Mixed Disney Q2 as Subscriber Growth Slows at Disney+

Disney DIS reported a mixed fiscal 2021 second quarter as revenue fell short of FactSet consensus and operating income came in well ahead of Street expectations. Disney+ added over 8 million customers to end the quarter at 104 million subscribers, well below the 21 million new subscribers added in the fiscal first quarter. While subscriber growth has slowed, we still expect robust long-term growth for the service. The parks and theatrical businesses were hammered again by the pandemic as revenue collapsed by 68% and 93%, respectively, versus a year ago. We are maintaining our wide moat rating and $154 fair value estimate.

Revenue for the quarter dropped 13% year over year to $15.6 billion. Revenue for the new parks, experiences, and products division declined 44% to $3.2 billion due to pandemic-related closures and capacity constraints. While we expect these hurdles to remain in place through the summer, we are encouraged by relative demand from consumers and the continued growth in bookings. The cost-reduction plans continued to drive savings as all of the open parks generated enough revenue to cover their variable costs despite capacity constraints.

Revenue for the media and entertainment distribution division fell 2% to $12.4 billion as direct-to-consumer growth was more than offset by continued losses at the content sales/licensing segment. Revenue at linear networks, which includes ABC, ESPN, FX, and all other pay TV networks, fell 1% to $6.7 billion. Domestic affiliate fee revenue in the quarter was up 5%, made up of an 8-point gain from higher pricing partially offset by a 4-point decline from fewer viewers. As expected, broadcast advertising revenue dropped 21% due to lower political advertising, a timing shift for the Oscars, and lower viewership. Segment operating income margin for linear networks improved to 42.2% from 35.3% due to fewer hours of original programming and lower sports rights costs due to timing of the college football playoffs.

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