Strong Q3 for Disney, Subscriber Growth at Disney+

Disney DIS posted a strong fiscal-year 2021 third quarter as revenue just beat FactSet consensus and EBITDA came in well ahead of expectations. Disney+ added 12.4 million customers to end the quarter at 116 million subscribers due in part to the return of cricket, still below the 21 million added in the fiscal first quarter but well ahead the 8 million in the second quarter. While subscriber growth has slowed down, we still expect robust long-term subscriber growth, particularly outside the U.S. as the firm continues to add more original content and increase the library depth in the Star sub brand. We maintain our wide moat and raise our fair value estimate to $170 from $154 due to the lower-than-expected streaming losses and stronger subscriber growth. Revenue for the quarter increased by 45% year over year to $17.0 billion. Revenue for the parks, experiences, and products division jumped up to $4.3 billion from $1.1 billion, due to the loosening of the pandemic-related closures and capacity constraints. While the ongoing pandemic creates near-term uncertainty, relatively strong consumer demand and the continued growth in bookings remain encouraging signs for a return to long-term growth. Revenue for the media and entertainment distribution division improved by 18% to $12.7 billion as the growth at direct-to-consumer services and linear networks more than offset the continued declines at the content sales/licensing segment. Revenue at linear networks, which includes ABC, ESPN, FX, and all other pay TV networks, grew 16% to $7.0 billion. Domestic affiliate fee revenue in the quarter was up 4%, as higher pricing was partially offset by fewer subscribers. As expected, broadcast advertising revenue increased 22% due to a timing shift for the Oscars and higher rates that more than offset lower ratings. Segment operating income margin for linear networks fell to 31.4% from 54.7% due to more hours of original programming and higher rights costs from the return of sports.

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