Notes from Disney's Q1 2020 earnings call

Today, Disney announced its Q1 2020 results. There are a lot to unpack as the business is pretty diverse. I am just covering some of the stuff I mainly care about.

Overall, revenue increased 36% year over year. The effect from investments in Disney+ is reflected on operating income which increased only by 9% compared to last year

Parks made up 35% of Disney’s revenue, but more than 58% of its operating income. Parks also provided the largest margin at 32% among Disney’s segments, followed by Media Networks.

Subscribers

  • Disney+: 28.6 million paid subscribers as of 3rd February 2020 from US, Canada, Netherlands, Australia and New Zealand
  • ESPN+ 7.6 million paid subscribers as of 3rd February 2020
  • Hulu has 30.7 million paid subscribers as of 3rd February 2020

Given that Disney publicly set a target of 60-90 million paid subscribers worldwide and of profitability in 2024, it is a promising start to reach the 28-million mark already just a few months after launch. Bob Iger wisely tried to play down any enthusiasm from the figures by citing the inability to point out the reason for the growth and uncertainty in the key international markets where Disney+ will debut soon.

Average Revenue Per User

The dip in ESPN+ and Hulu SVOD APRU was attributed to the bundle that offers Disney+, ESPN+ and Hulu Ad Supported for $12.99/month. Regarding the Hulu APRU, it’s even higher the non-ads subscription of $11.99/month. Christine McCarthy, Disney’s CFO, had the following comment:

The ad supported, the product is priced at $5.99. And but the ad-supported part of the equation makes the ARPU come out even higher than the ad-free. Most of the subscribers subscribe to the ad-supported. So that’s a good balance of the ARPUs when you stack them up next to each other.

Source: Atom Finance

Regarding the APRU of Disney+, since the service is offered at different pricing tiers including the promotion with Verizon, the 3-year plan last year, the bundle and full price, it’s difficult as to what to make out of the figure. Below are a few things from the earnings call:

  • 50% subscribers came directly from disney.com
  • Bob Iger mentioned “20% of those subscribers” came from Verizon. The comment in the earnings call wasn’t clear, but he clarified it in this interview with CNBC
  • Most subscribers came from the US
  • Conversion from free-to-pay and churn rates were better than what Disney had expected
  • No significant churn after Mandalorian Season 1 ended

Other notes

  • “It was 65% of the people who watch Mandalorian watch at least 10 other things”
  • Each Disney+ subscriber spent 6-7 hours every week on the service
  • 18-22% guests to parks were international guests
  • “Attendance at our domestic parks was up 2% in the first quarter, and per capita guest spending was up 10% on higher admissions, merchandise and food and beverage spending. Per room spending at our domestic hotels was up 4%, and occupancy was 92%. So far this quarter, domestic resort reservations are pacing up 4% compared to this time last year, and booked rates at our domestic hotels are currently pacing up 10%.”
  • The fight between McGregor and Tyrone brough “1 million pay-per-view purchases and 0.5 million new subscribers”

Disclosure: I own Disney stocks in my personal portfolio