Why Netflix's Q2 earnings suggest subscriber growth for Disney+

Netflix's management said something during the conference call that you may find interesting.

| More on:
A surge in coronavirus cases in India led to an increase in streaming service demand

Image source: Disney

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Netflix (NASDAQ: NFLX) and Walt Disney (NYSE: DIS) are the two biggest players in the worldwide streaming content market. The same factors that affect subscriber growth for one sometimes affect subscriber growth for the other as well. That suggests you can get some clues on Disney's upcoming update on subscriber figures (when it reports third-quarter earnings) from Netflix's earnings report. In fact, Netflix's management said something interesting that suggests subscriber growth is coming for Disney.

There was a surge in coronavirus cases in India

During Netflix's conference call accompanying its earnings release, CFO Spencer Neumann said:
The one thing we do see with COVID is we don't see the big spikes that we saw in terms of engagement or acquisition or churn that we saw in the very early days of the pandemic. But on the margin, acquisition is impacted. So, for example, in Q2, when things tightened up a little bit, say, in Brazil or India, we did see some increase in acquisition.
Indeed, Netflix added a total of 1.54 million subscribers in the quarter, and 1.04 million were from the Asia Pacific segment. In other words, the surge in coronavirus cases in India during the quarter led to an increase in subscriber growth at Netflix. How does that help Disney? Because almost 33% of Disney+ subscribers come from the region. If demand for streaming services increased, some people likely chose to sign up for Disney+. However, this is not a certainty. In fact, one of the main reasons why Disney+ is so popular in India and the region is because it carries the Indian Premier League, which was canceled because of elevating COVID-19 infection in India. The cancellation of the league could have an offsetting impact on subscriber growth even if there were a surge in demand as folks stayed home to avoid infection. Thankfully, the surge of infection has decreased, and the Indian government has ramped up its vaccination efforts. Nearly 4 million doses of vaccine are being administered daily. At that rate, it would take 13 months to vaccinate 75% of the population.

What this could mean for investors

Interestingly, subscribers from India bring in lower average revenue per month compared to members from the rest of the world. In fact, the average revenue per user (ARPU) from Disney+ was $3.99 in the most recent quarter. Excluding Disney+ Hot Star, which is what the service is called in India, ARPU was $5.61. ARPU in the region is likely to be lower because of the lack of ad revenue generated from the IPL. While it may have increased demand for streaming services overall, the impact of the latest COVID-19 surge is likely to be muted for Disney+, even if it does bring in more subscribers. Still, the growth in Disney+ has been a remarkable success, and fluctuations from quarter to quarter are to be expected. Investors looking for stocks that are poised to gain from the increase in streaming content demand can add Disney and Netflix to their list.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Parkev Tatevosian owns shares of Walt Disney. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Netflix and Walt Disney. The Motley Fool Australia has recommended Netflix and Walt Disney. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on International Stock News

Woman relaxing and using her Apple device
International Stock News

16 words from Warren Buffett that should have Apple stock investors excited

Let's see what Buffett had to say and what it means for investors.

Read more »

Legendary share market investing expert and owner of Berkshire Hathaway Warren Buffett
International Stock News

Prediction: Warren Buffett may be shifting out of his Berkshire Hathaway CEO role, but he's not done investing

Let's take a closer look at what may be ahead.

Read more »

A woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her
International Stock News

Here's why I'm not too worried for Alphabet despite Apple's potential new AI-powered Safari search

Investors panicked when the possibility was floated, but take a step back and look at the bigger picture.

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
International Stock News

Should you buy Nvidia before May 19?

Nvidia has been firing on all cylinders, and we may have a chance to hear more about this top AI…

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
International Stock News

Should investors be concerned about Berkshire Hathaway's record $348 billion cash position and third consecutive quarter of no stock buybacks?

Here's what the treasure trove of cash and lack of buybacks signal, and if Berkshire is still an excellent value…

Read more »

Woman in business suit holds both hands out with a question mark above each hand.
International Stock News

AMD vs. Nvidia: Which artificial intelligence stock should you buy on the dip?

Which of these two chip stocks is the better option right now?

Read more »

Woman and man calculating a dividend yield.
International Stock News

Greg Abel is taking over for Warren Buffett at Berkshire Hathaway. Here's what you need to know.

It's hard to imagine the company without the investing legend at its helm.

Read more »

Happy family watching Netflix together.
International Stock News

Netflix stock gained 21.4% last month. Here's how.

Is Netflix on track for a long blockbuster run? Check out what's fuelling investor excitement about the media-streaming veteran right…

Read more »