Strategic reorganization helps Disney (DIS) push streaming services further

The Walt Disney Company (NYSE: DIS) has been seeing significant strength in its streaming services business which has provided a bit of a cushion to the company as its other divisions have been negatively impacted by the COVID-19 pandemic.

The media giant had undertaken a strategic reorganization a couple of months ago, grouping its operations into two segments. This change has allowed the company to focus more on its fast-growing streaming business thereby helping it gain further momentum.

User base

Back in April 2019, Disney provided its guidance for FY2024 which projected 60-90 million subscribers for Disney+, 40-60 million subscribers for Hulu and 8-12 million subscribers for ESPN+. At its Investor Day in December 2020, the company reported that it had 86.8 million Disney+ subscribers, 38.8 million Hulu subscribers and 11.5 million ESPN+ subscribers, which reflected massive growth against its estimates.

Last week, at its first quarter 2021 earnings announcement, Disney reported that as of January 2, 2021, it had 94.9 million subscribers for Disney+, 39.4 million for Hulu and 12.1 million for ESPN+. Disney’s streaming services gained significant momentum amid the pandemic as people staying at home turned to its platform for entertainment options.

Disney+’s subscriber numbers reflect global net additions of 21.2 million from the fourth quarter of 2020. Disney+ Hotstar, which comprises 30% of the Disney+ subscriber base, witnessed strong growth in the first quarter. Cricket is an important part of Disney+ Hotstar’s programming strategy and the company saw a pickup in subscribers at the beginning of the IPL season. Disney+ also gained additions to its subscriber base from its launch in Latin America in November.

Hulu and ESPN+ both witnessed a growth in their subscriber numbers and Hulu benefited from higher advertising revenue as well. The strong results at all three of its streaming services helped Disney drive an improvement of nearly $650 million in its operating results compared to the year-ago period.

Content

Disney has a robust pipeline of original content for its streaming services portfolio and the company’s collection of brands and franchises gives it opportunities to generate even more content. The Star Wars and Marvel franchises have led to the creation of shows such as The Mandalorian and WandaVision, both of which have proven to be popular.

 At its Investor Day, Disney announced plans to release around 10 Marvel series, 10 Star Wars series, 15 Disney live-action, Disney Animation and Pixar series along with 15 Disney live-action, Disney Animation and Pixar features all directly on Disney+ over the next few years.

The reorganization has given Disney the needed flexibility to assess and adjust its plans based on marketplace changes which will allow the company to optimize its content mix based on what is best for its business and for its consumers.

Next week, Disney will roll out its new international general entertainment offering, Star, across Europe, Canada, Australia, New Zealand and Singapore. Star will be integrated into Disney+ as a distinct sixth brand tile and will offer movies and television content from its multiple studios as well as from the 21^st Century Fox acquisition.

Outlook

At its Investor Day, Disney provided an updated subscriber guidance and now expects that by the end of FY2024, the company will have between 230-260 million global paid subscribers for Disney+. Disney+ Hotstar is estimated to form 30-40% of this subscriber base. Hulu is expected to have 50-60 million subscribers and ESPN+ is estimated to have 20-30 million subscribers by the end of FY2024.  

Walt Disney’s stock has gained 8% in the past one month.

Click here to read the full transcript of Walt Disney Q1 2021 earnings conference call