Global entertainment and media company Disney (NYSE:DIS) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 3.7% year on year to $23.16 billion. It made a GAAP profit of $1.43 per share, improving from its loss of $0.25 per share in the same quarter last year.
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Disney (DIS) Q2 CY2024 Highlights:
- Revenue: $23.16 billion vs analyst estimates of $23.09 billion (small beat)
- EPS: $1.43 vs analyst estimates of $1.05 (36% beat)
- Full year EPS growth guidance of 30% year on year growth (above expectations)
- The company’s combined streaming businesses, comprised of Disney+, Hulu and ESPN+, turned a profit for the first time
- Gross Margin (GAAP): 36.4%, up from 35.2% in the same quarter last year
- Adjusted EBITDA Margin: 41.4%, up from 18.2% in the same quarter last year
- Free Cash Flow of $1.24 billion, down 48.6% from the previous quarter
- Market Capitalization: $164 billion
Founded by brothers Walt and Roy, Disney (NYSE:DIS) is a multinational entertainment conglomerate, renowned for its theme parks, movies, television networks, and merchandise.
Media
The advent of the internet changed how shows, films, music, and overall information flow. As a result, many media companies now face secular headwinds as attention shifts online. Some have made concerted efforts to adapt by introducing digital subscriptions, podcasts, and streaming platforms. Time will tell if their strategies succeed and which companies will emerge as the long-term winners.
Sales Growth
Examining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Disney's 6.8% annualized revenue growth over the last five years was sluggish. This shows it failed to expand in any major way and is a rough starting point for our analysis. 
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Disney's recent history shows its demand slowed as its annualized revenue growth of 4.7% over the last two years is below its five-year trend.
We can dig further into the company's revenue dynamics by analyzing its three most important segments: Entertainment, Sports, and Experiences, which are 45.7%, 19.7%, and 36.2% of revenue. Over the last two years, Disney's Entertainment revenue (movies, Disney+) averaged 1% year-on-year declines, but its Sports (ESPN, SEC Network) and Experiences (theme parks) revenues averaged 3.1% and 15.2% growth.
This quarter, Disney grew its revenue by 3.7% year on year, and its $23.16 billion of revenue was in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 5.3% over the next 12 months, an acceleration from this quarter.
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Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Disney has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 6.1%, subpar for a consumer discretionary business. The divergence from its good operating margin stems from its capital-intensive business model, which requires Disney to make large cash investments in working capital and capital expenditures.
Disney's free cash flow clocked in at $1.24 billion in Q2, equivalent to a 5.3% margin. The company's cash profitability regressed as it was 2 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren't a big deal because investment needs can be seasonal, but we'll be watching to see if the trend extrapolates into future quarters.
Over the next year, analysts' consensus estimates show they're expecting Disney's free cash flow margin of 8.8% for the last 12 months to remain the same.
Key Takeaways from Disney's Q2 Results
We were impressed by how significantly Disney blew past analysts' EPS expectations this quarter. On the other hand, its Sports revenue unfortunately missed. The company’s combined streaming businesses, comprised of Disney+, Hulu and ESPN+, turned a profit for the first time. Looking ahead, the company guided to 30% year on year EPS growth for the full year, which is above expectations and quite strong. Overall, we think this was still a really good quarter that should please shareholders. Investors were likely expecting more, however, and the stock traded down 2.1% to $88.10 immediately after reporting.
So should you invest in Disney right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.