Continued Disney+ Subscriber Growth the Highlight of Q2

Walt Disney DIS posted an interesting fiscal 2022 second quarter. Disney+ added 7.8 million customers globally versus a loss of 200,000 for Netflix. New customer growth was concentrated outside the United States, with 1.5 million added in the U.S./Canada, 2.1 million in international markets excluding Hotstar, and 4.2 million in Hotstar countries. Even with the slowdown versus the first quarter, domestic growth remains impressive as the 5.6 million additions in the first half of the fiscal year are more than fiscal 2021's total and well ahead of the 1.5 million Netflix additions in the same region over the last 18 months. Despite the increasing subscriber base, the operating loss for the direct-to-consumer segment continued to widen, and management guided for increased losses in the third quarter. Disney continues to invest in content for its streaming services, including renegotiating contracts. The firm recently terminated a licensing contract early, resulting in a $1 billion revenue reversal in the quarter. Management also announced that due to slower-than-expected pacing, Disney will now spend $32 billion (versus previous guidance of $33 billion) in fiscal 2022 on content with roughly one third allocated to sports rights. Despite the elevated levels, we continue to view the content spending as an appropriate investment to drive long-term growth for the overall business. We are maintaining our wide moat rating and $170 fair value estimate. Revenue for the quarter improved by 29% year over year to $20.3 billion. The parks, experiences, and products division continued to rebound, with revenue of $6.7 billion, up more than 100% for the second quarter in a row. The pandemic and lockdown restrictions create uncertainty over the near term, particularly in Asia, but continued booking growth and per capita spending improvement (up more than 20%) at both domestic and international parks in the quarter offer reassuring signs for a return to long-term growth.