Current Price: $160 Price Target: $215
Position size: 2% TTM Performance: +18%
Key Takeaways:
- Lower than expected Disney+ subscribers, impacted by covid related content headwinds – subs were slightly lower than expected (but in-line w/ lowered guidance). The pandemic has impacted the cadence of new content which drives subs, but production is ramping w/ a lot of new content slated for the 2H 2022. In general, Disney+ has been ramping far ahead of initial expectations but with no change to breakeven guidance for their DTC platform, as they increase investment on content.
- Higher spending on Parks and content impacting near term profits
- Capital return still paused
Additional highlights:
- Long-term subscriber targets maintained, but quarterly new subs were lower than expected…
- They now have 179M subs (consensus was 187m) across Disney+, Hulu and EPSN+. That is second only to Netflix, which has a little over 200M….Disney’s achieved that in 2 years.
- Disney+ now has 118M subs, Hulu is ~44M and ESPN has ~17M.
- In the past fiscal year they’ve grown the total number of subscriptions across their entire DTC portfolio by 48% and Disney+ subs by 60%.
- “we remain focused on managing our DTC business for the long-term, not quarter-to-quarter, and we’re confident we are on the right trajectory to achieve the guidance that we provided at last year’s Investor’s Day reaching between 230 million and 260 million paid Disney+ subscribers globally by the end of fiscal year 2024 and with Disney+ achieving profitability that same year.”
- Higher content spend and global rollout will continue to support sub growth…
- Doubling the amount of original content with marquee brands Disney, Marvel, Pixar, Star Wars and National Geographic coming to Disney+ in FY’22 with the majority arriving July through September.
- On Thanksgiving Day, premiering the first of Peter Jackson’s highly anticipated, six episode Beatles documentary Get Back.
- https://www.thebeatles.com/news/%E2%80%9C-beatles-get-back%E2%80%9D-disney-original-documentary-series-directed-peter-jackson-debut-exclusively
- They continue to build out ESPN+ with exclusive sports content. “with every new sports rights deal, we have considered both linear and DTC in fact all seven of the major deals we made in the last year and a half included a streaming component.” This includes: “Man in the Arena: Tom Brady”, Monday Night Football With Peyton and Eli, a historic 10-year NFL rights agreement, which begins in 2023 and a 7 year rights deal w/ the NHL. ESPN+ is the sole home for more than 1,000 out of market NHL games.
- “the single most effective way to grow our streaming platforms worldwide is with great content and we are singularly focused on making new high quality entertainment including local and regional content that we believe will resonate with audiences.”
- Disney+ now in over 60 countries and more than 20 languages. Next year they’ll add 50 plus additional countries including in Central Eastern Europe, the Middle East and South Africa. Their goal is to more than double the number of countries to over 160 by fiscal year ’23.
- Online sports betting: indicated on the call that they’re interested in pursuing this in a meaningful way and are looking at partnering w/ 3rd parties in this space. There has already been talk of an agreement w/ Draftkings….Disney already owns ~4.5% of DraftKings stock (from their 2019 Fox acquisition).
- Metaverse: yes, even Disney is talking about this. This idea of the next stage of the internet, or the embodied internet is a growing topic…given Disney’s owned content and focus on experiences, they view themselves as well positioned for “storytelling without boundaries and our own Disney Metaverse.”
- ARPU should steadily rise over time – overall ARPU this quarter was $4.12 (ex-Hotstar, it was $6.24). Their ARPU is weighed down by lower Disney+ fees outside the US, but they will gradually raise prices over time and they have ways (other than sub fees) to make money off of their content w/ advertising, parks and consumer products (especially w/ content like Pixar, marvel, star wars).
- Flexibility is a key component of their distribution strategy. They have 3 approaches for distributing films. 1) Release in theaters with a simultaneous offering via Disney+ Premier Access, 2) release straight to Disney+, and 3) traditional exclusive theatrical releases. Hybrid releases mitigated the impact of theater closures, but theaters are re-opening and they intend to continue to use this model.
- Improving demand w/ parks and cruises
- Park re-openings…everything is open. They are opportunistically raising prices. Parks are generally operating at or near current capacity limits w/ robust guest spending trends and strong reservations. Margins are still below pre-Covid, but given some changes in both the revenue and the cost side, once capacity constraints are lifted, they think they will exceed previous margin levels. For example, mobile food ordering, virtual queues, dynamic pricing. Per capita revenue is up 30% vs 2019. One-third of guests at WDW are buying the Genie+ upgrade at $15/guest/day – that is a very, very material increase in per caps and margins. Return of international guests at domestic resorts will be a tailwind.
- Cruises: all 4 ships are sailing, seeing “tremendous demand” and they’re adding a new ship in 2022.
- Valuation – at a similar multiple to NFLX on 2023 subscriber revenue, Disney’s DTC business accounts for over 50% of their valuation, with the rest of their business (~80% of revenue) accounting for the rest, including all linear TV (e.g. ABC & ESPN), movies, advertising, parks, cruises and consumer products.
Sarah Kanwal
Equity Analyst, Director
Direct: 617.226.0022
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square, Suite 500
Boston, MA 02109
$DIS.US
[category earnings ]
[tag DIS]