Disney's Earnings Show Kids Want to Meet Woody, Not Stream Toy Story

Walt Disney reported disappointing subscriber numbers for its fiscal second quarter, but revenue growth for its theme parks was another signal that consumers were still willing to spend on experiences.

Disney stock (ticker: DIS) is tumbling 8.9%, and the stock was the worst performer by percentage change in the S&P 500 and the Dow Jones Industrial Average on Thursday. Investors were unhappy after the entertainment giant reported a surprise decline in Disney+ subscribers during the fiscal second quarter .

But Disney is more than just its streaming business. Revenue from Disney parks, experiences, and products of $7.8 billion for the quarter beat analysts' estimates for $7.6 billion, according to FactSet.

"We see this business [parks] as a key growth driver for the company. The past quarter, we've bee especially pleased with the performance of our parks internationally and we have several international expansions under way that will allow our parks to continue to build capacity and drive longer term growth," CEO Bob Iger said on the earnings call.

During a time of consistently high inflation, rising interest rates, and the uncertainty of whether or not the country is about to hit a recession, it might come as a surprise that the notoriously expensive Disney Parks segment did so well during the second quarter. But many consumers have chosen to spend on experiences following the end of the Covid-19 pandemic.

David Trainer of research firm New Constructs wrote in a report Thursday that Disney is an important economic indicator, and its financial results "speak volumes about the state of the consumer."

"Disney's theme park division posted another quarter of double-digit year-over-year revenue growth, and yet the company also lost millions of subscribers for its streaming service," Trainer wrote. "As recession fears mount, consumers are clearly being more discerning with their money and are choosing to spend it at Disney's theme parks." He says Disney stock could reach $130 in the next 12 months.

Trainer's take might seem surprising since Disney vacations are much more expensive than subscribing to Disney+, with a ticket to the Magic Kingdom costing one person $109 for the day. But Trainer said that spending money at the theme parks makes consumers feel like "they can get more bang for their buck instead of on streaming content."

Disney is not the only company to see results like this. Travel companies have been resilient this year despite economic uncertainty . Royal Caribbean Group (RCL) shares have surged 55% year to date, and the cruise operator recently reported strong financial results earlier this month . Norwegian Cruise Line Holdings (NCLH) also reported a solid quarter , and the stock has gained 13% so far in 2023. Hotel and airline stocks have also gained on signals of strong consumer demand.

Inflation and recession worries could eventually curb this demand for spending on experiences, but for now, parents are still willing to spend big so their kids can meet Buzz Lightyear and ride Expedition Everest.