ii view: Disney streaming subscribers top 170 million

A return to profit for the wider theme parks division. We assess prospects for this entertainment icon. 

Third-quarter results to 3 July 2021

• Revenue up 45% to $17 billion
• Adjusted earnings of 80 cents per share, up from 8 cents in Q3 2020
• Disney’s streaming subscribers now total nearly 174 million, up from 159 million 3 months ago
• Disney plus subscribers of 116 million, up from nearly 104 million 3 months ago

Chief executive Bob Chapek says:

“We ended the third quarter in a strong position and are pleased with the Company’s trajectory as we grow our businesses amidst the ongoing challenges of the pandemic. We continue to introduce exciting new experiences at our parks and resorts worldwide, along with new guest-centric services, and our direct-to-consumer business is performing very well.”

ii round-up:

Walt Disney (NYSE:DIS) subscriber numbers for its Disney Plus streaming service rose to 116 million over the third quarter. That’s up from nearly 104 million at the end of the prior second quarter and exceeded the consensus analyst forecast of nearer 114 million. 

Total streaming subscribers including its Hulu and ESPN+ offerings now number nearly 174 million. Disney estimates its total addressable global market at 1.1 billion households. 

Disney shares rallied by more than 5% in after-hours US trading, having more than doubled since pandemic induced market lows back in March 2020.  Shares for streaming rival Netflix (NASDAQ:NFLX) are up by around 40% over that time. Shares of Universal theme parks owner Comcast (NASDAQ:CMCSA) are up by just over 70%. 

Disney repeated its expectation for Plus subscribers to grow to between 230 million and 260 million by 2024. Revenue for its direct-to-consumer segments rose 57% from a year ago to $4.3 billion. Netflix subscriber numbers recently totalled 209 million, up from 207.6 million at the end of its prior quarter. 

Both earnings and revenues for Disney beat analyst estimates. Earnings per share of 80 US cents compared to estimates of under 60 US cents. Revenue of $17 billion contrasted with estimates of nearer to $16.7 billion. 

Revenue for its parks, experiences and products division came in at $4.3 billion, up from $1.1 billion in the prior-year quarter and aided by a reopening of its theme parks from pandemic enforced 2020 closures. Losses for its international parks including Paris, France, continued to drag given ongoing Covid restrictions, although increased consumer product sales helped return the overall division to its first profit since the start of the pandemic. 

ii view:

Disney offers investors a one-stop entertainment business. Its brands include Marvel, Pixar Animation and the Star Wars franchise. It now operates across the three areas of Media and Entertainment Distribution; Disney Parks, Experiences and Products; and the three content groups of Studios, General Entertainment and Sports, focused on developing and producing content for streaming, cinema and traditional TV or linear networks.  

During its last full financial year, Media and Entertainment Distribution generated just over 60% of sales, Parks, Experiences and Products just over a quarter and Studio Entertainment the remaining 10%. Geographically, the Americas accounts for 80% of sales, with the balance split almost equally between Europe and Asia Pacific. 

For investors, the pandemic and ongoing Covid related disruption to its international parks should not be forgotten. Overseas tourist travel to its parks may only return slowly. And its dividend has remained halted since the start of the pandemic.

More favourably, subscriber numbers for its streaming operations continue to grow and vaccination programmes have allowed its theme parks to at least reopen. Strength across its North American sports content remains highly valuable, given its ability to generate large audiences. In all, we believe this well managed entertainment icon remains worthy of long-term investor support.  

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’