Weaker-than-expected Avatar sequel to box office returns drags Disney shares lower

The Walt Disney Company had good reason to expect big things, and big returns, on the long-awaited sequel to 2009’s Avatar, a movie that grossed $2.9 billion and still ranks as the highest-grossing movie of all time.

And James Cameron’s “Avatar: The Way of Water” was by no means quiet in its opening weekend, grossing $134 million from US theaters and more than $434 million globally. Trouble is, US revenues fell short of analysts’ expectations for the film, which predicted “The Way of Water” would pull in $150 million to $175 million during its opening weekend, according to a report from CNBC.

That notable underperformance sent Disney’s stock value Monday to a 52-week low and near its lowest value since 2014, continuing a cycle that’s been working as the company faces myriad financial challenges. Disney shares have lost more than 40% of their value in the past year.

Besides the decline in projected US ticket sales, “The Way of Water” also saw disappointing sales in China over the weekend, a country that helped propel the original “Avatar” to its record earnings. China’s existing COVID-19 restrictions, including temporarily closed movie theaters, have helped reduce returns there, which totaled just over $57 million over the weekend, according to the Wall Street Journal. Only about 35% of cinemas in China were open when Water Road opened.

Moviegoers’ fears of contracting the virus also played a role in the disappointing attendance numbers.

“The problem is that no one wants to go to the movies, because they’ve been told COVID is very dangerous,” Tony Chambers, Disney’s president of global theatrical distribution, told the newspaper. “Although the cinemas are open, the desire to go there is not really there.”

While Disney shares were down nearly 5% on Monday, shares were up 1.45% for the day at the end of regular trading on Tuesday.

What are all of Disney’s financial problems?

Tinkerbell’s wand may not pack the magic punches it once did, according to the latest financial reports from The World Built by The Walt Disney Company.

But the return last month of Bob Iger, a longtime Disney boss who has built a reputation for gold minting when it comes to turning a profit for the company, boosts investors’ hopes that he can still conjure up flickers of success even as a global economic slowdown looms. .

Certainly, Disney theme parks are very popular and generate plenty of business — and profits — for the multi-segment Walt Disney Co. Last quarter, the company’s division that includes theme park operations brought in a record $7.42 billion in the third quarter, up 36% for the same period last year. .

However, while overall revenue rose, according to the company’s most recent financial reports, profit margins fell significantly below expectations. According to the Wall Street Journal, profit margins at Disney’s domestic parks and experiences, which also include cruise ships, fell about 16 percentage points from the previous quarter to 14.8%, well below analyst expectations of about 20%.

The magazine noted that while it is usual for these margins to decline for the quarter that runs between the end of summer and the start of the school year, this year’s slippage was more significant than usual and could signal problems ahead as a slowing economy and recession fears influence how things turn out. that. Families spend on leisure and entertainment.

“The error in the parks was a huge surprise,” David Goodman, senior analyst at Columbia Threadneedle Investments, the asset management arm of Ameriprise Financial and a large Disney shareholder, told the Wall Street Journal.

“The bigger problem is that as they ramp up activity and things reopen, there seems to be a mismatch between revenue and expense,” Goodman said. “Thinking about next year for parks, even if demand now looks strong, it’s only today, and with the market contemplating a possible recession, there are a lot of unknowns.”

Disney park earnings boost the bigger bets

Disney has increased park profits by increasing base admission fees as well as adding new pay-to-play services such as the Genie Card + that allows subscribers to skip long lines at popular theme park rides and attractions. But it also ran into unexpected troubles, like Hurricane Ian temporarily shutting down Disney World in Florida, costing the company $65 million, according to the Wall Street Journal. Larger investments in marketing and events also accounted for earnings during the most recent quarter.

While the parks’ profit margins are down, and Disney’s stock is down about 35% year-to-date, the company and its investors are looking to that revenue to offset some serious red ink generated by other projects.

In the third quarter of this year — the fourth quarter of Disney’s fiscal calendar — the company added 12.1 million Disney+ subscribers and 14.6 million direct-to-consumer customers, beating most analyst estimates and distancing quarterly additions from Netflix, which gained just 2.4 million new subscribers in the quarter, According to CNBC.

Despite the increase in subscribers, net operating losses at Disney’s broadcast division, which includes Disney+, Hulu and ESPN+, swelled to $1.47 billion in the quarter, per CNBC. That’s more than double the loss from a year ago, which Disney blames in part on a lack of “first access” content, or theatrically released movies that Disney charged an extra $30 to stream, like “Black Widow” and “Jungle.” Cruise”. “

Since its launch, Disney+ has reportedly racked up about $8 billion in losses.

Disney said during its earnings call, which came just weeks before Iger was reappointed as CEO, that it expects losses to ease in the coming quarters, but the statement didn’t keep the disappointing earnings report from lowering Disney shares. Beyond that.

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