Disney+ Still Outpacing Our Expectations; Strong Q1

Disney DIS posted a strong start to fiscal 2021 as first-quarter revenue beat FactSet consensus. Disney+ now has just under 95 million subscribers, adding over 8 million in December alone. In a little over a year after launching, the service has exceeded the top end of the company’s original fiscal 2024 guidance of 60-90 million subscribers. The pandemic once again hammered the parks and theatrical businesses as revenue collapsed by 73% and 98%, respectively, versus a year ago. We are maintaining our wide moat and plan to modestly increase our $140 fair value estimate.

Revenue for the quarter dropped by 22% year over year to $16.2 billion. For the second time in two years, management has reconfigured its reporting segments. Revenue for the new parks, experiences, and products division declined 53% to $3.6 billion, due to the pandemic-related closures and capacity constraints. While we expect these hurdles to remain in place for the segment for at least the first half of calendar 2021, we are encouraged by relative demand from consumers and the continued growth in bookings. The cost reduction plans have largely worked as Florida, Shanghai, Hong Kong, and Paris all generated enough revenue to cover the variable costs of being open despite capacity constraints.

The new media and entertainment distribution division has four segments: linear networks, DTC, content sales/licensing, and other. Revenue at linear networks which includes ABC, ESPN, FX, and all other pay-TV networks, increased by 2% to $7.7 billion. Domestic affiliate fee revenue in the quarter was up 3%, which was made up of an 8-point gain from higher pricing partially offset by a 5-point decline from fewer customers. As expected, broadcast revenue grew 5% due largely to political advertising. Segment operating income margin for linear networks declined to 22.5% from 24.0% due to higher sports rights costs due to timing of the College Football Playoffs and NBA Finals.

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