Disney(NYSE: DIS)is scheduled to announce its fiscal Q3 earnings results after market closes on next Wednesday, August 10.
Latest Results
Revenue for the fiscal Q2 ended April 2 rose 23% year over year to $19.3 billion, with operating income surging 50% to $3.7 billion.
The company added 7.9 million subscribers to its Disney+ streaming service, while domestic theme-park revenue of $4.9 billion nearly equaled the prepandemic peak for that segment.
Q3 Guidance
There was a possible ceiling for streaming services, with that market leader around 222 million subscribers globally. But Disney stuck to its plan to exceed that number for the Disney+ service by the end of its 2024 fiscal year.
The company expected subscriber additions in the second half of the year to exceed the number added in the first half, but CFO suggested the difference won't be as high given the strength of recent additions. The company also warned that closures of its theme parks in Asia because of Covid 19 outbreaks could dent operating income in Q3.
3 Most Important Things to Watch
1. Streaming Growth Isn't as Strong as It Could Be
The U.S. has the biggest video streaming market on the planet, worth $34.1 billion -- 85% larger than the second-biggest market, China. If Disney continued to only offer PG-rated content, it would force many U.S. households to get alternative content elsewhere and make competitors like Netflix more attractive. Providing a diverse library of content makes it easier for consumers to subscribe to Disney+ exclusively, bringing it one step closer to dominating the all-important U.S. market.
Moreover, recent complaints about the added mature content on Disney+ have come from specific organizations in the U.S. and are unlikely to sway the majority. American consumers were introduced to streaming parental controls long ago with the rise of Netflix, and would more than likely prefer the added content.
2.It Faced Fallacy Of Subscription Price Hikes
The cost of ESPN+ is apparently jumping to $9.99 a month, up from $6.99 per month. The company has already hiked the monthly fee from the original price of $4.99 per month to the current $6.99 price.
The service had 22.3 million subs at the end of May, but the news appears to suggest the Disney Bundle price isn't being hiked. The price hike will likely push more viewers into the bundle which includes Disney+ and Hulu along with ESPN+ for only $12.99 per month. Remember though, an ESPN+ subscriber doesn't even get access to the MNF games and others aired on either ESPN or ESPN2.
The average monthly revenue per paid subscriber is nowhere close to the current $6.99 figure. ESPN+ only generates $4.73 per sub, up a meager 4% from last year. Disney is only collecting roughly 50% of the prescribed new monthly fee for ESPN+.
3. Closure of Theme Parks in Asia May Reduce Operating Income By up to $350 Million
Disney reopened its Shanghai Disney Resort theme park on Jun 29, following a three-month closure (from Mar 21) due to rising coronavirus infections. Park authorities have put restrictions on capacity, and some attractions, such as Marvel Universe, will stay closed. The cruise and theme parks businesses are part of the Parks, Experiences & Consumer Products segment that accounted for 34.6% of fiscal Q2 2022 revenues. These businesses have suffered significantly due to coronavirus-induced lockdowns and travel restrictions.
Closure of theme parks in Asia due to the coronavirus is also expected to reduce operating income by up to $350 million in the fiscal Q3.
Analyst Opinions
Wells Fargo reduced its price target from $153 to $130.It cut back subscriber expectations for both core Disney+ services and Hotstar, reducing estimated 2024 Disney+ subs to 213M from a previous 240M. It also trimmed estimates in Parks on the slowing economy, though: Taking 2023 per capita spending and hotel revenue per available room down 6% before a 2024 recovery, and cut operating income expectations for Parks by 12% in 2023, to $8.6B, proactively cuts ad sales.
Bloomberg analyst Geetha Ranganathan thinks streaming service Disney+ is set to meet or even beat consensus of 44 million subscriber additions in 2022 after gaining 19.6 million in H1, yet despite that, the loss of streaming rights to Indian Premier League (IPL) cricket may force a cut in its target of 230-260 million users. Yet it will help the bottom line, and an ad tier will be positive.
Barclay analyst David Joyce lowered its target price from $130 to $120, he thought that Hotstar, Disney’s local language streaming service in India, was guided to contribute 40% of Disney’s long-term streaming subscriber guidance of 230-260mm subs, and the loss of streaming rights therefore may result in long-term streaming subscriber guidance being cut, it is important for Disney to reset expectations in a more manageable range.
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