Disney+ Powers to Nearly 138 Million Subscribers, Beating Streaming Expectations for March Quarter

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Disney+ kept its momentum fully charged as the streamer handily topped Wall Street growth forecasts for the March 2022 quarter.

Disney’s flagship streamer gained 7.9 million paid customers in the first three months of 2022, to stand at 137.7 million, up 33% year over year. Analysts on average expected Disney+ to net 5.2 million new subscribers, per FactSet.

The results stand in contrast to streaming rival Netflix, which reported a loss of 200,000 streaming subscribers for the same period and forecast a 2 million drop for Q2. That led investors to fear a sector-wide slowdown after a pandemic-fueled surge over the last two years. Disney+’s strong gains dispel that notion and suggest that the Mouse House is stealing market share from Netflix.

In addition, the company expects Disney+ subscriber net adds to be stronger in the second half of its fiscal year 2022 than in the first half as execs said previously, but that may not be “as large as previously anticipated,” CFO Christine McCarthy said on the earnings call.

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Overall, Disney missed financial expectations for the quarter ended April 2, which is its Q2 of fiscal year 2022. The company reported revenue of $19.25 billion (up 23%) and earnings of 26 cents per share for the quarter. Wall Street on average expected Disney to post revenue of $20.05 billion, per FactSet data. Adjusted earnings came in at $1.08 per share, below analyst forecasts for adjusted EPS of $1.19.

Disney’s revenue for the quarter took a $1.02 billion hit “for the amount due to a customer to early-terminate license agreements for film and television content” delivered in previous years so that it could use the content “primarily on our direct-to-consumer services,” the company said (without identifying the customer). That could be a reference to Disney’s former licensing deal with Netflix.

Shares of Disney dropped more than 2% in after-hours trading Wednesday. Amid the broader ongoing slump in U.S. financial markets, Disney stock closed down 2.3% in regular trading, to $105.25 per share — a new two-year low.

The quarterly results “once again proved that we are in a league of our own,” Disney chief Bob Chapek boasted in prepared remarks. He added, “We believe Disney+ is one-of-a-kind,” with appeal across “all four quadrants.” Chapek said Disney+ remains on track to hit 230 million-260 million subscribers by the end of fiscal 2024.

Whereas Disney expected fiscal ’22 total content spending to be as much as $33 billion, it now projects that to be about $32 billion because of a “slightly slower cadence of spending than anticipated” during the first half of 2022, McCarthy told analysts.

Disney’s trio of streaming services reached 205.6 million globally, a quarterly net increase of 9.2 million driven by Disney+. As of the end of the quarter, that included 45.6 million for Hulu (up 10% year over year) and 22.3 million for ESPN+ (up 62% year over year). Disney+ subs in the U.S./Canada region netted 1.5 million in the March 2022 quarter, to 44.4 million.

Disney’s Parks, Experiences and Products segment beat analyst expectations on the top and bottom lines, primarily on the strength of the company’s domestic parks business with the reopening of the theme parks after pandemic closures. The segment’s revenue for the quarter more than doubled year over year to $6.7 billion and segment operating income came in at $1.8 billion, compared with a loss of $400 million in the prior-year quarter.

Disney’s linear TV business demonstrated some resilience on the domestic side in a choppy market but higher programming and marketing costs took a toll on Disney’s shrinking international channels group. Revenue for the international channels fell 3% year over year (to $1.29 billion) but operating income plunged 30%, to $245 million, because of channel shutdowns and unfavorable FX exchanges. Higher ratings at ABC and its O&O stations helped domestic linear TV revenue for the quarter improve 8% over the year-ago quarter to $5.8 billion while operating income inched up 3% to $2.3 billion.

The company’s bottom line was hurt by several one-time charges, including $195 million due to the impairment of an “intangible asset” related to the Disney Channel in Russia, a $158 million non-cash loss on Disney’s investment in DraftKings and the $1 billion early-termination content licensing payout.

Looking forward, Disney+ is set for a big international expansion this summer, coming to 42 additional countries and 11 territories across Europe, West Asia and Africa. The latest phase of the streamer’s rollout will begin May 18 in South Africa.

In another bid to spur streaming growth, the media conglomerate plans to launch a cheaper, advertising-supported version of Disney+, initially in the U.S. before the end of 2022. On the call, Disney execs didn’t share any additional details for the ad-based Disney+ tier. Netflix is eyeing Q4 for the rollout of an ad-supported plan.

Disney also is banking on buzzy titles coming to Disney+ to draw in new subs and retain existing ones, like “Obi-Wan Kenobi” starring Ewan McGregor (May 27) and Marvel’s “Doctor Strange in the Multiverse of Madness,” expected to come to the streaming service sometime in July. As theatergoers returned to the multiplex, “Doctor Strange 2” raked in an impressive $185 million domestically over its opening weekend (May 6-8).

(Pictured above: Disney+ original series “Moon Knight” starring Oscar Isaac)