Disney earnings ‘a sigh of relief’ after Netflix's subscriber loss: Analyst

Hargreaves Lansdown Equity Analyst Laura Hoy sits down with Yahoo Finance Live to look at Disney's Q2 earnings report, its subscriber growth for Disney+ streaming, its park revenues, and its outlook in the streaming space.

Video transcript

DAVE BRIGGS: Well, the happiest place on Earth has produced anything but happiness to investors recently, as Disney has been among the worst performing stocks in the Dow over the last six months. Complicating matters for Mickey, a battle between Disney and Florida governor Ron DeSantis. Disney out with first quarter earnings. As you can see, the stock is popping in afterhours trading. Let's bring in Laura Hoy, Hargreaves Lansdown equity analyst. Good to see you. So the good news for Disney+ is 7.9 million new subs. What's your reaction, Laura?

LAURA HOY: Yeah, so obviously, everyone was focused on subscriber numbers after what we saw with Netflix. That was kind of the market's big target to hit. And obviously, Disney delivered on that. So there's been a really positive reaction. And I think, as you mentioned, the stock is down, like, 30% this year, as investors kind of backed away from that lockdown enthusiasm that we saw a year ago when Disney+ was just kind of gaining momentum. I think there was a lot of worry about whether or not Disney was going to follow that same path as Netflix did. And there's certainly a big sigh of relief on that front.

With that said, I think Disney's in a much different space than Netflix and a lot of the other streaming companies because they're quite early on in the journey. So they're not facing those same roadblocks that Netflix is. But by the same token, it was really encouraging to see that also average revenue per user was also on the rise across all of their streaming services and double digit new subscription growth.

So you really can't knock them for what they're doing with streaming. They're definitely able to hold on to their subscribers and able to attract new ones. They've got that pricing power. And it looks like this is a streaming service that people are interested in, even though they can get out and do other things.

SEANA SMITH: They certainly are, Laura. Very impressive numbers here from Disney when it comes to their streaming business. I also want to bring up parks because parks has been strong for the company, another very important part of their business for the quarter, coming in at $6.7 billion. That's the revenue from that segment. I bring this up because of the risk of inflation, whether or not people are going to start pulling back on some of their spend. That, of course, could put some risk here on Disney's park business. How are you thinking about this?

LAURA HOY: Yeah, so parks is a huge part of where Disney makes their money. As we've said, streaming is something that investors have been focused on, but actually, it's the parks that are bringing in the money. And so it's hugely important that they were delivered on that. And they did. The revenue increased. And what I thought was even more encouraging is operating income increase. And that was because volumes were up. So people were going. And not only that, but they were spending more at the parks than they had previously been, which, again, is encouraging.

Obviously, the rising costs and demands on people's budgets, that's a risk going forward, but what we've seen so far, it's encouraging. And it looks like pretty good news. And it sort of confirms what we've seen with some of the other leisure stocks, which have shown people are treating themselves. It's been a long time since we can go out and take trips. And I think people are willing to spend on that, despite inflation. But that being said, there are a lot of rumblings that were not at the peak yet, and things might get worse. So it's definitely something to keep an eye on moving forward.

RACHELLE AKUFFO: And as we've been covering, obviously, as you mentioned there, the prices of things going up, people looking at summer travel. As Disney looks at this picture, then, how does it position itself in terms of investment priorities?

LAURA HOY: Yeah, so I think streaming is certainly kind of the future at Disney right now. The good thing about Disney is they're in this really unique position where they've already got this massive back catalog of content, of hits that people already love. They've been really successful with the new stuff that they've put out.

And they're sort of able to squeeze every little bit of profit out of each of those hits because not only do they have the streaming service, but they've also got their parks, which people are going to visit. They've got merchandise. They've got computer games. You name it, and they're selling it to you. So it sort of all starts with the content at Disney. And then they kind of squeeze everything they can back out of that.

DAVE BRIGGS: Perhaps the parks number that Seana referenced is the best indication, $6.65 billion in revenue. But are we able to assess if there was any impact to the bottom line of this battle between Governor Ron DeSantis and Disney? And do you expect to hear Bob Chapek address that in the call?

LAURA HOY: Well, I mean, only time will tell. It could be something that he brings up in the call. I think consumers and investors alike are certainly more focused on ESG and social responsibility. And with that comes a focus on sort of the political affiliations that companies have.

And so you can't discount this kind of thing, but equally, I don't think it really plays the role in the long-term investment case. I think it's one of these things where it's definitely something to keep an eye on and certainly something that management will be mindful of. But it wasn't something that we were really looking at in these results because bottom line wise, it's unlikely to have a huge impact at this point.

RACHELLE AKUFFO: Certainly, this gives Disney and Disney+ a lot more breathing room. Thank you so much, Laura Hoy there, Hargreaves Lansdown equity analyst. Thank you so much.