Disney Has Recovered Well, But 22PE 48X Is Not the Buy Point

According to the announcement, Disney's FY2022Q4 performance: the company achieved revenue of 20.15 billion dollars in FY2022Q4, with a year-on-year growth of 8.7%. Compared with FY19Q3 before the epidemic, the company also recovered positive growth. Operating profit of $1.6 billion, up 0.1%; Net income was $160 million, up 1.3 percent from a year earlier.

FY2022Q4, the company's media and entertainment distribution revenue of $12.73 billion, down 3% year on year; Operating profit was $83 million, down 91 percent from a year earlier, dragged down by streaming losses.

FY22Q4DTC revenue grew 17.6% year on year to $4.91 billion, accounting for about 1/4 of total revenue; Operating loss widened to $1.47 billion from 6.3 billion, mainly due to higher content costs for Disney+, higher selling expenses and the elimination of its streaming preferred release channel. This quarter is expected to be the peak of the company's streaming operating loss, which is expected to decline in the future, based on: 1) increased membership prices and advertising revenue from the launch of the Disney+ AD tier in December, as well as increased membership; 1) Reduce cost and increase efficiency to rationalize marketing expenditure; 3) Optimize content selection and distribution methods to improve user engagement.

1) Disney+ growth continues to exceed expectations: FY2022Q4 subscriptions grew by 12.1 million, exceeding market expectations of 9.3 million. Disney+ subscriptions reached 164.2 million at the end of FY22Q4, up 39% from the end of FY21Q4. The unit price of customers decreased from $4.12 in FY21Q4 to $3.91. The company expects Disney+ to become profitable in 2024. The international market contributed the largest increase, but the failure of IPL copyright in India affected future growth. FY22Q4 North American membership remained stable, as more users chose the service of multiple products bundled, the customer price decreased. Disney+Hotstar in India saw significant volume and price growth as more cricket matches were launched in the quarter, with membership up 30.1% year on year to 58.4 million and membership prices up 53.8% year on year to $1.20 (driven by higher advertising revenue). We believe that Disney's penetration rate in the international market (excluding India) is still low at 49.2 million members, while Netflix has about 110 million members. In the future, the international market will contribute the majority of the increase. India, a market where Disney is strong, is expected to see a decline in membership in the next quarter due to poor IPL licensing.

2) Modest growth for ESPN+ and Hulu: up 42% year-over-year to 24.3 million subscribers at the end of FY22Q4; Meanwhile, the unit price of customers increased slightly from 4.74 in FY21Q4 to 4.84 USD, up 2% year-on-year. Hulu subscribers grew but continued to slow, reaching 47.2 million at the end of FY22Q4, up 8% year-over-year and 1 million sequentially.

1) Cable TV: FY2022Q4 revenue of $6.34 billion, down slightly by 5% year on year; Operating profit was $1.74bn, up 6% from a year earlier. The increase in profit was mainly due to the broadcast of the NBA Finals in the quarter and increased advertising revenue on domestic channels.

2) Content sales and licensing: FY2022Q3 revenue reached $1.74 billion, down 15% year on year; the Operating loss was $178 million compared to $0.7 million in the same period last year. The decline was due to a decrease in the number of films released during the period. In the same period last year, four films including "Black Widow" and "Out of Control Player" were released. This year, only "Thor: Love & Thunder" was released this year. However, in the first quarter of 2023, blockbusters such as "Black Panther 2," "Avatar 2" and "Ant-Man 3" are expected to contribute to growth.

FY22Q4 Paradise, Experience and Consumer products business revenue increased 36% to $7.43bn year-on-year in FY21, operating profit improved significantly to $1.51bn compared to $640m in the same period last year, and financial performance returned to the level in FY19. The revenue of domestic parks in the United States doubled year on year. Disney's "Wish" cruise ship set sail in July, and the load rate of paying tourists increased. The launch of Genie+ and LightingLane in the first quarter pushed ticket prices higher. In terms of international parks, Paris Park performed better, but the opening time of Shanghai Park was significantly reduced due to the epidemic.

Streaming media waiting to turn a profit, the number of users surges, customer price is stable temporarily, the future user growth can be expected.

Cable TV and content sales: Stable TV operation, and the future blockbuster release are expected to provide incremental performance to content sales.

Disneyland is recovering well, with its financial performance at the same level as before the pandemic and sound development momentum.

Forecast: Revenue growth in the next 3 years can reach more than 15%, net profit growth at more than 30%, FY2022 PE at about 48 times, and EPS at about 1.96. In 2025, EPS can be conservative at $4.30, corresponding to PE 21.81 times, in a reasonable range, but not to the buy point.