Walt Disney (DIS): Subscriber growth and robust content portfolio will boost the streaming business

Shares of The Walt Disney Company (NYSE: DIS) were up 1.7% on Friday, a day after the company delivered a strong earnings report for the third quarter of 2021. The company saw a 45% growth in revenues along with solid growth in adjusted EPS compared to the year-ago period. On a GAAP basis, Disney reported a profit of $923 million from continuing operations versus a loss of $4.7 billion in the prior-year quarter.

Disney is recovering from the pandemic as its theme parks open and cruises resume but its film and television production continues to face some challenges. However, the company’s streaming business is booming continuing the momentum gained during the pandemic period. In Q3, Disney saw strong subscriber growth which exceeded market expectations. This, combined with a robust content pipeline, is expected to fuel growth for the streaming division over the coming years.

Subscriber growth

Disney’s direct-to-consumer business ended the third quarter with a total of nearly 174 million subscriptions. Of this, Disney+ accounted for 116 million subscribers followed by Hulu with 42.8 million and ESPN+ at 14.9 million. Disney+Hotstar comprised the majority of the subscriber additions between the second and third quarters of 2021 and made up a little less than 40% of the total Disney+ subscriber base.

Average revenue per user for Disney+ as a whole was $4.16 but excluding Disney+Hotstar, it was $6.12. This was up about $0.50 from the second quarter helped by recent price increases. The company incurred higher costs due to the expansion of Disney+ into new markets but this was offset by higher subscription revenue, driven by subscriber growth, price increases and Premier Access revenue for the new movie Cruella.

Disney continues to expand its Disney+ service into new markets across the globe. During the third quarter, the company launched Disney+Hotstar in Malaysia and Thailand. In late October, Disney will expand Disney+ to the full Japan market, where it is currently available on a limited basis, and in mid-November, it plans to move into regions like South Korea, Taiwan and Hong Kong. However, it has moved the launch of Disney+ in Eastern Europe from late 2021 to summer of 2022 in order to include parts of the Middle East and South Africa.

Strong content line-up

Disney+ has a strong pipeline of content that will continue to drive growth for its streaming services in the coming years. In Q3, the company saw strong engagement and subscriber growth driven by hit shows such as Loki and The Falcon and the Winter Soldier from its Marvel universe. It has more new series coming later this year from Marvel, Star Wars and National Geographic including Hawkeye and a spin-off of The Mandalorian.

The company has a number of films slated for release this year including The Kingsman, Westside Story and Shang-Chi and the Legend of the Ten Rings. It also has four films from Marvel slated for 2022. Disney’s new strategy of releasing movies in three ways – theatrical releases, Direct to Disney+, and a hybrid model of theatrical plus Premier Access – is expected to help the company reach the audience in the broadest way possible.

The DTC business is a key priority for Disney and the company is confident that its growing portfolio of DTC services will help drive growth going forward.

Click here to read the full transcript of Disney’s Q3 2021 earnings conference call