Disney reported quarterly results last week. Disney+ subscribers continued to grow despite signs of a maturing streaming market from Netflix. Parks and Experiences showed strong momentum from reopening and are firing on all cylinders. Further gains are expected later this year as Japan opens it borders, and Shanghai/Hong Kong ease restrictions. At FY23F PE of 19x, valuations are now at attractive levels. Reiterate BUY.
Theme parks are driving Disney’s post-pandemic recovery. Disney is seeing a massive rebound in its theme parks and tourism business, which includes Disney experiences and consumer products. Revenue for 2QFY22 more than doubled YoY to $6.6b. While the massive rebound largely came from local theme parks in the US, not all of its international parks have been fully opened in 2QFY22. For example, Shanghai Disneyland was temporarily closed as the Covid situation in China intensifies. Moving forward, the reopening of country borders for its Asian (Japan/Shanghai/HK) parks business present further earnings potential to be realized from next year. Parks are also poised to benefit from the return of park character meet-and-greets, the Nighttime Spectaculars at the Disneyland Resort, and the opening of a new attraction Guardians of the Galaxy.
Direct-to-Consumer (DTC) – positive on Disney+. In 2QFY22, Disney+ added 8m new subscribers to reach a global subscriber base of 137.7m (up 33% yoy). CFO Christine McCarthy said that the firm expects higher net adds in 2HFY22 vs 1HFY22. There is a concern among investors that subscribers growth could dwindle as "streaming wars" intensify. However, management still guides for Disney+ of 230-260m subscribers by FY24. Given Disney’s success with its ad supported tier for Hulu, the inclusion of ad revenue in lower tiers of Disney+ later this year for domestic subscribers in the US and internationally in 2023 appears to be a low risk and high reward strategic move.