Disney’s weak revenue and profits eclipse the growth of streaming subscribers

The home screen of the Disney+ Marvel website on a laptop in the Brooklyn borough of New York, United States, on Monday, July 18, 2022.

Gabby Jones | Bloomberg | Getty Images

The biggest media and entertainment companies are asking investors to focus on revenue and profits instead of streaming subscriber growth – a message that backfired on Disney Tuesday.

Disney added 12.1 million Disney+ subscribers and 14.6 million total direct-to-consumer customers in its fiscal fourth quarter. Both numbers beat most analyst estimates and blew away quarterly additions Netflixwhich gained just 2.4 million new subscribers in the quarter.

A year ago, the robust streaming growth numbers may have pushed Disney shares higher. But media and entertainment executives are pushing investors to value their companies on profits and revenue rather than pure subscriber growth. And those numbers weren’t kind to Disney this quarter.

Disney shares fell 6% after the close.

Total quarterly Disney revenue of $20.1 billion missed the average analyst estimate by nearly $1 billion, based on Refinitv consensus estimates. Net operating loss at Disney’s streaming division, which includes Disney+, Hulu and ESPN+, widened to $1.47 billion in the quarter. That’s more than double the loss from a year ago, which Disney blamed in part on a lack of “premiere access” content, or theatrically released movies that Disney charged an extra $30 to stream, such as “Black Widow” and “Jungle Cruise.” . “

Better results to come

Disney said it expects this quarter to be the nadir of streaming losses, and it confirmed that profitability is on the way. Disney Chief Financial Officer Christine McCarthy said during Disney’s earnings conference call that operating losses will improve by about $200 million next quarter and will be even lower in the fiscal second quarter of 2023.

Disney will launch its ad-supported tier for $7.99 per month on December 8. The company announced significant price increases that will also kick in next month. Both measures are being implemented to boost revenue and earnings rather than subscriber growth. The benefits from both changes will drive Disney’s improved revenue and earnings, particularly in next year’s fiscal second quarter, McCarthy said on the call.

“We expect our DTC operating losses to narrow going forward and that Disney+ will still achieve profitability in fiscal 2024, assuming we do not see a meaningful shift in the economic climate,” Disney CEO Bob Chapek said in a statement.

Disney warned that core Disney+ subscribers would grow only “slightly” next quarter after the company added 9.3 million non-Hotstar customers this quarter. Core Disney+ customers pay more than Disney’s India subscribers with an average revenue per spends at $5.96 per month compared to $0.58 per month for Hotstar.

But for now, Disney found itself caught between a past narrative of robust subscriber growth and a current and future story of business fundamentals. And the investors were not forgiving.

WATCH: Disney’s earnings reaction

Watch CNBC's full post-market discussion with Virtus' Joe Terranova, Wealth Enhancement's Nicole Webb and CIC Wealth's Malcolm Ethridge

Leave a Comment