ii view: Disney puts Netflix in the shade

A recovery in theme park sales and streaming business ambition to 2024. Buy, sell, or hold? 

First-quarter results to 1 January 2022

• Revenue up 34% to $21.82 billion
• Adjusted earnings per share up 231% to $1.06 per share
• Disney’s streaming subscribers now total nearly 196.4 million, up from 179 million three months ago
• Disney Plus subscribers of 129.8 million, up from 118.1 million three months ago

Chief executive Bob Chapek says:

“We’ve had a very strong start to the fiscal year, with a significant rise in earnings per share, record revenue and operating income at our domestic parks and resorts, the launch of a new franchise with Encanto, and a significant increase in total subscriptions across our streaming portfolio to 196.4 million, including 11.8 million Disney+ subscribers added in the first quarter.” 

ii round-up:

Entertainment icon Disney (NYSE:DIS) reported a strong first quarter as Disney Plus subscriber numbers grew ahead of Wall Street forecasts and its parks business further recovered from the pandemic. 

Against a backdrop of a disappointing update from streaming rival Netflix, Disney Plus subscribers grew by an additional 11.8 million from the previous quarter, ahead of analyst estimates for growth nearer to 7.5 million. Sales for its parks business doubled from early 2021 to $7.2 billion. 

Disney shares rose by more than 5% in US trading following its previous day’s results, sending its share price back close to positive territory for the year-to-date. Shares for Netflix (NASDAQ:NFLX) are down by close to a third during 2022, while shares for Universal theme parks owner Comcast (NASDAQ:CMCSA) are little changed. The S&P 500 Index is down around 4% during 2022. 

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Total Disney streaming subscribers including its ESPN and Hulu subscribers, rose to 196.4 million from a prior quarter total of 179 million. Disney Plus subscribers now total 129.8 million, with management repeating its expectation for Plus subscribers to grow to between 230 million and 260 million by 2024.

The average monthly revenue per paid subscriber for its US Disney Plus customers rose to $6.68 from $5.80 aided by a hike in retail pricing. Total sales for the broader direct-to-consumer division encompassing its streaming businesses rose by just over a third to $4.7 billion with a further quarterly operating loss of $0.6 billion reported. 

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Disney expects to spend sizeably on streaming in the second quarter. Programming and production expenses are likely to increase by about $800 million to $1 billion. 

Revenues for its parks, experiences and products division doubled from the first quarter of 2021 to $7.2 billion. Significantly reduced pandemic disruption to its US theme parks saw them generate sales of $4.8 billion compared to under $1.5 billion during the first quarter of 2021. 

Revenue for its international theme parks hit $861 million from $378 million a year ago. Profit for the division rose for a third consecutive quarter to $2.45 billion from $640 million in the prior quarter. 

The dividend remains suspended having last been paid in January 2020. Second quarter results are likely come mid-May. 

ii view:

Founded in October 1923, Disney is today offering 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, the pandemic and ongoing Covid-19 related disruption cannot be overlooked. Overseas tourist travel to its parks may only return slowly. Costs to expand its streaming businesses continue to be swallowed and its dividend payment has remained halted since the start of the pandemic. 

More favourably, streaming subscriber numbers are still ticking upwards and vaccination programmes have allowed its theme parks to reopen. Strength across its North American sports content also remains invaluable given its ability to generate large audiences. In all, and with diversity across this entertainment mammoth helping to balance out divisional volatility and analysts estimating a consensus fair value price of over $190 per share, room for long term optimism looks to persist.  

Positives: 

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

Negatives:

• Covid-19 has closed or disrupted many of its businesses
• Dividend payment halted

The average rating of stock market analysts:

Buy