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Disney’s Shares Are Popping Here’s Why

August 10th, 2022 -

About 5 Mins
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Ticker Symbol: DIS

The Walt Disney Company published a robust third-quarter report that, while missing on certain key metrics, showed strong growth in its flagship subscription streaming business Disney+. While many feared that the company’s subscriber base would grow more slowly after a mixed report from rival Netflix, Disney+, the company’s eponymous streaming service, expanded at a faster than expected rate. The entertainment giant also reported that it would be raising the ad-free streaming price of the service by 38%.

The company beat Wall Street expectations on both the top line and earnings, propelling shares higher by 7% in post-market-close action. It reported third-quarter adjusted earnings per share of $1.09 which was ahead of the 96¢ expected by analysts, and a mammoth 36% higher than the year-ago period. Revenue came in at $21.5 billion for the quarter, versus the $21 billion analysts were modeling and up 26% year over year.

Disney also beat on the most closely watched metric of all: Disney+ subscriber count. The company reported total subscribers for its nascent streaming service of 152.1 million, versus analyst expectations of 148 million. Subscribers grew 31% year over year. Other Disney-offered subscription services were slightly weaker. Hulu reported subscribers of 46.2 million against the expected 46.5 million, while ESPN+ reported 22.8 million while estimates called for 23.2 million.

Despite missing estimates, the company still reported growth in all three major services, allaying investors’ fears of the company losing subscribers. Hulu grew 7.9% year over year, while ESPN+ was up a strong 53% in the same period. The total media and entertainment distribution arm of the company reported revenue of $14.11 billion, up 11% over 2021, while operating income slid by 32% to $1.38 billion. Operating income declined primarily due to an almost $1 billion loss at the streaming businesses as content costs rose during the quarter.

The Disney Parks business, which accounts for around a third of the company’s revenue reported revenue that beat estimates by almost $1 billion. The third quarter topline grew 70% year over year to $7.4 billion versus the $6.6 billion analysts had expected. The division also reported $2.19 billion in operating income, more than the $1.7 billion estimated by investors. The company has neared pre-COVID levels of activity in the U.S. without any significant pandemic-related capacity restrictions in place.

Disney also reported that the firm will now offer multiple pricing schemes for its streaming products. Disney+ with ads would now cost $7.99 a month for U.S. subscribers, while the no-ad service would be $3 more expensive. The Disney+ ad-supported bundle, which includes Hulu and ESPN+, would cost $12.99, while the ad-free bundle would be $14.99. The segmentation in services should allow the company to retain lower-income customers while attracting new customers as the company’s products are still competitively priced relative to Netflix and HBO.

Across its platforms, Disney reported 221 million total subscribers as of July 2nd, just inching ahead of Netflix’s 220.7 million. Chief Financial Officer Christine McCarthy said the company now expects between 135 million and 165 million Disney+ customers by 2024, and 80 million customers for its Disney+ Hotstar product in India. That would total 245 subscribers, lower than the 260 million the company has targeted previously. Additionally, skepticism about the profitability of the streaming business still abounds especially because the company remains reliant on the extremely cheap Hotstar service for subscriber growth.

This content is provided for general information purposes only and is not to be taken as investment advice nor as a recommendation for any security, investment strategy or investment account.

This content is provided for general information purposes only and is not to be taken as investment advice nor as a recommendation for any security, investment strategy or investment account.

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