Disney FQ1 22 – The insurgent

The streaming war is far from over.

• Disney reported good FQ1 22 results as Disney+ is continuing to add subscribers demonstrating that in the streaming wars, content remains as important as ever.
• FQ1 22 revenues / EPS were $21.8bn / $1.06 nicely ahead of expectations of $20.9bn / $0.63 as both Disney+ and the theme parks did much better than anyone thought.
• Netflix’s lacklustre guidance had increased concerns that the streaming market was beginning to flatten out but as Disney+ is still smaller than Netflix, there is still room for expansion.
• Disney+ added 11.8m new subscribers which was well above forecasts of 8.2m with the total now standing at 129.8m.
• Disney has made good use of the Star Wars franchise that it purchased a few years ago and the expanding range of spin-off shows have been very well received.
• This combined with its large back catalogue of old favourites all of which remain exclusive means that its service is becoming increasingly sticky.
• This is exactly how I expect the world of TV to evolve with big one-off cable payments every month being cut and replaced with individual services cherry-picked by consumers based on their preferences.
• This will be delayed by cable’s grip on broadband access in the USA but I expect that this will gradually be eroded as other options such as fixed wireless access over 5G or services such as Starlink become available.
• Disney’s catalogue and a constant stream of well-received franchise spin-offs should ensure that it will be one that users choose to spend on going forward.
• The figures were also bolstered by the parks business which returned to profitability after being heavily loss-making one year ago.
• The outlook is now for a fairly swift recovery in its theme parks and other fixed assets as Omicron has not been nearly as severe as feared, and in most locations, cases are now declining.
• Hence, Disney’s route out of the pandemic looks pretty clear but I think the shares already pretty much reflect this already meaning that one would not call this a value stock.
• That being said, I think that Disney will be one of the winners of the streaming wars given its content stable, brand and execution of its streaming strategy and I would back it against almost all of the others.
• Its valuation is still much more reasonable than that of Netflix and so if I had to choose, it would be this one.