Disney Reports Jump in Disney+ Subscribers in Latest Quarter

Chief Executive

Bob Chapek

reaffirmed Disney’s targets of signing up between 230 million and 260 million subscribers to Disney+ and having the streaming video-on-demand business achieve profitability by September 2024, saying both goals were “very achievable.”

Mr. Chapek said the company hasn’t yet tapped into swaths of potential new subscribers and pointed to the company’s slate of new TV and film offerings this year as the main driver of new paying customers. Disney also plans to introduce an advertising-supported version of Disney+ later this year at a lower price point than the ad-free version.

Shares of Disney fell 3% in extended-hours trading after initially rising on the earnings news. Before the results, the stock closed at $105.21, down 2.3% during the regular session.

The world’s largest entertainment company posted earnings of $470 million, or 26 cents a share, for the second quarter, down from $901 million, or 49 cents a share, a year earlier. Adjusted earnings were $1.08 a share, below analysts’ expectations of $1.19. Revenue for the quarter was $19.25 billion, compared with $15.61 billion a year earlier.

Disney launched the new Marvel Studios series “Moon Knight” earlier this year, and Mr. Chapek highlighted what he described as popular offerings among the more mature entertainment content on Disney’s Hulu platform, such as reality show “The Kardashians” and “Pam and Tommy,” a series about the release of a celebrity sex tape.

“We could not be happier with the performance of ‘The Kardashians,’” Mr. Chapek said Wednesday.

Looking forward, the company highlighted the release of “Obi-Wan Kenobi,” its latest Star Wars franchise series coming this summer, as well as a slate of big-budget movies due out over the next seven months, including “Black Panther” and “Avatar” sequels, the “Toy Story” prequel “Lightyear” and “Ms. Marvel.”

Despite the better-than-anticipated subscriber growth, Disney saw losses widen dramatically at its direct-to-consumer segments, which also include the general entertainment streaming platform Hulu and streaming sports network ESPN+. Operating losses grew to $887 million in the quarter, compared with $290 million in the same period one year ago.

In a conference call following the release of the results, analysts pressed Mr. Chapek about the high cost of acquiring new customers for Disney’s streaming platforms. Spending on programming, production and marketing on content rose in the quarter, Mr. Chapek said, with roughly one-third of Disney’s $32 billion content budget this year devoted to acquiring sports rights.

“It’s obviously a balancing act, but we believe that great content is going to drive our subs, and those subs…are going to drive our profitability,” Mr. Chapek said.

One big driver of subscriptions this quarter were viewers of Indian Premier League cricket matches, which resumed in March.

Christine McCarthy,

the company’s chief financial officer, said that about half of the 7.9 million net new subscriptions it added came from subscribers to Disney+ Hotstar, its Indian streaming service, which is in the midst of its final year of a five-year deal to broadcast the sport. Disney+ Hotstar customers account for about 50 million of the total Disney+ subscriptions.

Disney is currently bidding against a tough stable of competitors to renew its contract to broadcast IPL cricket, with bids expected to come in above $5 billion for the five-year rights, according to people familiar with the matter. The auction is expected to conclude at the end of June.

The average monthly revenue for a paying subscriber to Disney+ Hotstar was 76 cents in the quarter, the company said. A U.S. Disney+ subscriber’s average monthly revenue was $6.32 in the quarter. Analysts look at this metric as a way to measure the value of subscribers in different markets and their potential profitability.

Before Wednesday’s report, Disney shares were trading at two-year lows, and had fallen more than 30% so far this year. The reasons for Disney’s nosedive have been threefold, analysts say: fears of a looming recession, overall stock market volatility and worries about the profitability of streaming.

For the first year and a half of the coronavirus pandemic, the streaming video business model was the toast of Wall Street. Then last month, Netflix reported its first net subscriber loss in a decade, with some 200,000 customers pulling the plug. Those results sent Netflix shares tumbling by nearly 50%, erasing nearly $80 billion in market value at the world’s biggest streamer and putting pressure on the shares of Netflix’s competitors.

Disney, which launched its flagship streaming platform Disney+ just months before the pandemic hit, has reaped the fruits of streaming to the sofa-bound as well. The shift helped make up for Covid-19-related closures at its theme parks, which had been the best performing division of the company. The parks business has since rebounded.

“To get their streaming business to scale, at least the way they’ve built it, they need to expand the aperture of the service beyond Disney-branded content,” said

Ben Swinburne,

an analyst who covers Disney for

Morgan Stanley.

“They’re spending significantly less than Netflix is. There’s an opportunity for them to spend more efficiently on content, and lean on this strong library of familiar IP that they have, but they just have to go out and prove it.”

But the company’s emphasis on its streaming business could become a pressure point as consumers shift their behaviors amid high inflation and more options of where to spend their entertainment budgets, investors and analysts say.

“While it seems Disney is winning the subscription battle for now, let’s not forget it is late to the streaming party,” said

Paolo Pescatore,

a media analyst with PP Foresight. “It will see subs losses at some point.”

Sales at its theme parks and consumer products division—which includes Walt Disney World and Disneyland resorts—logged $6.65 billion in the quarter ended April 2, above analysts expectations of $6.29 billion.

“The reason you own Disney, first and foremost, is the parks business,” said Markus Hansen, a portfolio manager at

Vontobel Asset Management,

which owns Disney shares. “The obsession of the markets with streaming is a product of Covid. The parks, the bread and butter of the business, were shut down.”

No one knew how long the parks’ shutdowns would last, and many investors were relying on streaming to generate the company’s revenue growth, said Mr. Hansen.

One hopeful sign for Disney is the return of the cinematic box office. In its opening weekend, “Dr. Strange in the Multiverse of Madness,” the first blockbuster to come out this year from Disney’s Marvel Studios brand, grossed $185 million, making it the second-highest grossing film of the pandemic and marking a robust return to theaters by fans of superhero movies.

Marvel movies have been a reliable revenue generator for Disney for over a decade, and once they start streaming on Disney+ are seen as a key retainer of subscribers.

“It’s a strange time we’re in,” said Jessica Reif Ehrlich, a media analyst who follows Disney for Bank of America Merrill Lynch. “Normally if we were on the cusp of recession, most of us would be walking away from the stock. But this isn’t a normal recession. People have been cooped up. Demand from travel, for entertainment, for getting out of the house, it’s just incredible right now.”

Disney leadership wasn’t asked any questions Wednesday about the Florida legislature’s recent repeal of a special tax privileges district that houses the Walt Disney World theme park. The district owes $1 billion in municipal debt, which is now entangled in a legal mess over how bondholders will be paid back under the new arrangement.

The bill repealing the tax treatment came amid controversy over Disney’s response to Florida’s Parental Rights in Education Bill, signed into law last month, which prohibits instruction in schools on sexual orientation or gender identity from kindergarten to third grade. It limits instruction on those topics for older children to material deemed “age-appropriate.”

Mr. Chapek initially chose to stay mum about what opponents call the “Don’t Say Gay” bill, but after pressure from some employees and critics, changed course and vowed to fight against the legislation and similar measures in other states, and promised to stop all political donations in Florida.

—Denny Jacob contributed to this article.

Write to Robbie Whelan at robbie.whelan@wsj.com