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Disney's Streaming Business Is Killing It: 6 Metrics Investors Should See

By Beth McKenna - Feb 9, 2020 at 10:52AM

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Disney's Q1 earnings call key takeaway? Never underestimate Americans' love affair with TV.

Walt Disney (DIS -2.00%) reported its fiscal first-quarter 2020 results on Tuesday afternoon. The entertainment giant's revenue soared 36% year over year to $20.86 billion, driven by its Twenty First Century Fox acquisition in March and the strong performance of its legacy movie business. Adjusted earnings per share (EPS) fell 17% to $1.53, driven largely by Fox integration costs and investments in its burgeoning video-streaming business. 

The top line slightly beat Wall's Street's consensus estimate of $20.79 billion, while the bottom line easily beat the $1.44 per share that analysts had expected. 

On the earnings call, there was much focus on the streaming business. That's because the company's broad subscription streaming service, Disney+, launched during the quarter, and the success of the streaming business is crucial to the long-term success of the company. 

Here's an overview of what we learned on the call about Disney's streaming business, using six metrics. 

Nighttime view of Cinderella's Castle with a body of water in foreground.

Image source: Disney.

26.5 million Disney+ paid subscribers

At the end of its fiscal first quarter on Dec. 28, the company had 26.5 million Disney+ paid subscribers. That number had increased to 28.6 million on Feb. 3, the day before the earnings call.

Management didn't break out the subscribers by country, other than to say that the "vast majority" were domestic. Along with the U.S., Canada and the Netherlands were involved in the initial launch on Nov. 12, with Australia and New Zealand coming online a week later.

For come context, there were 128.6 million households in the U.S. in 2019, according to Statista. (Canadian, Dutch, Australian, and New Zealander households numbered about 14.1 million in 2016, 7.9 million in 2019, 9.2 million in 2016, and 1.8 million in 2019, respectively.) If we assume -- and this is just my guess -- that U.S. subscribers accounted for more than 85% of the total paid subscribers during the quarter, that would mean more than 17% of U.S. households became paid subscribers in the first 1.5 months of the offering. That's a wonderful start for the company.

So how does the Disney+ paid subscriber count stack up to that of Netflix (NFLX -0.60%)?

The video streaming leader and growth company extraordinaire had 67.7 million paid memberships in its U.S. and Canada region at the end of the fourth quarter. So, in just four months, Disney's service in the same region plus the three relatively lightly populated countries mentioned above have racked up 42% of that Netflix regional total. Again, fantastic early numbers for Disney. 

2 huge geographic launches in March

On March 24, the company plans to launch Disney+ in the U.K., Ireland, France, Germany, Spain, Italy, Switzerland, and Austria.

Then five days later, Disney+ is slated to roll-out to India on the company's Hotstar streaming platform, which it acquired in the Fox acquisition. The service -- which is the dominant over-the-top (OTT) offering in India -- will be rebranded as Disney+ Hotstar.

The launch date was chosen because it coincides with the start of the enormously popular Indian Premier League cricket season, which Hotstar screens. As the world's second most populous country with a rapidly growing middle class, India offers tremendous growth potential for Disney's streaming business. 

$5.56 average revenue per user (ARPU)

Here's what CEO Bob Iger had to say on the call about the ARPU for Disney+:

[T]he fact that the ARPU by the end of the quarter was $5.56 on a $6.99 [monthly] subscription suggests that while there are discounts in the market in the packaging that existed that enabled consumers to buy in at lower prices, we did extremely well basically with the direct-to-consumer package and ARPU that was higher. [T]he 26.5 million in subscribers came roughly 50% directly through disneyplus.com, for instance, where not only weren't we revenue-sharing with others, but a lot of those subscribers ...  may have bought a year-long service. [The price of an annual subscription is $69.99, which comes out to $5.83 per month.] 

6 to 7 hours per week average viewing time per Disney+ subscriber

Disney+ subs streamed an average of six to seven hours per week during the fourth quarter. As Iger conceded, "Christmas was in there, time when a lot of families were off. That may have actually skewed that a little bit high." I think we can safely say "definitely" skewed the average higher, as the service was only available for six-and-a-half weeks during the quarter, so just a couple weeks of heavier holiday viewing can make a notable difference.

Nonetheless, that's still a solid average. Hopefully, management provides this metric for the second quarter, so investors can get a cleaner picture of this key measure of engagement.

30.4 million Hulu paid subscribers 

Hulu ended the quarter with 30.4 million paid subs and as of Feb. 3, that number had risen to 30.7 million. Hulu's numbers got a lift from Disney's bundling of the ad-supported version of this service with ESPN+ and Disney+ for a discounted price of $12.99 per month.

6.6 million ESPN+ paid subscribers 

Disney's sports-focused streaming service ESPN+ had 6.6 million paid subscribers at the end of the fiscal first quarter, and 7.6 million subs as of Feb. 3.

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