Walt Disney (DIS +1.95%) provided an update on its streaming business when it reported fiscal 2022 first-quarter earnings after the market closed on Feb. 9. Shareholders were pleased that Disney experienced an acceleration in growth in the segment.
It was a sigh of relief for some who thought streaming sub growth would stall as economies reopen. As a result, Disney's stock was 3.3% higher on the day following the announcement. The rise came on a day when the broader market was down off of reports that inflation rose faster than expected in January.
Image source: Getty Images.
Disney's streaming segment regains momentum
Overall, Disney said that total subscriptions across its three streaming services (Disney+, ESPN+, and Hulu) rose to 196.4 million as of Jan. 1. That puts the House of Mouse in a close second place in the streaming wars. Rival Netflix reported its results in late January, revealing a total of 222 million subs.
Still, Disney is carrying all the momentum, as it said that subscriber growth would be more pronounced in the second half of fiscal 2022. Meanwhile, Netflix guided for sub growth in its next quarter far below its historical average for the period.
The company's flagship service, Disney+, added 11.7 million subscribers over the previous quarter to a total of 129.8 million. That's good for a 37% increase from the same time last year. Disney+ only launched in November 2019, in perhaps the best timing of any business launch, and has already risen to 129.8 million subs. Disney CEO Bob Chapek reiterated his confidence that Disney+ will reach between 230 million and 260 million subscribers by 2024.
CFO Christine McCarthy elaborated more on the success of Disney+ in the conference call that followed the Q1 earnings release:
Overall, we are pleased with Disney+ subscriber growth in the quarter and are looking forward to new market launches and a strong content slate later this year. As I've previously shared, we don't anticipate that subscriber growth will necessarily be linear from quarter-to-quarter, and we continue to expect growth in the back half of the fiscal year to exceed growth in the first half.
Disney's content engine has not been able to fire on all cylinders, since the pandemic is constraining production. If it has been able to achieve this level of growth without operating at full strength, shareholders should be encouraged by the potential when it revs up. That could be one reason why Chapek feels confident Disney+ can add over 100 million subscribers in the next two years.
What this could mean for Disney shareholders
Interestingly, Disney's stock price has been closely connected to the fate of its streaming segment. One way to make this connection is the rise in Disney's stock price in 2020 despite the rest of its business being severely hampered by pandemic-related closures. Meanwhile, in 2021, as economic reopening gained momentum and all of its theme parks reopened, Disney's stock price fell, as seen in the chart.
Disney's stock price history. Data source: Ycharts.
The difference in performance can be attributed to the surge in consumer demand for in-home entertainment during 2020 that benefited Disney's streaming services. As economies reopened in 2021, Disney's subscriber growth slowed.
Therefore, it's no surprise that Disney's stock rose on the day following the announcement of accelerating subscriber growth. Shareholders can be further encouraged by management's confidence in continued growth for the remainder of the year and through to 2024.
