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Disney Finishes Difficult Fiscal 2020 With Strong Q4

Disney ended a challenging fiscal 2020 on a strong note. We maintain our wide moat and plan to modestly increase our $127 fair value estimate when we update our model.

Disney DIS ended a challenging fiscal 2020 on a strong note as fourth-quarter revenue and EBITDA both beat FactSet consensus. As expected, the pandemic once again hammered the parks and studio segments as revenue at the two segments collapsed by 61% and 52%, respectively, versus a year ago. While parks in China and Florida have reopened, California remains closed and France shut its doors once again. Direct-to-consumer remains a bright spot as Disney+ now has over 73 million subscribers. Management is planning to release more details about the DTC business at its Dec. 10 investor day. We maintain our wide moat and plan to modestly increase our $127 fair value estimate when we update our model.

Revenue for the quarter dropped by 23% year over year to $14.7 billion. Media networks revenue increased by 11% to $7.2 billion as the segment benefited from an extra week versus a year ago. Affiliate fee revenue in the quarter was up 12%, which was made up of an 8-point gain from higher pricing, an 8-point lift from the extra week, partially offset by a 4-point decline from fewer customers. As expected, ad revenue at ESPN grew in the quarter, up 26% due to the crowded slate of live sports. Broadcast revenue was up 10% due largely to higher affiliate revenue. Segment operating income margin for media networks declined to 25.8% from 27.1% due to higher sports rights costs more than offsetting lower original programming and marketing costs.

The parks segment revenue declined to $2.6 billion, due to the pandemic-related closures and capacity constraints. While we expect these hurdles to remain in place for the segment for at least the first half of fiscal 2021, demand for the parks remains strong. The Florida parks are 77% booked, albeit at reduced capacity, for the fiscal first quarter. Management has done an admirable job in reducing costs as Florida, Shanghai, and Hong Kong all generated enough revenue to cover the variable costs of being open despite capacity constraints.

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