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Disney Makes Gains Against Netflix, Adds 9 Million Streaming Subscribers

Walt Disney (NYSE: DIS) entered the streaming wars in November 2019 with the launch of Disney+. The timing was incredible, since the coronavirus pandemic increased demand for in-home entertainment, and Disney+ exploded. 
The House of Mouse quickly started making gains against streaming pioneer Netflix (NASDAQ: NFLX). Disney updated investors on its progress in this battle when it reported fiscal 2022 second-quarter earnings after the markets closed on Wednesday, May 11. 
Image source: Getty Images.

Disney is making solid progress in its streaming segment
In its fiscal second quarter, which ended on April 2, Disney added 9 million streaming subscribers across Disney+, Hulu, and ESPN+. Disney+, in particular, added 7.9 million subscribers from the previous quarter and now has 138 million in total. It boasts 205 million subs overall. That is still behind Netflix, which claims 222 million subs as of its most recent update on April 19.

DIS Revenue (Annual) data by YCharts
That said, the momentum is in Disney’s favor. In its most recent quarter, Netflix lost 200,000 subscribers and is forecasted to lose 2 million more in the next quarter. Meanwhile, Disney is adding millions of subs, and management noted that, for its flagship service Disney+, subscriber growth in the second half of fiscal 2022 would exceed gains from the first half.
Disney also reiterated it would reach between 230 million and 260 million Disney+ subs by 2024, and the specific streaming service will be profitable by then, too.
Moreover, Disney is boosting the average revenue per subscriber throughout all its services. Disney+ notched the biggest year-over-year gain at 9%, followed by Hulu and then ESPN+. ARPU at Disney+ barely reached $4.35, considerably behind the over $10 of ARPU at Netflix.
Disney’s rapid progress in subscriber growth and closing the gap with Netflix is seen with better context when it is priced much lower overall. Disney confirmed it will launch an ad-supported version of Disney+ later this year in the U.S. and 2023 internationally. The ad-supported version will lower prices for consumers even more, but Disney might receive a higher ARPU overall. That’s because advertising revenue could offset the lower prices consumers pay.

DIS PS Ratio data by YCharts
Disney’s success against Netflix in recent quarters could explain why, after years of trading at a discounted price-to-sales ratio compared to Netflix, it is now close to par. 
Disney’s stock has been cut almost in half
Interestingly, Disney’s stock is down 48% off its high reached in early 2021. The fall coincides with economic reopening worldwide, which has hurt demand for in-home entertainment. Surprisingly, economic reopening is beneficial for Disney’s other segments, including the theme parks, but apparently, the market prefers Disney to grow its streaming segment instead.
Nevertheless, the fallout has Disney’s stock selling at a lower price, just as its business is recovering from the devastation caused by the pandemic. Investors can put Disney’s stock on their list of stocks to buy and add shares as it makes progress in adding subscribers and returning the rest of its business to full strength as consumer mobility increases. 
Parkev Tatevosian has positions in Netflix and Walt Disney. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy. –

Walt Disney (NYSE: DIS) entered the streaming wars in November 2019 with the launch of Disney+. The timing was incredible, since the coronavirus pandemic increased demand for in-home entertainment, and Disney+ exploded. 

The House of Mouse quickly started making gains against streaming pioneer Netflix (NASDAQ: NFLX). Disney updated investors on its progress in this battle when it reported fiscal 2022 second-quarter earnings after the markets closed on Wednesday, May 11. 

Image source: Getty Images.

Disney is making solid progress in its streaming segment

In its fiscal second quarter, which ended on April 2, Disney added 9 million streaming subscribers across Disney+, Hulu, and ESPN+. Disney+, in particular, added 7.9 million subscribers from the previous quarter and now has 138 million in total. It boasts 205 million subs overall. That is still behind Netflix, which claims 222 million subs as of its most recent update on April 19.

DIS Revenue (Annual) data by YCharts

That said, the momentum is in Disney’s favor. In its most recent quarter, Netflix lost 200,000 subscribers and is forecasted to lose 2 million more in the next quarter. Meanwhile, Disney is adding millions of subs, and management noted that, for its flagship service Disney+, subscriber growth in the second half of fiscal 2022 would exceed gains from the first half.

Disney also reiterated it would reach between 230 million and 260 million Disney+ subs by 2024, and the specific streaming service will be profitable by then, too.

Moreover, Disney is boosting the average revenue per subscriber throughout all its services. Disney+ notched the biggest year-over-year gain at 9%, followed by Hulu and then ESPN+. ARPU at Disney+ barely reached $4.35, considerably behind the over $10 of ARPU at Netflix.

Disney’s rapid progress in subscriber growth and closing the gap with Netflix is seen with better context when it is priced much lower overall. Disney confirmed it will launch an ad-supported version of Disney+ later this year in the U.S. and 2023 internationally. The ad-supported version will lower prices for consumers even more, but Disney might receive a higher ARPU overall. That’s because advertising revenue could offset the lower prices consumers pay.

DIS PS Ratio data by YCharts

Disney’s success against Netflix in recent quarters could explain why, after years of trading at a discounted price-to-sales ratio compared to Netflix, it is now close to par. 

Disney’s stock has been cut almost in half

Interestingly, Disney’s stock is down 48% off its high reached in early 2021. The fall coincides with economic reopening worldwide, which has hurt demand for in-home entertainment. Surprisingly, economic reopening is beneficial for Disney’s other segments, including the theme parks, but apparently, the market prefers Disney to grow its streaming segment instead.

Nevertheless, the fallout has Disney’s stock selling at a lower price, just as its business is recovering from the devastation caused by the pandemic. Investors can put Disney’s stock on their list of stocks to buy and add shares as it makes progress in adding subscribers and returning the rest of its business to full strength as consumer mobility increases. 

Parkev Tatevosian has positions in Netflix and Walt Disney. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.

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