Disney Posts Mixed Earnings With Streaming Subscriber Growth, Record Parks Revenue But Widening Direct to Consumer Losses

Disney (DIS) posted a mixed end to fiscal 2022 as continued streaming subscriber growth and record parks revenue contended with a much larger loss at the media division. Disney+ added 12.1 million customers globally in the quarter versus 2.4 million for Netflix. The growth was more evenly spread than last quarter with 1.9 million subscribers added in the U.S./Canada, 7.3 million in international markets excluding Hotstar, and 2.9 million in Hotstar countries. For fiscal 2022, Disney+ added 46.1 million new subscribers, slightly ahead of the 44.4 million added in fiscal 2021, an impressive result given the loss of the Russia market and overall slowing streaming growth. We expect to slightly lower our $170 fair value estimate after the release of the full annual financials to account for a flatter linear network revenue trajectory and slower streaming margin improvement.

While streaming subscriber growth was impressive, losses at the direct to consumer, or DTC, segment widened to $1.5 billion from a loss of $630 a million a year ago. The loss hit more than $4 billion for fiscal 2022 versus $1.7 billion last year. Management claims that the fourth quarter represents the peak losses for the DTC segment and business is still expected to achieve profitability in fiscal 2024, but with the added caveat of no “meaningful shift in the economic climate.” Also, the metric of “achieving profitability” in fiscal 2024 is for a quarter without losses, not a profitable full fiscal year. Given management’s narrative about sequential quarterly declines in DTC losses in fiscal 2023, we expect that the “achieving profitability” breakthrough will likely occur in the fourth quarter of fiscal 2024.

Total revenue improved by 9% year over year to $20.2 billion. The parks, experiences and products segment posted another quarter of strong top line growth which reached 36% despite the impact of Hurricane Ian and the Shanghai park closure.