ii view: Disney streaming subscribers overtake Netflix

Shares for the entertainments giant have underperformed the Nasdaq index year-to-date. We assess prospects. 

Third-quarter results to 2 July

• Revenue up 26% to $21.5 billion
• Adjusted earnings per share up 36% to $1.09 per share
• Disney’s streaming subscribers now total 221 million, up from 205.6 million three months ago
• Disney Plus subscribers of 152.1 million, up from 137.7 million three months ago

Chief executive Bob Chapek says:

“We had an excellent quarter, with our world-class creative and business teams powering outstanding performance at our domestic theme parks, big increases in live-sports viewership, and significant subscriber growth at our streaming services.”

• Discover more: Buy international shares | Interactive investor Offers | Most-traded US stocks

ii round-up:

Entertainment giant Walt Disney (NYSE:DIS) reported new subscribers to its Disney Plus streaming service, which beat Wall Street expectations, confounding concerns for growth. 

Total streaming subscribers including its other services, such as ESPN and Hulu, rose to 221 million, surpassing rival Netflix’s 220.6 million customers.

Disney shares rose by more than 5% in after-hours US trading, having fallen by more than a quarter year-to-date. Shares for Netflix (NASDAQ:NFLX) have dropped by close to 60% during 2022 as it reported its first decline in subscribers during the last decade. The growth-oriented Nasdaq Composite index is down close to 18%. 

Disney Plus subscribers rose by 14.4 million over the last three months to 152.1 million, surpassing analyst estimates nearer to 147 million. 

The California-headquartered company also announced plans to raise the monthly fee for Disney Plus to $10.99 from the current $7.99, along with launching a new ad-supported version of Disney Plus for $7.99 per month.

• Ask ii...what are the pros and cons of investing in a US company?
• A buying opportunity at a brand with strength and spread

Disney Plus subscriber numbers (currently 152.1 million) are now forecast to reach between 215 million to 245 million by the end of September 2024, down from a previous 230 million to 260 million. That’s largely due to the loss of rights to stream Indian Premier League cricket matches. 

Overall, Disney earnings per share rose by 36% to $1.09 from the third quarter last year, aided by an ongoing recovery for its theme parks business from the pandemic and topping Wall Street forecasts nearer to $0.96 per share.   

ii view:

Founded in October 1923, Disney today offers investors a one-stop entertainment business. It employs more than 160,000 people with sales during its 2021 financial year of over $67 billion. Its brands include Lucasfilm, 20th Century Studios, 20th Century Animation and Searchlight Pictures.

For investors, a cost-of-living crisis almost globally could see cost-pressured consumers cutting non-essential services such as streaming services. Pandemic hinderances, particularly for its theme parks in Asia should not be forgotten, while the dividend payment has also remained halted since the start of the Covid crisis. 

On the upside, growth in streaming customer numbers is being achieved. Strength across its North American sports content remains invaluable given its ability to generate large audiences, while most of its theme parks have returned to normal following the pandemic. On balance, and with business diversity helping to balance out divisional ups and downs and analysts currently estimating a consensus fair value price of over $140 per share, grounds for longer-term optimism look to persist.  

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