lot of information to go through, but late yesterday saw a temporary bump in stock prices following the call of nearly 8%.


CEO Bob Chapek started the call with a lengthy summary of how the company is doing:

Disney CEO Bob Chapek

“As we begin the final year of The Walt Disney Company’s first century, I am pleased to share our results for the first quarter of fiscal 2022, starting with the highlights.

Our adjusted EPS of $1.06 is up from $0.32 a year ago. Our Domestic Parks and Resorts achieved all-time revenue and operating income records despite the Omicron surge. And our streaming services ended Q1 with 196.4 million total subscriptions after adding 70.4 million in the quarter, including 11.8 million Disney+ subscribers. I’ll share more about those items shortly. But first, I want to talk about this unique moment in the history of The Walt Disney Company.

It is perhaps fitting that our 100th anniversary comes at a time of significant change for us and our industry. In the midst of a global pandemic, fast-changing consumer expectations and a leadership transition, we reimagined our Parks business, substantially increased our investment in content creation and executed a reorganization that will facilitate our ongoing transformation. Each of those actions has helped set the stage for our second century, and as we approach that remarkable milestone, I am filled with optimism.

We have the world’s most creative storytelling engine, an unmatched collection of brands and franchises and an ability to tell stories that form deep emotional connections with audiences. We have a portfolio of distribution platforms, including powerful and growing streaming services. We have diverse revenue streams that span business models and industries, but which all are interconnected to create entertainment’s most powerful synergy machine.

We have the country’s top news organization and the most trusted brand for following sports and our theme parks continue to be the most magical places on earth. In short, our collection of assets and platforms, creative capabilities in unique place and the cultural zeitgeist give me great confidence that we will continue to define entertainment for the next 100 years.

To carry through on that promise, we will be guided by 3 strategic pillars: storytelling excellence, innovation and audience focus. Storytelling excellence is, of course, dependent on having excellent storytellers. I am thrilled to share that our legacy of being home to the most accomplished leaders in the industry will continue, as nearly all of our top creative executives have recently renewed, extended or signed new contracts. I could not be more excited to continue working with these creative powerhouses.

The quality content from our teams was recognized just yesterday with a fantastic 23 Oscar nominations, including 3 of the 5 best animated feature films: Pixar’s ‘Luca,’ Walt Disney Animation’s ‘Raya and the Last Dragon,’ and our newest franchise, Walt Disney Animation’s ‘Encanto‘ which received 3 nominations. ‘Summer of Soul’ was recognized in the best documentary category, and ‘Nightmare Alley’ and ‘West Side Story‘ both received best picture nominations. As you may have seen earlier today, we announced ‘West Side Story’ will debut in most Disney+ markets on March 2 and we can’t wait for our subscribers to see this incredible film.

In Q1, our studios took us deeper into the Marvel Cinematic Universe with ‘Eternals‘ and the Disney+ original series, ‘Hawkeye.’ And returned us to that galaxy far, far away with another Disney+ original series of ‘Book of Boba Fett.’ Our general entertainment teams also continued to produce programming of the highest quality. In fact, last year, our general entertainment team produced nearly 1/4 of the industry’s best review shows. And Q1 saw 10 of their shows achieved a 100% critic score on Rotten Tomatoes. That includes ‘Abbott Elementary,’ the first Freshman Broadcast comedy to earn the 100% certified fresh score since ABC’s own Modern Family in 2009.

Our success in branded storytelling is, of course, no secret. However, it’s often lost that the depth, breadth and quality of our general entertainment content is also a driving force behind the success of our streaming services. In fact, 6 of the 10 most watched programs across our services are general entertainment titles produced by our own team. And general entertainment is an increasingly powerful driver of engagement in most of our international markets where such content is already included in our service under the Star brand.

Going forward, integrating more owned general entertainment into our services, especially Disney+, will be a priority. In fact, just today, we added episodes of ‘Grown-ish,’ ‘Blackish,’ and ‘The Wonder Years’ to our domestic Disney+ service. Rounding out our content focuses, is of course, sports.

Sporting events continue to be the most powerful draw in television accounting for 95 of the 100 most watched live broadcast in 2021, and ESPN once again set the bar this quarter with live games across each of our 4 major U.S. sports, including the revolutionary Monday Night with Peyton and Eli. And I am pleased to announce that we have expanded our agreement with Peyton Manning and its Omaha Productions Company to extend our relationship through the 2024 NFL season, and we’ll add alternative presentations for UFC golf and college football events for each of the next 3 years.

While multiplatform television and streaming will continue to be the foundation of sports coverage for the immediate future, we believe the opportunity for The Walt Disney Company goes well beyond these channels. It extends to sports betting, gaming and the metaverse. In fact, that’s what excites us, the opportunity to build a sports machine akin to our franchise flywheel that enables audiences to experience, connect with and become actively engaged with our favorite sporting events, stories, teams and players.

Turning to distribution results. The continued growth of our streaming services was certainly a standout. Our success at Disney+ this quarter was not the result of any one item, but instead a combination of organic growth and powerful new content, our strategic decision to include the Disney bundle with all Hulu Live subscriptions and new market launches. The remainder of this fiscal year will feature compelling Disney+ originals from across our brands and franchises, beginning with Pixar’s Turning Red and Marvel Studios Moon Night in March.

And the back half of FY ’22 will feature a truly stunning array of content, including 2 Star Wars series: ‘Andor,’ and the highly anticipated ‘Obi-Wan Kenobi,’ which I am excited to announce will premiere on May 25. We’ll debut 2 Marvel series, ‘Ms. Marvel’ and ‘She-Hulk‘; fresh new shorts from Disney Animation and Pixar, featuring the worlds of ‘Big Hero 6’ and ‘Cars’; a live-action reimagining of the Disney Classic ‘Pinocchio’, starring Tom Hanks as Geppetto; and one of the most anticipated sequels in some time, especially in the Chapek household, ‘Hocus Pocus 2.’ As I’ve said before, we continue to manage our services for the long term and maintain confidence in our guidance of 230 million to 260 million total paid Disney+ subscribers globally by the end of fiscal 2024.

Christine will provide more detail into our theatrical results. However, I want to reiterate that we continue to see value in the moviegoing experience, especially for big franchise blockbusters. And given the performance of titles like ‘Spider-Man: No Way Home,’ we are looking forward to kicking off our summer slate with another Marvel franchise film, ‘Dr. Strange in the Multiverse of Madness.’ That said, audiences will be our North Star as we determine how our content is distributed. And we do not subscribe to the belief that theatrical distribution is the only way to build a Disney franchise.

This quarter, audience has proved us right, as ‘Encanto’ became a phenomenon within days of its arrival on Disney+ after families continued reluctance to return to theaters resulted in a muted theatrical performance. With outstanding music from Lin-Manuel Miranda, it became the fastest title across 200 million hours viewed on Disney+, and took social media by storm. People around the world expressed their fandom through their own content and conversation, and the ‘Encanto’ hashtag has been viewed more than 11 billion times.

The sound track, which debuted at #197 on the Billboard 200 Chart reached #1 shortly after debuting on Disney+ and 8 of the film songs hit the Hot 100 Chart, including ‘We Don’t Talk About Bruno,’ which became the first Disney song to reach #1 since Aladdin’s ‘Whole New World’ in 1993.

At the same time, sales of ‘Encanto’ merchandise defied traditional post-holiday declines and actually increased following the film’s release on Disney+ on Christmas Eve and guests at Disney California Adventure have loved seeing Mirabel in real life. These results are exactly what you would expect from the launch of a new Disney franchise and we are thrilled that Disney+ was the catalyst. We are more confident than ever in this platform as a content service, a franchise engine and as a venue for the next generation of Disney storytelling.

Finally, I could not be more pleased with the performance of our Parks, Experiences and Products segment, which posted its second best quarter of all time. Over the last several years, we’ve transformed the guest experience by investing in new storytelling and ground-breaking technology and the records at our domestic parks are the direct result of this investment. From new franchise-based lands and attractions to craveable food and beverage offerings, the must-have character merchandise, there is more great Disney storytelling infused into every aspect of a visit to our parks than ever before.

At the same time, we’re giving guests new tools to personalize their visits and spend less time in line and more time having fun. While we anticipated these products would be popular, we have been blown away by the reception. In the quarter, more than 1/3 of domestic park guests purchased either Genie+, Lightning Lane or both. That number rose to more than 50% during the holiday period.

While demand was strong throughout the quarter at both domestic sites, our reservation system enabled us to strategically manage attendance. In fact, their stellar performance was achieved at lower attendance levels than 2019. As we return to a more normalized environment, we look forward to more fully capitalizing on the extraordinary demand for our parks along with the already realized yield benefits that took shape this quarter.

And we, of course, will continue to invest in the guest experience. I am personally looking forward to Star Wars: Galactic Star Cruiser at Walt Disney World, a 2-night adventure into the most immersive Star Wars story ever created. We are pleased with demand for this premium ground-breaking experience, which will welcome guests starting on March 1.

Later this summer, we will debut an innovative new rollercoaster at EPCOT, Guardians of the Galaxy: Cosmic Rewind and Open Avengers Campus at Disneyland Paris, where the iconic Quinjet landed a few weeks ago ahead of the resort’s 30th anniversary celebrations.

I want to close by thanking our 195,000 employees for bringing Disney magic to audiences and guests around the world, especially in times like these, when the world needs it most. Our company is truly extraordinary, and I am honored to work with the most talented team in the industry to create the next generation of Disney stories and experiences through our focus on storytelling excellence, innovation and our audience.”


The Walt Disney Company CFO Christine McCarthy

Then Christine McCarthy, SVP, President and Chief Financial Officer of The Walt Disney Company, took over on the call to release financial details:

Excluding certain items, diluted earnings per share for the quarter were $1.06, an increase of $0.74 from the prior year quarter. Fiscal 2022 is off to a good start as evidenced by our first quarter results and our continued progress towards more normalized operations across our businesses.

At Parks, Experiences and Products, operating income was up $2.6 billion year-over-year as all of our parks and resorts around the world were open for the entirety of the fiscal first quarter. In the prior year quarter, Walt Disney World Resort and Shanghai Disney Resort were open for the entire quarter, while Hong Kong Disneyland Resort and Disneyland Paris were each open for a limited number of weeks and Disneyland Resort was closed for the entire quarter.

At our domestic parks, we were very pleased with the strong levels of demand we saw from both Walt Disney World and Disneyland. And as Bob mentioned, our reservation system has allowed us to strategically manage attendance. Overall, attendance trends at our domestic parks continued to strengthen in the quarter with Walt Disney World and Disneyland’s Q1 attendance up double digits versus Q4, in part reflecting holiday seasonality.

Per capita spending at our domestic parks was up more than 40% versus fiscal first quarter 2019 driven by a more favorable guest and ticket mix, higher food, beverage and merchandise spending and contributions from Genie+ and Lightning Lane. Putting these factors together, our domestic Parks and Resorts delivered Q1 revenue and operating income exceeding pre-pandemic levels, even as we continue managing attendance to responsibly address ongoing COVID considerations.

Looking ahead to Q2, our demand pipeline for domestic guests at Walt Disney World and Disneyland remained strong, benefiting from our 50th anniversary celebration at Walt Disney World and new attractions and experiences at both parks. At International Parks, a profitable first quarter reflected improving trends at Disneyland Paris. We also saw improved results at Hong Kong Disneyland although the resort is now temporarily closed in response to a resurgence in COVID cases in the region. We expect International Parks will continue to be impacted by COVID-related volatility for the remainder of Q2.

Moving on to our Media and Entertainment Distribution segment. First quarter operating income decreased by more than $600 million versus the prior year as revenue growth across our lines of business was more than offset by higher programming and production costs. Revenue growth in the quarter was primarily driven by increased subscription fees from our direct-to-consumer services. We also delivered record advertising revenues for the segment as we continue to see strong advertiser demand for our live sports and streaming and digital businesses.

Turning to our results by line of business. At Linear Networks, you may recall that we guided to a decrease in operating income of nearly $500 million for Q1 versus the prior year. Operating income of $1.5 billion came in better than expected, primarily driven by our international channels, which I’ll discuss in a minute.

At our domestic channels, both Broadcasting and Cable operating income decreased in the first quarter versus the prior year. Lower results at Broadcasting were impacted by an adverse comparison to prior year political advertising revenue at our owned television stations, as we noted in the guidance we gave last quarter. At Cable, the year-over-year decrease in operating income reflected higher programming and production costs and increased marketing spend, partially offset by increases in advertising and affiliate revenue.

Growth in advertising revenue was driven by ESPN as we benefited from the start of a normalized NBA calendar and increased viewership for football. ESPN advertising revenue in the first quarter was up 14% versus the prior year and second quarter-to-date domestic cash advertising sales at ESPN are currently pacing up. Total domestic affiliate revenue increased by 2% in the quarter. This was primarily driven by 6 points of growth from higher rates, offset by a 4-point decline due to a decrease in subscribers.

Operating income at our international channels decreased slightly versus the prior year. These results came in more than $200 million better than our prior guidance primarily due to lower programming and production costs as well as better-than-expected advertising and affiliate revenues.

At Direct-to-Consumer, first quarter operating results decreased by $127 million year-over-year, driven by higher losses at Disney+ and ESPN+ partially offset by improved results at Hulu. I’ll note that beginning this quarter, we are providing disclosure on our programming and production expenses by service as well as additional detail for Disney+ in our 10-Q.

Operating losses at Disney+ increased versus the prior year as growth in subscription revenue was more than offset by higher programming, technology and marketing costs. We ended the quarter with nearly 130 million global paid Disney+ subscribers, reflecting over 11 million net additions from Q4.

Taking a look at subscriber growth by region. We added 4.1 million paid domestic Disney+ subscribers, including a benefit of approximately 2 million incremental subscribers from our strategic decision to include Disney+ and ESPN+ as part of a Hulu Live subscription. In international markets, excluding Disney+ Hotstar, we added 5.1 million paid subscribers, primarily driven by growth in Asia Pacific and European markets. I’ll note that growth in Asia included the benefit of new market launches in South Korea, Taiwan and Hong Kong in the quarter. Finally, we were able to resume growth in Disney+ Hotstar markets with 2.6 million paid subscriber additions in the quarter.

Overall, we are pleased with Disney+ subscriber growth in the quarter and are looking forward to new market launches and a strong content slate later this year. As I’ve previously shared, we don’t anticipate that subscriber growth will necessarily be linear from quarter-to-quarter, and we continue to expect growth in the back half of the fiscal year to exceed growth in the first half.

At ESPN+, we ended the first quarter with over 21 million paid subscribers versus 17 million in Q4. Results decreased compared to the prior year as growth in subscription revenue was more than offset by higher sports programming costs driven by the NHL and LaLiga. And at Hulu, higher subscription revenues versus the prior year were partially offset by higher programming and production costs driven by increased affiliate fees for live TV. Hulu ended the first quarter with 45.3 million paid subscribers, inclusive of 4.3 million subscribers to our Hulu Live digital MVPD service.

Moving on to content sales, licensing and other. Results decreased in the first quarter versus the prior year to an operating loss of $98 million, driven by lower theatrical results and higher film impairments, partially offset by improved TV/SVOD results. As I noted last quarter, while theatres have generally reopened, we are still experiencing a prolonged recovery to the theatrical exhibition, particularly for certain genres of films, including non-branded general entertainment and family-focused animation.

This dynamic contributed to increased losses in the quarter as we released more titles in Q1 this year versus the prior year, resulting in lower theatrical results. This was partially offset by income from our coproduction of ‘Spider-Man: No Way Home.’

As we look ahead, we would like to give you some context around 2 items that may impact our second quarter results. First, as we continue to increase our investment in content, we expect programming and production costs at DMED to increase versus the prior year, primarily driven by Direct-to-Consumer and Linear Networks. At Direct-to-Consumer, we expect programming and production expenses to increase by approximately $800 million to $1 billion, including programming fees for Hulu Live. At Linear Networks, we expect programming and production expenses to increase by approximately $500 million, reflecting factors including COVID-related timing shifts.

We aired 4 additional NFL games at the start of the current quarter. And as a reminder, the Academy Awards will be held in Q2 of this year, while they fell into Q3 of the prior year. Second, at content sales, licensing and other, a difficult Q2 comparison to prior year TV and SVOD program sales is due in part to our strategic decision to hold more of our owned and produced content for our direct-to-consumer services. As a result, we expect operating income to be adversely impacted by more than $200 million versus the prior year quarter.”


One thing I noticed that wasn’t included in the growth in Disney+ and ESPN+ subscriber growth was that it wasn’t mentioned that Hulu + Live subscribers recently had their rates increased so that Disney+ and ESPN+ could be included, even if the customer didn’t want to subscribe to those streamers.

So while Chapek and McCarthy state Disney+ subscriptions beat estimates, adding nearly 12 million subscribers in the quarter, and ESPN+ ended 2021 with 21.3 million customers (up 4.2 million the year-end quarter), were those numbers driven by the mandatory sign-up with Hulu + Live?


Also of note is Chapek’s wording of “our newest franchise, Walt Disney Animation’s ‘Encanto’…” Does Disney have future plans for “Encanto”? Sequels, a series, or even park attractions? It sure sounds like it with him calling it a “franchise.”

Encanto - Mirabel

During the Q&A follow-up at the end, when Jessica Reif Erlich of Bank of America Securities asked:

“Maybe switching gears to Theme Parks. The leverage in that business is ginormous as we’ve seen in this quarter. Would you consider the 34% operating income margin peak margin? And then just maybe some color because international visitors really haven’t come back, we know they stay longer and spend more. Have you gotten all of the technology improvements that you expect? And within that, with some of the changes that you made in the park, it sounds like you’re actually improving capacity. So how should we think about capacity now versus what it was prior to COVID?”

McCarthy replied: “Sure. I would say we’ve been saying this all along through the pandemic, where we have taken measures to really look at the cost base and how we’re doing things. And there’s been a fundamental shift in some of the operational processes that the parks had used for many, many years and things like the ability to do mobile dining or not having to check in with the human being at a hotel, those kinds of things are all things that add to upside that we have at the parks.”

Emphasizing the mobile dining reservations and mobile hotel check-in, also emphasizes a lesser need to employ actual human beings. We’ve seen it with self-check out lanes at grocery stores and Walmart, with one employee monitoring 4-8 self-check out machines versus one employee per regular check out lane.

I’m also dismayed at McCarthy’s statement that live events will likely be the last thing to return to parks, citing fireworks and parades are where people gather “and we don’t want our guests to feel density.” Live entertainment was one of my favorite things about going to the parks pre-COVID, and guests need more to do than just ride rides and eat at the festivals. And I hate to break it to her, but even with controlled entry (via the reservation system), guests are already feeling the density throughout the parks.


But in short, Disney’s parks, experiences and consumer products division saw revenues reach $7.2 billion during the quarter, double the $3.6 billion it generated in the prior-year quarter. Much of this is due to, as noted above, many parks being closed for some or all of the previous year’s first quarter.

The total revenue for the company was $21.82 billion vs the $20.91 billion expected, but how much of that was due to recent decisions by Chapek to raise prices on everything? And did the increase in revenue come at the cost of the guest experience in the parks?

This first quarter was also a transition period, as long-time CEO Bob Iger retiring and passing the mantel to Chapek, whose contract runs through February 28, 2023.

What do you think of the news released during this earnings call? Any points I many have missed during this lengthy release of information? Let me know in the comments!