Shares of Walt Disney (NYSE:DIS) are up almost 9% on Thursday after the media and entertainment giant reported better-than-expected results for its fiscal third quarter and hiked prices for its streaming service Disney+.
The company reported Q3 adjusted EPS of $1.09, compared to 80c in the year-ago quarter and topping the consensus estimates of 96c per share. Revenue stood at $21.5 billion in the quarter, up 26% year-over-year, and above the analyst consensus of $20.96 billion, according to Refinitiv.
Q2 2022 hedge fund letters, conferences and more
Parks Momentum Extremely Robust
Disney said its parks, experiences and products revenue rose 72% year-over-year to $7.4 billion in the third quarter, compared to $4.3 billion in the same period last year. The company also registered stronger figures in attendance, cruise ship sailing, and occupied room nights.
Disney also said it managed to revive its in-park experiences including character meet-and-greets and nighttime events in Disneyland, enabling the company to expand its park capacity, said CEO Bob Chapek.
“As it relates to demand, we have not yet seen demand abate at all and we still have many days when people cannot get reservations,” said McCarthy during the earnings call. “So, we’re still seeing demand in excess of the reservations that we are making available for our guests.”
Spending at U.S.-based parks rose by 10% during the quarter year-over-year, and is up 40% relative to fiscal 2019. Domestic hotel occupancy rose to 90% in the period.
Streaming Accelerating
Disney reported 152.1 million Disney+ subscribers, also above the consensus projection of 147.76 million. The company reported 46.2 million Hulu subscribers at the end of the three-month period, while ESPN+ ended the quarter with 22.8 million subscribers. Disney+, Hulu, and ESPN+ had a total of more than 221 million streaming subscribers in the fiscal third quarter, just above Netflix’s 220 million subscribers, according to the latest count.
Disney’s three streaming services lost a total of $1.1 billion in the quarter due to higher content costs. The company also reported its average revenue per user (ARPU) for Disney+ fell by 5% in the quarter in North America as customers opted for more affordable services.
In addition to a strong earnings report, Disney also introduced a fresh pricing structure to boost the profitability of its streaming services. As of December 8, the cost of Disney+ with commercials will rise to $7.99 per month in the U.S. - which is the current price of Disney+ without ads. Therefore, the cost of Disney+ without ads will increase 38% to $10.99 per month.
Similarly, the company also raised the price of ad-free Hulu by $2 per month from $12.99 to $14.99. The cost Hulu with ads will also rise by $1 per month, from $6.99 to $7.99. The move comes just a month after Disney raised the price of ESPN+ with ads by 43% to $9.99 per month.
Disney also hiked prices of its bundle packages. The cost of Hulu with live TV and Disney+ and ESPN+ with commercials will cost $69.99 per month, while ad-free Disney+ in that bundle without commercials will be priced at $74.99. The premium bundle package that includes Hulu with live TV along with Disney+ and Hulu without ads will cost $82.99 per month.
The price hikes reflect mounting operating losses for the Burbank, California-based company’s streaming services. The $1.1 billion loss in the fiscal third quarter is $300 million greater than the consensus estimates and it comes even though the company welcomed 15 million new Disney+ subscribers in the period, smashing analyst estimates by 5 million.
Earlier this year, Disney said it expected that its Disney+ unit will generate losses until 2024. The company’s CFO Christine McCarthy said Wednesday that the losses at the streaming service are expected to peak in this fiscal year.
The company also reduced its 2024 outlook for Disney+ from 245 million subscribers to 215 million. This compares to Disney’s previous Disney+ forecast in December which guided for 230 million to 260 million by the end of fiscal 2024. Disney said it still expects Disney+ to hit profitability by the end of fiscal 2024.
Racing Netflix
Apart from strong earnings and revenue numbers, Disney’s latest earnings report also marks an important landmark as its streaming service Disney+ beat its biggest rival Netflix Inc (NASDAQ:NFLX) in global subscriber numbers.
The majority of streaming service providers were copying Netflix and focused solely on streaming to increase their market share. However, that trend has changed in the recent period with many streaming service companies now shifting their strategies and adding numerous other lines of business in addition to streaming.
“We effectively have four or five or six cash registers,” said David Zaslav, CEO of Warner Bros Discovery. “And in a world where things are changing and there’s a lot of uncertainty ... that’s a lot more stable and a lot better than having one cash register.”
Traditional media companies are now promoting their stable but weakening businesses such as television as their main profit sources to weather the ongoing economic turmoil. As such, analysts said that cash flow has now replaced subscriber growth again as the main success metric in the past couple of years.
Disney was the first among the media giants to shift its strategy and attempt to capture Netflix’s market share. This strategy involved better utilization of its popular entertainment brands as well as a $30 billion investment in content spending.
On the other hand, Netflix has made a sharp U-turn after recording robust growth in recent years, with the company’s stock value declining to roughly $100 billion from more than $300 billion in November amid weaker growth.
Summary
Disney shares are up about 9% on Thursday after the media and entertainment company reported stronger-than-expected Q2 results and announced it will raise prices for its Disney+ streaming service.
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