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Will Disney’s share price soar as subscribers rocket?


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Disney’s share price is at $150, just $2 shy of its pre-pandemic high. Rising Disney+ subscriber numbers combined with pent-up park demand could see it soar.

disney
Source: Bloomberg
 
 

The Disney (NYSE: DIS) share price has had a volatile couple of years. It was worth $152 in November 2019, before collapsing to $86 in March 2020 at the tail end of the covid-19 pandemic-induced crash. But it then rose to $197 by 12 March 2021.

However, it’s since been steadily falling to $137 last month. But it’s now recovered to $150 as investors cheer excellent Q1 results.

Disney share price: streaming success

After the horror show that was last month’s Netflix results, Disney investors looked towards earnings with some trepidation. BMO Capital Markets analyst Daniel Salmon said Disney is now experiencing a ‘deserved relief rally,’ and outperformed ‘on its most important metrics, especially Disney+ subs in the face of increased investor skepticism of the streaming model of late.’

But fortunately, the entertainment juggernaut’s results were excellent. Revenue soared 34% year-over-year to $21.8 billion, $900 million more than the Refinitiv average analyst expectation. Meanwhile, free cash flow increased 74% to $1.2 billion.

CEO Bob Chapek commented ‘We’ve had a very strong start to the fiscal year, with a significant rise in earnings per share, record revenue and operating income at our domestic parks and resorts.’ He also highlighted the success of new franchise ‘Encanto,’ as well as ‘a significant increase in total subscriptions across our streaming portfolio to 196.4 million, including 11.8 million Disney+ subscribers added.’ For context, Netflix only expects to add 2.5 million subscribers in this current quarter.

And Disney+ is key to the company’s continued success. Total subscriber numbers are now at 129.8 million, significantly above the StreetAccount estimate of 125.75 million. And in the crucial US and Canada region, average revenue per user rose to $6.68 per month from $5.80 a year ago. Moreover, the company expects subscriber growth for Disney+ to be stronger in the second half of the year, with more original content slated for Q4.

And Chapek expects 230 million to 260 million Disney+ subscribers by 2024, telling investors ‘we do not subscribe to the belief that theatrical distribution is the only way to build a Disney franchise.’

And in an interview with CNBC, Chapek said Disney is bidding for the NFL Sunday Ticket, perhaps in response to Amazon ten year deal to present Thursday Night Football.

But while Spiderman: No Way Home is close to the biggest US domestic release ever, the global box office has not yet recovered fully from lockdowns. And there are no guarantees it ever will. The US’s largest cinema chain AMC has a crippling $5 billion pile of debt. But Disney is creating multiple streaming shows centred around core brands like Star Wars and Marvel, creating a new way to hook in new cinemagoers. And Wells Fargo analyst Steven Cahall has a $196 target on the stock, arguing ‘confidence in Disney+ awakens … The company is doing and saying all the right things to make fiscal year 2024 guidance.'

disney 2
Source: Bloomberg

Walt Disney Resorts

Meanwhile, revenues from parks, experiences and consumer products rose 100% year-over-year to $7.2 billion, while operating results hit $2.5 billion compared to a $100 million loss the year before.

The pandemic had impacted the parks business ‘significantly,’ as most were left unable to open but with continued fixed costs. But now, Disney is benefitting from the pent-up demand, as its ‘domestic parks and experiences are generally operating without significant mandatory COVID-19-related capacity restrictions.’ Macquarie analyst Tim Nollen has now put a $185 target due to its ‘great quarter, led by Disney+ subs and parks.’

However, according to CFO Christine McCarthy, flagship Florida Disney World has yet to see a return of international travellers. And consumer products revenue fell 8.5% to $1.5 billion, as many of its Disney branded retail stores closed in 2021.

And with the US Consumer Prices Index inflation rate at 7.5%, Disney may see consumers cut back on park experiences. Disney is a luxury brand, and the cost of flights, tickets and accommodation makes it a once-in-a-lifetime trip for many international visitors. Meanwhile, the battle for the streaming dollar is likely to intensify.

But Chapek has ‘great confidence we will continue to define entertainment.’ And the company is the seventh most powerful brand in the world. With the Disney share price at its pre-pandemic level. It could have much further to go.

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*Based on revenue excluding FX (published financial statements, June 2020).

Charles Archer | Financial Writer, London
15 February 2022

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