Disney+ Subscriber Growth Highlights Strong Q1

Disney DIS kicked off fiscal 2022 on a strong note as Disney+ added 11.8 million customers in the quarter versus 8.3 million for Netflix. The firm finally disclosed hard geographic data, showing that new customer growth was nicely spread around the world, with 4.1 million added in the U.S./Canada, 5.1 million in international markets excluding Hotstar, and 2.6 million in Hotstar countries. Even with an incremental 2 million subscribers coming from the addition of Disney+ to Hulu Live, domestic growth was impressive. The service had only added 2.5 million net new subscribers over the previous three quarters and Netflix added just 1.2 million in the same region and quarter. With management still warning of lumpiness in net adds and stronger growth in the second half of fiscal 2022, we remain comfortable with our projection of 45 million net adds in fiscal 2022. We are maintaining our wide moat and $170 fair value estimate.

Revenue for the quarter improved by 34% year over year to $21.8 billion. The rebound at the parks, experiences and products division continued, with revenue up over 100% to $7.2 billion. The ongoing pandemic and COVID-19 variants continue to create uncertainty for the near term, but the continued growth in bookings and per capita spending offer reassuring signs for a return to long-term growth.

Revenue for the media and entertainment distribution division grew 1% to $14.6 billion due to the growth in direct-to-consumer services and content sales/licensing. Revenue at linear networks was flat at $7.7 billion as the shutdown of some international networks offset 2% growth domestically. Domestic advertising revenue was flat as 6% growth at cable was offset by a 9% drop at broadcast due in part to lower political advertising spending at the local station level and lower ratings at ABC. Segment operating income margin for linear networks dropped to 19.5% from 22.5% due to more hours of original programming and increased sport rights costs.

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