Disney’s stock was up around 3% in after-hours trading Wednesday, after the entertainment giant beat Wall Street expectations on subscriber growth.
Why it matters: Disney is quickly closing in on Netflix’s long-established streaming lead. The entertainment giant now has 205 million paid subscribers across all of its services globally, while Netflix has 221 million.
Yes, but: The company missed revenue expectations, due to a $1 billion impairment charge from the early termination of some licensing agreements.
- Disney’s chief financial officer Christine McCarthy told investors that it terminated those agreements “in order to make that content available on our own DTC (direct-to-consumer) services.”
- It also recorded a $195 million impairment charge related to losses from the Disney Channel being paused in Russia.
Details: Disney’s streaming segment continued to grow last quarter, giving Wall Street optimism about the streaming following Netflix’s subscriber loss and brutal market selloff.
- But the company is slightly lowering its 2022 content spend forecast from $33 billion to $32 billion “to reflect a slightly slower cadence of spending during the first half of the year,” said McCarthy.
- CEO Bob Chapek said the company is “selectively enhancing” Disney+ with general entertainment titles “designed to drive signups among specific audiences.” Disney said earlier this year it plans to add some ABC programming, like “Dancing with the Stars” to the service.
Between the lines: A huge part of Disney+’s growth strategy is continuing to expand internationally.
- Chapek said the company plans to roll out Disney+ in 53 new markets by the end of the third quarter.
- McCarthy for the first time revealed the breakdown of the roughly 500 local titles in the pipeline outside of the U.S. The company is currently planning 140 local titles in the Asia Pacific region, including Southeast Asia, 150 in Europe, Middle East and Africa, 100 in India and 200 in latin America.
- Disney+: 137.7 million
- ESPN+: 22.3 million
- Hulu (Live and SVOD): 45.6 million
Be smart: Even though Disney+ continues to draw subscribers, it will need to start driving significantly more revenue per subscriber in order for the company to meet its goal of Disney+ becoming profitable by 2024.
- One way that the company plans to do that is by introducing an ad-supported tier in the U.S. in 2022 and abroad in 2023.
- While the company neglected to share more details about pricing and timing, Chapek did reiterate his confidence in Disney’s ability build a strong advertising operation for Disney+, given its success and technical resources building ad-supported tiers for ESPN+ and Hulu.
- The company said that its average average revenue per user/subscriber (ARPU) for Disney+ last quarter was $6.32 in the U.S. and $4.35 globally, up 5% and 9% from the same period last year, respectively. By comparison, the ARPU for a Netflix subscriber in North America is about $14.91.
- Much of what brings down Disney’s ARPU globally is its Disney+ Hotstar service in India. Even though Disney+ Hotstar has more subscribers than DIsney+ in the U.S., the ARPU for that region was only $0.76 last quarter.
Disney’s media and entertainment segment last quarter grew 9% compared to the year prior, due to continued streaming growth and higher advertising revenues pegged to higher ratings.
- The company acknowledged, however, that its cable profits continued to be impacted by higher programming costs, specifically due to four additional NFL games.
Disney’s parks and resorts segment continued to bounce back from pandemic-drive headwinds last quarter. “Our domestic parks were standout,” Chapek told investors.
- Some of Disney’s international parks, like Shanghai and Hong Kong, closed in March and remain shuttered due to COVID, which impacted international parks revenue. Still, parks and resorts revenues overall were up more than 7% for the quarter compared to the same time period in 2019.
The big picture: Streaming and entertainment companies have been hit hard by a broader market sell-off. Disney’s stock is down roughly 32% year-to-date, compared to Netflix which is down 72%.
What to watch: McCarthy wanted that some of the regions Disney plans to launch in next quarter, including Poland, are being impacted by geopolitical conflict.
What’s next: Executives reiterated that it is still on track to reach its long-term subscriber goal of 230 million to 260 million total subscribers by 2024.
Go deeper: Disney earnings from past year
- Q1 2021: Disney stock rises on earnings beat, subscriber gains
- Q4 2021: Disney+ subscriber slowdown sends stock sinking
- Q3 2021: Mixed earnings as pandemic toll lingers
- Q2 2020: Pandemic woes offset by big streaming numbers
Editor’s note: This post was updated with additional details throughout.