Walt Disney said its Disney+ streaming service added nearly 12 million subscribers in the last quarter.
Gabby Jones/Bloomberg
Walt Disney reported better-than-expected quarterly earnings and revenue on Wednesday, and beat Wall Street estimates on the all-important Disney+ subscriber front. The entertainment giant’s theme parks segment surpassed expectations by a wide margin.
That’s good for the bullish thesis shared by many Disney shareholders: a postpandemic theme parks recovery that boosts earnings today, alongside streaming-subscriber growth that promises recurring profits in the future. The past few quarters had shown slowing streaming growth and parks still impacted by coronavirus variant waves, sending Disney’s stock falling. Wednesday’s results are a break from that negative narrative.
Disney stock (ticker: DIS) jumped more than 7% in after-hours trading on Wednesday.
For its fiscal first quarter, which ends in December, Disney reported $1.06 in adjusted earnings per share—up 231% year over year and ahead of analysts’ 74-cent consensus estimate. Revenue came in at $21.8 billion, up 34%, versus Wall Street’s $20.3 billion average estimate. Fiscal first-quarter operating income was almost $3.3 billion, beating the $2.0 billion consensus and up 145% from a year earlier.
Disney’s theme parks segment was responsible for much of the upside surprise. The company’s future is closely tied to its streaming success, but Disney today is still more of a legacy media and entertainment business. A postpandemic recovery at its theme parks segment didn’t materialize in 2021 and Disney shares suffered. The stock has lost about 25% over the past year, versus a 16% return including dividends for the S&P 500.
The quarter reported on Wednesday should be heartening for Disney bulls counting on that theme-park rebound. Analysts had been looking for a 77% year-over-year recovery in revenues at Disney’s Parks, Experiences and Products segment in the fiscal first quarter, to $6.4 billion, and for segment operating income to swing to a $1.4 billion profit, from a loss in the year-ago quarter.
Disney’s theme parks did a whole lot better than that: The segment generated $7.2 billion in revenue—more than double the year-ago total—with almost $2.5 billion in operating profit.
Disney’s theme parks across the globe have largely reopened, cruises are sailing again, and vaccinated adults and children are eager to get back and spend—the company has said that revenue per guest is up significantly from prepandemic levels. Comcast
‘s ( CMCSA
) NBCUniversal also reported a strong quarter for its theme parks last month.
“I could not be more pleased with the performance of our [theme parks] segment, which posted its second-best quarter of all-time,” Disney CEO Bob Chapek said on Wednesday’s earnings call. “Over the last several years, we’ve transformed the guest experience by investing in new storytelling and groundbreaking technology and the records at our domestic parks are the direct result of this investment.”
At Disney’s larger Media and Entertainment Distribution unit—which includes the company’s TV, movie, content licensing, and direct-to-consumer businesses—continued streaming losses weighed on profitability. Segment revenue was $14.6 billion, up 15%, and operating income was $808 million, down 44%. Consensus forecasts were for $14.5 billion in revenue and $2.0 billion in operating income.
The company’s performance on the streaming subscriber front will matter more to most investors, especially after a concerning report from Netflix (NFLX) last month.
Disney+ ended the reported quarter with 129.8 million subscribers, up by 11.7 million in three months. Wall Street had been expecting 7.3 million net adds on average, but there was little agreement among analysts with estimates ranging from growth of 1 million to growth of 15.9 million. Disney+ added a disappointing 2 million subscribers in the fiscal fourth quarter, news which sent the stock down 7% the following day.
In the latest quarter, Hulu also added 1.5 million subscribers—versus analysts’ 1.2 million estimate—and ESPN+ grew by 4.2 million subscribers—versus the roughly 800,000 average estimate.
“In our view, the theme parks are the highest quality asset at Disney and that was the highlight from the quarter,” David Klink, senior equity analyst at Huntington Private Bank, said on Wednesday. “Streaming did well too, but we’re worried that it will really disappoint on the profitability front.”
Disney’s direct-to-consumer revenues jumped 34% year over year, to $4.7 billion, but losses widened as the company spent on content and marketing: The business had an operating loss of almost $600 million last quarter, 27% more than in the year-earlier period. Management guidance has Disney+ breaking even for the first time in Disney’s fiscal 2024.
North American average monthly revenue per Disney+ subscriber was $6.68 in the reported quarter. That compares with Netflix’s $14.78 during the same period. Disney management has suggested price increases could be in store in the future as more content comes to Disney+.
Meanwhile, Disney can use its streaming services to generate buzz about themed rides at its parks, sell more dolls and action figures, and license its characters and brands, Klink notes. That’s another avenue for monetizing the value of Disney’s content and franchises other than subscription fees. For now the market might not care, but subscriber growth will need to lead to streaming profits at some point.
On Wednesday, Disney management reiterated their target of between 230 million and 260 million Disney+ subscribers by the end of its fiscal 2024. Last quarter, Chapek warned that the path to get there wouldn’t be linear. That’s already evident from the big swings in subscriber additions over the past few quarters.
Wall Street expects Disney+ subscriber growth to accelerate in the second half of Disney’s fiscal 2022, when hotly anticipated content hits the service and the service launches in more countries.
“Our success at Disney+ this quarter was not the result of any one item but, instead, a combination of organic growth and powerful new content, our strategic decision to include the Disney bundle with all Hulu Live subscriptions, and new market launches,” Chapek said on Wednesday’s earnings call. “The remainder of this fiscal year will feature compelling Disney+ originals from across our brands and franchises.”
Write to Nicholas Jasinski at [email protected]
