Disney+ Off to a Rousing Start With Over 28M Subs

Disney DIS kicked off its fiscal 2020 with a strong first quarter, despite revenue being in line with FactSet consensus expectations and adjusted EBITDA coming in below projections as Disney+ enjoyed a tremendous launch. The new direct-to-consumer service ended the quarter with 26.5 million paid subscribers and added an additional 2.1 million subs during January. Fiscal 2020 continues to be focused on the direct-to-consumer efforts including the global expansion of Disney+ and content growth at Hulu. The next steps for Disney+ are the March launches in Western Europe and India. We are maintaining our wide moat rating and our FVE of $141.

Revenue for the quarter increased 36% year over year to $20.6 billion. Media networks revenue improved 24% due to growth at both cable networks and the broadcasting segment from the consolidation of the Fox assets. Affiliate fee revenue in the quarter was up 19%, which was made up of a 14 point increase from the Fox assets and a 7 point gain from higher pricing, with a 2 point decline from fewer subscribers. This implies 5% growth in affiliate fee revenue excluding the impact of the Fox assets. Segment operating income margin for media networks fell to 22.1% from 22.5% due to higher sports rights at ESPN and increased marketing for the ACC Network launch.

Parks, experiences, and products continued to post strong results with 8% growth despite challenges at the Hong Kong park due to political issues. Management currently expects the Shanghai and Hong Kong parks to remain closed for two months due to the coronavirus outbreak, with a $175 million impact to operating income. Studio revenue was up over 100% due to another strong theatrical quarter that included Frozen 2 and Star Wars IX. Revenue at the DTC segment hit $4 billion due to the launch of Disney+. Segment operating margin for the firm fell to 19.2% from 23.9% as revenue growth was more than offset by the ongoing DTC investments and increased marketing and programming costs.

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