Disney Shows Impressive Growth at Parks and Disney+
Maintaining $170 fair value estimate for Disney stock; shares undervalued.
Disney (DIS) posted a strong fiscal 2022 third quarter headlined by streaming gains and the continued rebound at the parks. Disney+ added 14.4 million customers globally in the quarter versus a loss of 900,000 for Netflix. New customer growth came almost completely from outside the U.S., with 0.1 million added in the U.S./Canada, 6.0 million in international markets excluding Hotstar, and 8.3 million in Hotstar countries.
When combined with ESPN+ and Hulu, Disney now has 221.1 million total streaming subscribers, just ahead of Netflix’s 220.7 million. While impressive, the comparison is slightly off since many Disney users have bundle subscriptions to all three platforms. Despite the strong growth, management lowered its fiscal 2024 subscriber guidance to 135 million-165 million for core Disney+ regions and up to 80 million in Hotstar regions from 230 million-260 million, with 60%-70% from core Disney+ regions. The new guidance is based on slightly slower growth in both core Disney+ and Hotstar regions, affected by the loss of Indian Premier League streaming rights. We maintain our $170 fair value estimate.
Total revenue improved by 26% year over year to $21.5 billion. While streaming had a strong quarter, parks, experiences, and products posted very strong top-line growth of 70% despite ongoing shutdowns at Chinese parks, with Shanghai only open for three days in the quarter. The domestic parks appear to be back to full swing, with revenue and operating income well ahead of the same quarter in fiscal 2019. Even with the current macro headwinds, occupancy and per-room spending at the domestic hotels were both higher than fiscal 2019. While worries about inflation and the strong U.S. dollar may dissuade some potential visitors, we expect that many families will have planned their trips for months, if not years, and will take the trip unless it’s absolutely necessary to cancel. Additionally, management noted that bookings and intent to visit are trending in line with prepandemic levels.