Few would argue that the debut of Disney's (DIS -1.01%) streaming service, Disney+, marked a new chapter for the House of Mouse. Little more than two years since its debut, the platform boasts roughly 130 million subscribers. To give that number context, it took streaming pioneer Netflix (NFLX 1.74%) nearly 11 years to reach that milestone, though the landscape has changed dramatically in the ensuing years.
As a result of its unqualified success, Disney stock has been the subject of wild volatility tied to the number of streaming subscribers the company reports each quarter. In November, when Disney+ added just 2.1 million new subscribers, the stock slumped roughly 9% in the two days following the report. However, all was forgiven in February when the company reported that Disney+ added a whopping 11.8 million new subscribers.
That said, things weren't as rosy as they appeared at first glance.
Image source: Disney.
Robust additions
Disney provided a detailed breakdown of the subscriber growth at Disney+, and the numbers were impressive. Its flagship streaming service closed out the fiscal first quarter (ended Jan. 1, 2022) with 129.8 million paid subscribers. That included roughly 43 million domestic subscribers (U.S. and Canada), an 18% increase, while its international subs of 41 million rose 40%. Its lower-priced international service, Disney+ Hotstar, ended the quarter with 46 million subscribers, an increase of 57%.
That robust performance notwithstanding, Disney CFO Christine McCarthy added color to those numbers during the conference call to discuss the results. The subscriber gains weren't nearly as striking as they first appeared.
The asterisk
The media giant added 4.1 million domestic subscribers during the quarter, with an important footnote (emphasis mine): "We added 4.1 million paid domestic Disney+ subscribers, including a benefit of approximately 2 million incremental subscribers from our strategic decision to include Disney+ and ESPN+ as part of a Hulu Live subscription."
Hulu Live TV is a service bundle that provides a combination of live and on-demand television programming from more than 75 channels and access to the ad-supported tier of Hulu. Disney recently raised the price from $65 per month to $70 per month but justified the increase by including Disney+ and ESPN+ in the cost of the bundle. The package that includes the ad-free tier of Hulu also climbed from $71 per month to $76 per month and included Disney's popular streaming services.
This resulted in a one-time increase of roughly 2 million Disney+ subscribers (half the domestic additions), but the company can only do this once.
The news isn't all bad
While slowing domestic growth isn't ideal, Disney still has a vast untapped market of international subscribers that could soon be joining its ranks. Disney+ is scheduled to launch its service in 42 countries and 11 international territories this summer. Details regarding the rollout are sketchy, and the company has yet to announce launch dates for specific countries or what prices and/or subscription plans it will offer.
We do know that the new countries will be located in Europe, the Middle East, and Africa, with major new markets including Poland, Turkey, South Africa, and the United Arab Emirates. These new markets could act as a significant growth catalyst later this year.
Given its history of success since the launch of Disney+, the House of Mouse will likely parlay these new market debuts into compelling new subscriber additions. But it won't be able to pull 2 million new subscribers out of a hat.
