A magical quarter for Disney

For the last few months, I have been binge-watching Disney+. I am now a converted Star Wars fan. I completed the Clone Wars cartoon series, Star Wars The Bad Batch, and The Mandalorian. Recently, I was following The Book of Boba Fett. And I have to say, the Season 1 Finale ended with a blast.

Screenshot from Disney+

That is why it got me excited when Walt Disney announced its quarterly earnings on 9th February. And it was amazing as well. Disney reported a very strong result for its streaming service. The theme parks business has come back to life. However, the only sore item from this quarter is the growing negative cash flow. For that, we need to investigate the reasons for that and if they are of concern. 

Disney+ subscribers count growth

Source: Disney’s investor relations

Firstly, the domestic Disney+ subscribers increased 18% from 36.3 million in January 2021 to 42.9 million in January 2022. The more spectacular growth came from the International Disney+ segment. The International Disney+ subscribers increased 40% from 29.4 million in January 2021 to 41.1 million in January 2022.  It was a tremendous growth of subscription for its streaming business. 

Source: Disney Q1 FY 22 Earnings Report – Average Monthly Revenue Per Paid Subscriber for the quarter

Also, the average monthly revenue per paid subscribers for the domestic market has increased 15% from $5.8 in January 2021 to $6.68 in January 2022. The average monthly revenue per paid subscriber for the international market has increased by 26% from $4.73 in January 2021 to $5.96 in January 2022.

Based on these two data points, I estimated Disney+ saw a 52% growth in its monthly revenue this quarter.

January FY 2022

Domestic Disney+ Monthly Revenue $6.68 x 42.9 million = 286.57 million
International Disney+ Monthly Revenue  $5.96 x 41.1 million = 244.95 million

January FY 2021

Domestic Disney+ Monthly Revenue $5.8 x 36.3 million = 210.54 million
International Disney+ Monthly Revenue  $4.73 x 29.4 million = 139.06 million

Source: Author’s own estimation

All in all, on an annual basis, the revenue from its streaming service could be at least US$ 6.4 billion. This is on the assumption that subscribers stay the same. 

Source: FY2022 Earnings – Number of Paid Subscribers

The streaming service is not the only bright spot. The total subscribers for ESPN+ show an increase of 76% from 12.1 million in January 2021 to 21.3 million in January 2022. The average monthly revenue has increased by 15% from $4.48 in January 2021 to $5.16 in January 2022. Based on my estimation, this means ESPN+ could have a yearly revenue of US$1.31 billion. Similarly, when it comes to Hulu, it could bring in an approximate yearly revenue of US$10.85 billion. Therefore, the total revenue for these three streaming businesses might be at least US$18.56 billion this year. 

Monitoring Disney+ competition

Source: App Annie screenshot for IOS in the United States on Entertainment Apps

Source: App Annie screenshot for the Google Play store in the United States on Entertainment App

Based on App Annie, it showed that Netflix is in the 3rd position for the IOS system whereas Disney+ is in the 5th spot. In terms of Google Play ranking, Disney+ is currently in the 3rd position.

Source: Google Trends in the United States to compare between Amazon, Netflix and Disney+

On top of that, based on Google Trends, although we cannot conclude that Disney+ is gaining interest, we can indeed observed that Netflix has been seeing declining interest since February 2021. 

During this period, Disney added top ranking movies such as Eternals, Black Widow, Shang-Chi and The Legend of the Ten Rings onto its platforms. However, Netflix is still topping the TV shows rankings with Squid Game, Bridgerton and Cobra Kai. However, in Netflix’s latest earnings report, we can observe that competition has intensified in the last 2 years. And these competitions are eating away Netflix’s margin growth.

Global streaming market

A market research by Grand View Research found the global streaming market to have a value at around USD 50.11 billion in 2020. It also expects this market to grow at a compound annual growth rate (CAGR) of 21% from 2021 to 2028. This presents a market size of USD 223.98 billion by 2028.

With regards to this growth, we will like to quote the below from Reed Hastings, the Co-Founder of Netflix in the latest earnings transcript:

Source: Q4 2021 Netflix earnings transcript 

Basically, although more players are coming into streaming, the market size is still large enough for everyone. There is plenty of room for everyone as it is a growing industry. This is further reinforced by Gregory K. Peters, COO, and CPO of Netflix.

Source: Q4 2021 Netflix earnings transcript 

At the end of the day, the consumers are willing to pay for great entertainment. In the next 5 years, I am expecting competition for original content to intensify even more. 

Disney Parks, Experiences and Products

Source: Disney earning report Q1 FY2022

There is also good news for Disney’s brick-and-mortar businesses. The revenue for this business segment has increased by 101% from 3,588 million in January 2021 to 7,234 million in January 2022. The increased operating income at international parks and resorts was due to recovery at Disneyland Paris and Hong Kong Disneyland Resort. Firstly, there were higher attendances. Moreover, there are more days that the international parks opened in January 2022 than January 2021. However, lower consumer products business were due to closure of a substantial number of Disney-branded retail stores in North America and Europe in the second half of 2021. 

High expenditure for content

Source: Disney Earnings Report Q1 FY22

Looking at its cash flow, there are some areas of concern. Its cash used in operations was US$0.2 billion in this quarter compared to cash provided by operations of US$0.1 billion in the prior-year quarter. The decrease was due to higher spending on film and television content. Overall, its free cash flow is -US$ 1,190 million for this quarter, which is worse than the -US$ 685 million in the prior-year quarter. However, it is comforting to know that Disney is spending more on creating more content, which is its way of investing for the future.

Debt to equity ratio

Source: marcotrends.net

Source: zacks.com

Another aspect I like to monitor is its debt level. In early 2020, the debt level for Disney increased from US$ 42 billion in Q1 2020 to US$ 54 billion in Q2 2020. To survive the pandemic and to finance its acquisition of 20th Century Fox, Disney had to take on huge amounts of debt during that period.  Fortunately, in the Q1 2022, we observe that the debt to equity ratio has decreased from the peak of 0.6 to 0.5. Personally, I prefer companies with a debt to equity ratio less than 1. In this sense, I do feel that Disney is prudent in managing its debt level. Thus, I am still confident in its balance sheet strength today. 


All in all, this has been a magical quarter for Disney. We observed strong growth in its Direct-to-Consumer segment, mainly due to higher subscription growth. Disney’s result is further boosted by the recovery of its Park and Experience segment. I believe investors should be happy with recent quarter results. The company should continue to add value to shareholders for many years to come. 

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