As the entertainment kingdom for nearly a century, Disney's status in Hollywood has gained prominence. Over 60 years of listing on the U.S. stock market, Disney's historic share price has also performed poorly, with a 12-year run of miracles during 2009-2020.

However, starting in 2021, Disney's stock price began to tumble, and after two consecutive years of steep declines, the increase in 2023 also far outpaced the S&P 500 index.

Disney will announce the latest results in the near future. Every time a company publishes results, it may mean a good deal or investment opportunity. Before that, investors need to figure out how to understand its performance.

So will Disney's future continue to languish, or will it return to the top? We can look for some clues from its results. The main focus is on several aspects: revenue growth, profitability, and cash flow levels.

1. Revenue growth

The sharp pullback in Disney's share price is largely related to a sharp decline in revenue growth. The company's quarterly revenue grew from more than 20% in 2019, after experiencing the cliff-edge decline of the pandemic and the subsequent rebound, and has continued to decline sharply in recent quarters, maintaining year-over-year growth in the low single digits.

Specifically, Disney's current revenue consists of three divisions, entertainment business, experience business, and sports business. Based on the financial data for the last 6 quarters, the experience business, which is dominated by parks, hotel cruises, and consumer goods, is the keystone of revenue growth, with the highest revenue growth in each quarter of the three businesses.

However, after continuous high growth, revenue from the experience business has come to a relatively high base. Although the international parks remain warm, domestic parks have begun to cool rapidly and revenue growth has continued to slide, even by only 2.3% in Q3 2024, after which we can continue to watch the fun Will the heat of the garden business and experience a rebound in overall revenue growth.

The second business is the entertainment business, which is dominated by the cable TV business and the streaming business. Growth in the previous quarters has been very slow, showing a decrease of -5% or more year-on-year over the two quarters prior to FY 2024.

This is mainly because, on the one hand, the cable TV business has already shown momentum in the wake of the streaming industry. In the United States, according to Nielsen statistics, from October 2022 to September 2024, the proportion of TV users spending time on cable dropped from 32.9% to about 28%, down nearly 5 percentage points in just over a year.

And Disney's cable TV business has also seen a sharp decline in recent quarters, falling 12.5% year-on-year in FY 2024 and still down about 7% in 2024Q2-Q3.

To cope with the decline of the cable TV industry, Disney is also transitioning into the streaming business. At the heart of the streaming business is looking at the number of subscribers and pay-per-user (ARPU). In recent quarters, Disney has taken some price increases to improve earnings, such as the business month charge for the Disney+ North American business increased from $5.77 in Q1 FY23 to $7.22 in Q2 FY24, also driving the increase in ARPU.

Disney's overall user growth has stagnated for several consecutive quarters amid rising prices. The good news is that Disney's overall user growth resumed in fiscal 2024Q2-Q3.

As a result, Disney's streaming business continued to grow in revenue, up 15.1% year-on-year in 2024Q3, effectively offsetting the decline in the cable TV business, and the overall mobile entertainment business grew by about 4%.

In the entertainment segment going forward, Disney's cable TV business may still struggle to reverse its decline, and for the streaming business, we need to see if the number of paid subscribers can maintain steady growth, which is the foundation of long-term revenue growth.

The third segment is the sports business, mainly consisting of ESPN channels, ESPN+ and Star Sports, which grew generally in FY 2023, but posted a 5.1% year-on-year growth in the 2024Q3 fiscal quarter. Currently, streaming giants like Nefei are also in the powerhouse sports business. Disney has the advantage of traditional channels like ESPN, and has a strong alliance with Warner Bros. on content, perhaps with a certain competitive edge. We can continue to see if its sports business revenue achieves steady growth in the future.

2. PROFITABILITY

For many years prior to 2020, Disney's profitability was very strong, with a gross profit margin of more than 40% for the whole year, and the net profit rate basically remained above 15%. But starting in 2020, with the impact of the pandemic, plus the company's already struggling streaming business, Disney's profitability began to plummet.

A loss in 2020 and a slow decline in Disney's profit levels after the pandemic slowly weakened, and this was one of the main reasons why the company's share price faltered in the previous two years.

The good news, however, is that Disney's overall operating margin level has continued to improve during 2023Q1-2024Q3. The reason behind this is largely due to the fact that Disney's new CEO Robert Eager will make improving profitability a strategic focus, especially with an emphasis on boosting the profitability of the streaming business.

The operating loss rate of the entertainment segment streaming business, over 30% at its worst, improved quarter-on-quarter from the first quarter of FY2023 until the 2024Q2 fiscal quarter finally turned profitable. Although the margin was only a negligible 0.8%, it is undoubtedly a good start, although its profitability situation is not stable, in 202020 In the fiscal quarter of 24Q3, there was a slight loss of about 0.3%. We can then continue to see if Disney's business can remain profitable and further improve profitability levels.

At the same time, we also need to focus on the profitability of the Disney Experience segment. Due to strong demand for Disneyland and Disney Cruises, which has supported the continued increase in service prices, the operating margin of the Disney Experience Service has remained high, accounting for approximately 26.5% in Q3 2024Q3, contributing approximately 60% of Disney's overall operating profit, so to speak Disney. THE CORNERSTONE OF PRE-PROFIT. Therefore, in subsequent results, we need to continue to look at whether the demand for the Disney Experience business can continue the hot trend and maintain relatively high margins.

3. Cash flow level

Cash flow is the foundation of a company's survival and development, and a prerequisite for the company to give back to shareholders, make repurchases and dividends. Prior to 2020, Disney's overall free cash flow was strong, maintaining a year-over-year range of $5-10 billion, and the company frequently engaged in large pen repurchases and dividends, reaching about $64.25 billion in cumulative repurchases and dividends between FY 2010-2019, and net profit for the same period was approximately 70.75 billion, more than ninety percent. Net profits are used to pay back shareholders.

Going into 2020, however, as Disney invested heavily in content and operating profits fell sharply, the overall cash flow dropped a notch. Disney has also suspended some dividends and buybacks during fiscal 2021-2023, which may be one of the major reasons why its stock price has continued to be subdued during this period.

In recent quarters, the company's cash flow has also improved as the company's streaming business has turned a profit. Disney's free cash flow has maintained positive inflows in all of the last 5 quarters and has maintained year-over-year growth for most of the time. In the wake of the 2024Q1 report, Disney management also announced a new repurchase program, which expects to achieve approximately $8 billion in free cash flow in 2024, an increase of approximately 60% year-over-year, and an additional $3 billion repurchase program will be added.

In the coming fiscal quarters, we can continue to observe the improvement of Disney's cash flow and the execution of the repurchase program.

See here, you may have some new insights into how to read Disney's results. It is worth mentioning that every time many star companies post results, it can mean a difficult trading opportunity for different types of investors.

For example, if investors feel that a company's recent performance will release some positive signals and favor short-term stock prices by interpreting past performance and incorporating recent progress, investors may consider doing more, doing more could be to consider buying a positive stock, or considering buying bullish options, etc.。

Conversely, if investors feel that the latest performance of a company will be less than optimistic and put pressure on short-term stock prices, investors may consider going blank, or consider buying bearish options, etc.

Of course, if investors feel that the direction of a company's performance is not very clear, but the stock price may fluctuate significantly upwards or downwards after the results are published, then investors may consider doing more of its share price volatility and consider buying both bullish and bearish cross strategies to grasp Potential opportunities.

Finally, to summarize,

Disney's revenue growth has slowed dramatically, and we need to see whether the experience business will continue to grow steadily, the paid users of the streaming business will return to growth, and the growth of the sports business will continue.

Disney's profitability has slowly improved in recent quarters, and we can then see whether the streaming business will remain profitable and whether the business will maintain a higher level of profitability.

Disney's cash flow is a prerequisite for dividends and repurchases. We can observe the improvement in Disney's cash flow, as well as the pace of execution of the buyback program.