Written by: Sophie Lund-Yates | Hargreaves Lansdown
Revenue rose 23% in the second quarter, to $19.2bn, reflecting a strong performance in domestic theme parks and growth in streaming. Group operating profit rose 50% to $3.7bn.
The Media & Entertainment Distribution saw total Disney+ subscriptions rise 7.9m to 44.4m, with direct-to-consumer revenue rising 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.
The shares rose 2.8% in after-hours trading.
Heading into results, focus has been on Disney+. The streaming service has a lot more room to run before bumping up against the side of the tanks, unlike rival Netflix. That’s a large reason behind the better performance, and the strong addition to the subscriber base comes despite competition in the streaming space being about as high-octane as a Disney hero-on-villain fight. That’s testament to Disney’s unrivalled slate of content. The old classics it has sitting on dusty digital shelves are timeless, and crucially, rewatchable, cash cows. The development to watch from here is the squeeze on household incomes, with downwards pressure meaning families may be put off from signing up to any new subscription service for the foreseeable future. Ad-supported versions will help here, but that does little to eradicate the competition question.
Theme Parks and experiences are still an important member of the corporate cast where Disney’s concerned. And progress here has been phenomenal, driven partly by revamped attractions and customer service tech. The indomitable Avengers franchise is paying dividends on that front. International customers made up around a fifth of guests before the pandemic, and trends here aren’t fully recovered. That didn’t derail the magic that is Disney’s volume-driven operating model, with scores more guests in domestic parks, a lot of those ticket dollars have fed the long-starved bottom-line.
The inflation question comes into its own here, too. Guest spend at these parks has been increasing, which defies the idea that consumers are strapped for cash, and suggests the pull of Disney’s brand really is something from a whole new world. This will be something to keep an eye one when you consider that enticing new experiences, like the Star Wars Galactic Starcruiser – a two-day immersive adventure, will set guests back around $1,200. Extras like this, and Disney park and hotel trips in general, may find themselves postponed as household incomes come under further pressure. That said, US consumers look to be more resilient than in other regions, meaning a full-blown scale-back on leisure spending there may be avoided. Of course, the scale of any changing habits will depend on the final trajectory of inflation – which at this stage is a mystery.