Media and entertainment conglomerate Disney beat analyst forecasts for the fiscal first quarter earnings late Wednesday, as theme park revenue bounced back. Disney+ subscriptions also topped consensus. DIS stock rose Thursday.
As Covid restrictions ease and people spend more on eating out and traveling, Disney's streaming subscriber growth has stalled from its pandemic surge. However, that also means that its theme parks have been busier.
Still, with rival Netflix stock losing more than 20% after missing Q1 subscriber growth expectations, all eyes were on Disney streaming subscriber growth.
Disney Earnings
Estimates: FactSet analysts saw Q1 earnings more than doubling to 74 cents a share vs. the year-ago period's 32 cents. Revenue was expected to grow 24.7% to $20.27 billion. FactSet saw Disney+ subscribers reaching 125.41 million.
Results: Disney earnings per share surged to $1.06 on sales of $21.82 billion. Disney+ subscribers reached 129.8 million.
Disney's parks, experiences and consumer products division revenue notched $7.2 billion during the quarter, double the $3.6 billion from the year-ago quarter.
"Our domestic parks and resorts achieved all-time revenue and operating income record despite the Omicron surge," CEO Bob Chapek said in an earnings call with investors.
CFO Christine McCarthy pointed out there is more upside to come, as international visitors have not yet really returned to U.S. theme parks. Between 18% and 22% of Disneyworld guests are from abroad, she said.
However, Third Bridge senior analyst Joe McCormack is cautious about theme-park revenue going forward.
"More disruptions to parks business don't seem to be over with closures in Hong Kong most recently," he wrote in an email to IBD. "Whether the parks business can generate a similar margin profile in the interim will also be important to watch."
Disney Stock
Shares popped 3.35% Thursday after gaining 3.4% in Wednesday's stock market trading. Disney stock is trading above its 50-day line, according to MarketSmith.
Its relative strength line spiked up after the earnings report, but is still near multiyear lows. Disney's Relative Strength Rating is 25, while its EPS Rating is 68. With a Composite Rating of 53, Disney ranks No. 16 in IBD's Media-Diversified industry group.
Netflix stock fell 1.6% on Thursday, while Amazon stock fell 1.4%. Apple lost 2.4%, and Comcast declined 1.7%.
Subscriber Growth
Disney+ subscriber growth revival in fiscal Q1 followed a tepid gain of just 2.1 million in fiscal Q4. That came after a gain of more than 13 million in fiscal Q3. Disney is targeting between 230 million and 260 million subscribers by 2024.
"We don't anticipate that subscribers growth will necessarily be linear from quarter to quarter, and we continue to expect growth in the back half of the fiscal year to exceed growth in the first half," McCarthy said.
Disney+ Hotstar in India accounted for 37% of Disney+ subscribers.
"After the bashing Netflix took on the release of their year-end results last month, eyes have been on Disney+ and any further signals that the streaming market is at full supply," McCormack said. "Disney+'s growth has already slowed to only 2.1 million new subscribers per quarter globally -- even lower than the 2.5 million Netflix has guided for the next quarter. This is compounded by a much lower (average revenue per user) on a relative basis of about $4 per month because of Disney's focus on bundling and promotional activity."
Streaming Subscription Costs
Like others, Disney has hiked the price for streaming subscriptions over the last year, as the cost to create content grows.
Disney, which has committed $8 billion to creating streaming content throughout 2022, hiked prices for its Disney+ streaming services a year ago to $8 a month. Hulu increased the price of its live TV subscription services by $5 a month in December to $70 a month. That fee will now include Disney+ and ESPN+. ESPN+ alone costs $7 a month.
Netflix increased prices for all U.S. plans by $1.50, to $15.49 a month. And Amazon is raising its Prime membership price in the U.S., with the annual fee jumping to $139 from $119. Its monthly fee for Prime is rising to $14.99 from $12.99. However, Amazon's stand-alone Prime Video option remains at $9 a month.
Disney+ Streaming Content
The quarter included the 30-day theatrical run of Disney's animated film "Encanto." It grossed an underwhelming $234 million in worldwide box office. The film was released on Disney+ on Dec. 24.
After families' continued reluctance to return to theaters resulted in a muted theatrical performance, "Encanto" logged 200 million hours viewed and took social media by storm, Chapek said.
"We do not subscribe to the belief that theatrical distribution is the only way to build a Disney franchise," Chapek said.
Peter Jackson's widely anticipated three-part documentary "The Beatles: Get Back" also premiered on Disney+ on Thanksgiving weekend.
Meanwhile, the race to claim content is also heating up. Comcast's NBCUniversal is considering pulling its content from Hulu to expand Peacock's exclusive library. NBCUniversal has a one-time window in 2022 during which it could pull out from its content licensing agreement with Hulu in favor of moving it to Peacock.
And Amazon and Disney are jockeying for rights to NFL games. Amazon already has an exclusive deal with the NFL to stream "Thursday Night Football" starting next season. Amazon is continuing its effort to expand its portfolio of NFL content. According to press reports, the company is the front-runner to buy a 49% minority stake in the NFL's various media properties including the NFL Network, RedZone and NFL.com.
As for Disney, CEO Bob Chapek has said the company is in discussions and negotiations with the NFL for the Sunday Ticket rights. But Apple is reportedly also interested in securing those rights.
Disney expects to spend as much as $33 billion on content, including sports, in fiscal 2022.
Theatrical Releases Struggle
Content sales and licensing results decreased in the quarter vs. the prior year to an operating loss of $98 million, driven by lower theatrical results and higher film impairments.
"While theaters have generally reopened, we are experiencing a long recovery in theatrical exhibition, particularly for certain genres of films, including non-branded general entertainment and family focused animation," McCarthy said. "This dynamic contributed to increased losses in the quarter as we released more titles in Q1 this year vs. the prior year, resulting in lower theatrical results."
Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
