Disney+ Hits 137.7M Subscribers, Beats Wall Street Expectations
Disney once again beat Wall Street expectations last quarter in streaming, adding 7.9 million Disney subscribers, and suggesting that the company may be positioned to take a lead in what has become a cutthroat race to the top in streaming.
While Wall Street’s expectations for Disney were diverse, a midpoint was between 4.5 million and 5 million adds.
Disney reported revenue of $19.2 billion and income of $3.7 billion, with earnings per share of $1.08. Wall Street expectations were for revenue of $20.1 billion, operating income of $3.3 billion, and EPS of $1.17. The EPS miss could be due to a change in tax regulations, which saw the company’s effective tax rate balloon from 8.8 percent a year ago to 45.8 percent last quarter. Disney also suffered a $1 billion loss due to the early termination of content licensing agreements so that it could use it for its own streaming service. Disney didn’t disclose the content of that programming, but it is likely the output agreement with Netflix, which includes the streaming service’s Marvel series.
Despite a high-profile stumble by Netflix last quarter, the streaming business remains the division where Wall Street is placing much of its focus, and the company updated its efforts in the space Wednesday, with Disney adding 7.9 million subscribers last quarter to hit 137.7 million total. Hulu added 300,000 subscribers to reach 45.6 million subs (a Black Friday promotion last quarter may have pulled forward some growth), and ESPN added 1 million subscribers to reach 22.3 million.
Disney CFO Christine McCarthy suggested that Disney subscriber growth may slow down in the coming quarters. “It is worth mentioning that we had a stronger than expected first half of the year,” McCarthy said on the quarterly earnings call, adding that some markets expected to go live in Q3 are in eastern Europe, including Poland, which may be impacted by the war. Disney should continue to grow with a stronger content portfolio in the second half.
Disney’s media and entertainment distribution division, which includes streaming, had revenues of $13.5 billion in the quarter, up 9 percent from a year ago. Streaming led the way, with revenues up 23 percent to $4.9 billion. Linear networks saw a 5 percent increase to $7.1 billion. The Academy Awards helped boost ABC’s advertising revenue, which was up 5 percent from the previous quarter. However, the company stated that a decrease in viewership and fewer units delivered “partially offset” the increase.
Disney’s parks, experiences and consumer products division, meanwhile, had revenue of $6.6 billion, up more than 100 percent from a year ago, when COVID-19 impacts were still being widely felt around the globe.
The company also took a $195 million impairment charge related to the Disney Channel in Russia. After the invasion of Ukraine, the company had stated that it would take steps for exit.
Disney has released its latest earnings report at a crucial time for the entertainment industry and the wider world of streaming video.
The entire streaming business is under pressure after Netflix badly missed its earnings numbers last quarter, and released lower projections for upcoming quarters. Netflix also announced plans for cracking down on password sharing and adding an advertising tier. This indicates that it believes that growth in mature markets may have peaked.
But Disney is bullish with an ad supported tier of Disney and a full slate expected to allow it to raise prices on its free tier while adding less-expensive, adbacked options.
” This will allow us to adjust our prices while still maintaining our strong value proposition,” Bob Chapek, Disney CEO, stated on the call. “We believe that great content is going to drive our subs, and that greater subs will drive profitability.”
Chapek stated that the advertising-backed tier was in the “very positive reaction” of advertisers ahead of the TV Upfronts next Wednesday. They’ve been asking for it for years .”
Disney has been at the center of a major political scandal surrounding Florida’s “Don’t Say Gay” bill. After initially refusing to take a position on it, the company responded publicly to employee backlash. The public opposition led to Florida’s Republican-led legislature, and governor, revoking Disney’s special privileges around the Reedy Creek Improvement District. This pseudo-governmental entity is controlled by Disney, giving it flexibility in how it operates Walt Disney World.
While the lucrative business of Disney’s theme parks faces new challenges, lockdowns in China, market instability, and other threats threaten its lucrative division, U.S. attendance seems poised to rebound after strong results last quarter.
And in the theatrical business, a strong showing from Doctor Strange 2 may give pause to any future day-and-date plans.
Concerning the future of Disney’s linear TV channels like ESPN, Chapek stated that “linear networks can be cash generators” and that “the hesitancy not to move too quickly away from them is really a cashflow scenario .”
Chapek did however tease a future in which ESPN is available directly to consumers.
” “At some point when it is going to make it good for our shareholders it will be able to fully Go,” he stated. He also noted that it will be the ultimate fan offering that appeals only to super-fans and ESPN could pull that off .”
This article originally appeared in THR.com.
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