Life is vicious if you are Disney, as seen in its first fiscal quarter earnings release Tuesday night.
Disney+ is off to a red-hot start in the battle for cord-cutters. The latest “Star Wars” movie was the latest box office home-run. The parks business is humming along (excluding Shanghai and Hong Kong due to coronavirus and protests, respectively). The acquired Fox media assets have plumped up the financial statements.
Revenue: $20.86 billion vs. $20.81 billion expected
Adjusted earnings per share: $1.53 vs. $1.46 expected
Disney+ 1Q subscribers: 26.5 million vs. 20.8 million expected
All in all, Disney’s (DIS) quarter goes a long way to justifying the stock’s 27% one-year gain.
But amid the Disney greatness, there was one blemish — and it has to be a gut punch to long-time followers of the storied brand and investors.
Disney noted in its earnings release lower sales of merchandise related to its iconic Mickey and Minnie characters at its theme parks and other experiences. While the company didn’t miss a beat financially because of strong merchandise sales tied to “Frozen,” “Star Wars” and “Toy Story,” it’s odd to see consumers leave Mickey and Minnie products on the shelves. Actually, it’s just disturbing and sad given the place in societies (in terms of Disney’s strategy for getting children into the brand) globally that each character holds.
Disney spokesman David Jefferson didn’t return a request for comment on the sales decline.
Indeed, it’s an element to the Disney story worth monitoring moving forward. Pros say it’s not a big deal as it would have been in the past due to Disney’s more diversified slate of content and characters.
“The intellectual property is almost without quantification as you look at the entirety of the business. Mickey and Minnie are a very small part of the entirety,” said portfolio manager Sara Henry of Logan Capital Management on Yahoo Finance’s “The First Trade.” “When you look at the box office and what they did with ‘Frozen 2’ and ‘Star Wars,’ there is ebb and flow in these different franchises.”
To Henry’s point, investors ignored the Mickey and Minnie sales weakness. Instead, the Street gushed over Disney+ reaching 28.6 million subscribers in only three months and what the streaming platform could mean to profits in the future.
“Even against already elevated expectations following initial success at launch, Disney reported strong paid subscribers for Disney Plus that highlight robust consumer demand for Disney's unique content,” wrote Morgan Stanley analyst Benjamin Swinburne in a note to clients.
But still, Mickey and Minnie are in Disney’s DNA. It could be that other Disney brands are luring in the next generation. Keep this on your radar screen nonetheless, Disney investors.
Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Watch The First Trade each day here at 9:00 a.m. ET or on Verizon FIOS channel 604. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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