Another + for Disney (DIS Stock) as subscribers continue to rise

Having hit two-year lows back in July Disney shares have spent the last two months clawing their way back to levels just shy of their peaks in June, in anticipation of a big improvement in Q3 revenues, after the disappointment of a miss in Q2 back in May.

In Q2 revenues fell short of $20bn at $19.25bn, largely due to underperformance in its holiday and theme parks division, although on the streaming front, subscriber numbers did show a sharp increase, in contrast to its peers.

An increase to 137.7m subscribers from 129.8m in Q2, comfortably beat expectations, although revenues and profits across the wider business both fell short, due to higher spending costs on programming on Disney+ and Hulu.

This is something that Disney can afford to do given that its main revenue source is not only its film studios business, but also its parks and holiday business, which during the summer months is normally a sweet spot.

This anticipation of a strong performance in these businesses helps explain the rebound in the share price seen since those June lows, but also means that the bar is high when it comes to its Q3 update.

These various boosts from the parks and studios helped to boost Q3 revenues to $21.5bn, comfortably beating forecasts of $21bn, while profits rose to $1.09c a share, also beating forecasts of $0.96c a share.

Yesterday’s Q3 numbers also continued the trend of a growing subscriber base as Disney+ numbers rose from 137.7m to 152.1m, with the company also announcing it would be raising prices to $11 a month for its US audience. Most of these new subscribers came from its Hotstar service in India.

Disney has also taken the step of offering an ad supported version of its Disney+ platform for $7.99 a month, starting 8th December.

Across all of its platforms/brands, which include Hulu and ESPN, Disney has said it now has 221m global subscribers, pushing it ahead of Netflix on a global scale. Total Q3 revenues rose to $21.5bn comfortably beating expectations, helped by outperformance in both its parks business and film studios.

For Q3, parks and holidays revenue topped estimates, coming in at $7.4bn, $1bn above estimates, helped by the reopening of its resorts in the US, and Paris, as well as the restarting of cruise ship sailings. The Shanghai resort was the only drag due to various covid restrictions.

Across the rest of the business, revenues for Media and Entertainment distribution rose 11% to $14.1bn, with the film studios contributing $2.1bn of that, a rise of 26% on the previous year, helped by the Marvel releases of the new Dr Strange film, and Thor: Love and Thunder.

The streaming business which includes Disney+, while seeing an increase in revenues, saw losses widen to over $1.1bn, with the company blaming higher costs. On a year to date basis, losses have risen to $2.54bn, a big rise on a year ago where losses were just over $1bn.

This is where Disney+ has a huge advantage over Netflix. Quite simply it can continue to supplement these losses, while it continues to steal market share. At the same time it can push prices up by just enough to keep pace with Netflix without pricing itself out of the market.

Disney did lower its 2024 subscriber target, forecasting 135m to 165m core subscribers, down from 230-260m.

This figure doesn’t include its Hotstar service in India. When the Hotstar number is stripped out, current core subscribers, which is US, Canada and International, currently stands at 93.6m. This number also doesn’t include Hulu and ESPN.