Walt Disney takes a spot on Netflix with strong streaming growth

Walt Disney reported strong growth in its Disney Plus streaming service in its latest quarter, in stark contrast to the subscriber decline experienced recently by industry leader Netflix.

Disney added 7.9 million subscribers, well above expectations of about 5 million.This healthy growth comes a few weeks after Netflix warn It will lose 2 million subscribers this quarter, sparking a sharp sell-off in its stock and raising concerns about the potential size of the global video-streaming market.

The company’s theme parks division also saw a strong rebound, with quarterly revenue more than doubling year over year to $6.6 billion, beating Wall Street expectations.

Disney Plus subscribers hit 137.7 million, while the company’s total streaming subscriptions — which include Disney Plus, ESPN Plus and Hulu — hit 205 million during the period. Disney Plus is on track to reach a target of 230 million to 260 million subscribers by 2024, said Bob Chapek, the group’s chief executive.

But Disney CFO Christine McCarthy lowered expectations for streaming growth in the second half. “The first half was better than expected, so the increment we originally expected may not have been that big,” she said. “But we still expect growth in the second half to outpace the first half.”

The company’s shares fell 3% in after-hours trading. Disney shares have fallen more than 40% in the past year, underperforming the S&P 500, which has fallen about 5.2% over the past year.

Disney has been navigating its worst public relations crisis in years as a new Florida law restricts discussion of LGBTQ issues in state elementary schools. Under pressure from employees, Chapek issued a statement condemning the legislation, sparking a backlash from Florida Republican Gov. Ron DeSantis. DeSantis has since signed a law revoking the special tax zone the company has had around its Disney World theme parks since 1967.

Disney reported revenue of $19.2 billion for the quarter, up 23% from $15.6 billion a year earlier, but missed expectations as it had to pay $1 billion to prematurely terminate rights to TV shows and movies. It also took a $195 million impairment charge on its Russian assets.

Disney earned $1.08 per share, missing Wall Street expectations of $1.19 due to a higher effective tax rate on foreign earnings. Net income from continuing operations fell 48% year over year to $470 million from $912 million.

Analysts expect a strong U.S.-led recovery this year for theme parks that have been battered during the pandemic. Operating income for the theme parks segment reached $3.7 billion in the quarter, up 50% year over year.

During the pandemic, the company replaced its FastPass service with Disney Genie, which allows customers to pay to skip the line. Those improvements have helped U.S. parks spend more than 40 percent more per capita than they were before the pandemic in 2019, Chapek said. “Our domestic parks are outstanding,” he said.

But the company warned that the closure of its theme parks in Asia, which includes Hong Kong and Shanghai, could cut operating income by as much as $350 million in the third quarter.

In the streaming business, costs are increasingly concentrated for investors as content budgets soar due to competition.

Chapek said Disney “is keeping a close eye on the growth of content costs.” But he added that “great content is going to drive our subscriptions, and that’s going to drive our profitability”. The company said it would cut overall spending on film and television by $1 billion to $32 billion this year.

Disney has a strong theatrical lineup, Pixar’s light yearsits latest Toy Story franchise, and a sequel Black Panther and Avatar, the highest-grossing film of all time, is set to hit theaters by the end of the year. its latest marvel movie, Doctor Strange in the Multiverse of Madness, After its May 6 release, it grossed $185 million in the U.S.

Chapek said the company has made great strides in plans to launch an ad-supported version of Disney Plus. Netflix said last month that it was exploring rolling out an ad-supported tier, a move co-CEO Reed Hastings has long opposed. Netflix has not publicly said when it will be ready to launch the service.

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