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Rising subscriber numbers set to boost Disney share price

Disney share price: A device shows the Disney+ app logo.

The Disney [DIS] share price looks set to rise when US markets open on Thursday morning, after the media group continued to add streaming subscribers in Q3.

Disney shares reclaim lost ground

Although Disney shares are down by more than a quarter this year, having dropped to a two-year low in July, the stock has spent the past month clawing its way back to a level just shy of the June high. The shares climbed to $112.43 at Wednesday's close, just prior to the Q3 results announcement. Up 20% in the last month, the stock's gains have been driven by expectations of a big improvement in Q3 revenue, after the disappointment of a miss in Q2  

In Q2, revenue fell short of estimates for $20bn, coming in at $19.25bn, largely due to underperformance in the holiday and theme parks division. But on the streaming front, Disney's subscriber numbers increased, in contrast to its struggling peers. The user base grew to 137.7m subscribers, up from 129.8m in Q1, comfortably beating expectations. But revenue and profits across the wider business came up short due to higher spending costs on programming for Disney+ and Hulu.

Disney can afford to splash out on content given that its main revenue sources are its film studios and its parks and holiday business, which tend to hit a sweet spot in summer. Expectations of a strong performance in these areas partly explain the rebound in the share price since mid-July, but also raised the bar for yesterday's Q3 update.   

Q3 revenue beat expectations

Boosted by the parks and studios, Q3 revenue totalled $21.5bn, comfortably beating forecasts of $21bn, while profits rose to $1.09 a share, also beating forecasts of $0.96 a share.

The Q3 results, announced after US markets closed on Wednesday, showed that Disney's subscriber base grew to 152.1m, up from 137.7m in Q2. Most of the new subscribers came from its Hotstar service in India.

Disney revealed that it will raise prices to $11 a month for its US audience, though it will also offer an ad-supported version of Disney+ for $7.99 a month from 8 December.

Across all of its platforms and brands, which include Hulu and ESPN, Disney said it now has 221m global subscribers, pushing it ahead of Netflix on a worldwide scale.    

Parks and holidays revenue topped estimates during the quarter, coming in at $7.4bn, $1bn above estimates. Outperformance was driven by the reopening of its resorts in the US and Paris, as well as the restarting of cruises. The Shanghai resort was the only drag, as it was affected by lockdown-related closures.

Across the rest of the business, revenues from the media and entertainment distribution unit rose 11% to $14.1bn. The film studios contributed $2.1bn to that total, a rise of 26% on the previous year. Growth here was driven by the release of Marvel titles Doctor Strange in the Multiverse of Madness and Thor: Love and Thunder.

Disney's scale gives it upper hand over rivals

Although Disney's streaming business, including Disney+, saw an increase in revenue, losses also widened to over $1.1bn, with the company blaming higher costs. On a year-to-date basis, losses have risen to $2.54bn, up from just over $1bn at this stage a year ago.

But this is where Disney+ has a huge advantage over Netflix. Quite simply, Disney can continue to swallow these losses while it steals market share. At the same time, it can push prices up by just enough to keep pace with Netflix, without pricing itself out of the market.

While Disney lowered its 2024 subscriber target, forecasting 135m to 165m core subscribers, down from previous estimates of 230m to 260m, this figure excludes subscribers to its Hotstar service in India.

When the Hotstar number is stripped out, core subscribers – in other words, customers in the US, Canada and international regions – currently number 93.6m. This tally excludes Hulu and ESPN customers.

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