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Disney - profits up by 50%, streaming grows

Revenue rose 23% in the second quarter, to $19.2bn, reflecting a strong performance in domestic theme parks...

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Revenue rose 23% in the second quarter, to $19.2bn, reflecting a strong performance in domestic theme parks. Growth in the number of new subscribers for the group's streaming business was also much better than expected.

Group operating profit rose 50% to $3.7bn.

The shares fell 3.3% in after-hours trading.

View the latest Disney share price and how to deal

Our view

Disney's back up and running. A deluge of customers returning to its very expensive-to-run theme parks means revenues and profits have been dragged up, after a very tumultuous couple of years.

Of course, the main headline grabber lately has been the streaming business, including Disney+, ESPN+ and Hulu. This is an important pivot, because despite stellar performances lately, we've probably seen Cable's last hurrah.

It's impossible not to be impressed by recent subscriber growth. After Netflix shocked the market with a subscriber slowdown, we'd wondered if Disney+ would follow suit. Disney's subscriber beat is partly down to the dynamics of scale - it simply has more room to run before bumping up against the side of the tank.

All of this seems very positive, but exponential growth could be more difficult to come by.

Disney is having to spend heavily to maintain its edge, taking profits with it. And while the addressable market is huge - inflation may throw a spanner in the works. Household budgets under review means luxuries like multiple streaming subscriptions may come under fire. Disney needs customers to continue signing up in droves, or plans to scale and dig itself out of loss making territory will get thrown.

Fortunately we think Disney has a head start on rivals. An excellent content catalogue - whether that's princesses on Disney+ or quarterbacks on ESPN - is one thing - but Disney's ability to sell those products through a variety of channels, multiplies the benefit many times over. Theme parks, computer games, Disney Stores - all help the group squeeze maximum benefit from its content.

The $71bn acquisition of Twenty First Century Fox loaded the business up with debt. While not at dangerous levels, if interest rates are hiked faster than planned, debt reduction could become the main focus - taking resource from other areas.

Disney's valuation has come down significantly since the start of the year, as the group's been caught up in the wider move away from growth stocks. We're not convinced this has been a fair reaction. Over the long-term, Disney has an excellent offering and should be held in good stead. The main driver of any market reactions will be the speed at which it can grow its streaming business - ups and downs can't be ruled out and there are no guarantees.

Disney key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

Second Quarter Results

The Media & Entertainment Distribution business saw total Disney+ subscriptions rise 7.9m to 44.4m in the US and Canada, and total Disney+ subscribers rose 33% to 137.7m. Total direct-to-consumer revenue rose 23% to $4.9bn. The average monthly revenue per paid subscriber for Disney+ was up 9% to $4.35 on a global basis, with the biggest increase coming from Disney+ Hotstar.

Despite this, higher production, marketing and technology costs meant operating losses for Direct-to-Consumer widened significantly to $887m. There were also higher programming and production costs in the traditional cable business, meaning operating profit for the Media & Entertainment division as a whole fell 32% to $1.9bn.

Parks, Experiences & Products saw revenue rise to $6.7bn from $3.2bn a year earlier, as domestic parks and experiences did particularly well. Higher volumes and increased guest spending were partially offset by the associated higher costs from volume increases, but this didn't stop operating profit swinging from a $406m loss to profit of $1.8bn. Growth in merchandise licensing was driven by higher sales of merchandise based on Mickey and Minnie, Spider-Man, Star Wars Classic and Disney Princesses.

Free cash flow rose 10% to $686m, while net debt stood at $38.8bn as at April 2.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 12th May 2022