ii view: Disney adds subscribers but worries about Asia

Shares for this entertainment icon are down over 30% year-to-date. We assess prospects. 

Second-quarter results to 31 March

• Revenue up 25% to $19.25 billion
• Adjusted earnings per share up 37% to $1.08 per share
• Disney’s streaming subscribers now total 205.6 million, up from 196.4 million three months ago
• Disney plus subscribers of 137.7 million, up from 129.8 million three months ago

Chief executive Bob Chapek says:

“Our strong results in the second quarter, including fantastic performance at our domestic parks and continued growth of our streaming services once again proved that we are in a league of our own,” 

“As we look ahead to Disney’s second century, I am confident we will continue to transform entertainment by combining extraordinary storytelling with innovative technology to create an even larger, more connected, and magical Disney universe for families and fans around the world.”

ii round-up:

Entertainment giant Walt Disney (NYSE:DIS) reported both further growth in its streaming subscriber numbers and a more than doubling in revenues for its parks business as it continues to recover from the pandemic. 

Disney+ subscribers grew by nearly 8 million to 137.7 million, beating Wall Street forecasts, with total subscribers including its ESPN and Hulu customers surpassing 205 million. Sales for its Parks division hit $6.65 billion, up from last year’s $3.17 billion, although management flagged the ongoing hinderance of Covid to its Asian parks. 

Disney shares retreated marginally in after-hours US trading having already fallen by around 30% year-to-date. Shares for Netflix (NASDAQ:NFLX), which recently posted its first fall in subscribers in a decade, are down over 70% during 2022, while e-commerce mammoth and maker Prime TV firm Amazon (NASDAQ:AMZN) has fallen by around 37%. The Nasdaq 100 index is off by 26% year-to-date.

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Disney management continues to target Disney+ subscribers of between 230 million and 260 million by 2024. Average revenue per user (ARPU) for its core US and Canadian Disney+ audiences rose 5% to $6.32.

Profit for its parks business rose to $1.8 billion during the quarter compared to a loss of $0.4 billion a year ago. Both its Shanghai, China and Hong Kong Parks have recently been hit by temporary closures given the ongoing pandemic.

Broker Morgan Stanley reiterated its overweight stance towards the shares, believing that the share price now takes little account of its Disney+ streaming business. 

Third quarter results are likely to be announced mid-August. 

ii view:

Founded in October 1923, Disney today offers investors a one-stop entertainment business. Headquartered in Burbank, California, it employs over 160,000 people, with sales during its 2021 financial year of over $67 billion. Its brands include Marvel, Pixar Animation and the Star Wars franchise.

For investors, a cost-of-living crisis almost globally could see consumers cutting non-essential services such as streaming services. Costs to expand its streaming businesses continue to be swallowed, while business costs generally are on the up. The dividend payment has also remained halted since the start of the Covid crisis, while headwinds from the pandemic cannot be completely forgotten.  

That said, streaming subscriber numbers are still ticking higher and most of its theme parks have returned to normal following the pandemic. Strength across its North American sports content also remains invaluable given its ability to generate large audiences. In all, with diversity across this entertainment giant helping to balance out divisional volatility, and analysts estimating a consensus fair value price of over $180 per share, there remains scope for longer-term optimism.  

Positives: 

• Diversity of businesses, strong brands and media content bank
• Growing streaming services

Negatives:

• Inflation pressured consumers may cut entertainment spending
• Dividend payment halted

The average rating of stock market analysts:

Buy