Is Disney suddenly giving up Netflix vibes?
The media giant reported strong streaming numbers in its fiscal fourth quarter, with its flagship service Disney+ growing to 164.2 million global subscribers, but some key financial metrics fell short of Wall Street expectations.
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Total revenue of $20.15 billion in the period ended Oct. 1 was up 9% compared to the year-ago quarter. Earnings per share, meanwhile, fell 19% to 30 cents on a diluted basis. Wall Street analysts’ consensus forecast was for revenue of $21.44 billion and EPS of 56 cents. Of course, comparisons between Disney and Netflix are inaccurate given their vastly different balance sheets, but Netflix’s recent challenge has been to convince the Street of its viability as a profit engine, not just a cultivator of debt-financed subscriber growth. Disney, on the other hand, has been able to leverage its broader business mix to generate more substantial returns as a company even as it funds its streaming ambitions, but its fiscal Q4 numbers suggest a go-go streaming player with a less-than-resounding history in its traditional business.
Investors reacted to the earnings miss by sending Disney shares down as much as 7% in after-hours trading. They closed the regular session at $99.90, down half a point. Like other media stocks, Disney’s has taken a beating lately, losing more than a third of its value in 2022 to date.
The company’s media distribution and entertainment division saw revenue fall 3% in the quarter to $12.7 billion, while Parks, Experiences and Products jumped 36% on the continued decline in theme parks and travel following prolonged Covid setbacks.
Direct-to-consumer revenue for the quarter rose 8% to $4.9 billion, and operating loss widened by $800 million to $1.5 billion. The increase in the operating loss was due to a higher loss at Disney+ and a
decline in results on Hulu, partially offset by improved results on ESPN+, the company said. $1.5 billion is being positioned as the peak loss for streaming, with red ink starting to dry up in fiscal 2023.
Disney+ increased by 12.1 million subscribers from the previous quarter. Although the growth curve was less steep for the other two services in the portfolio, Hulu and ESPN+, the former reached 47.2 million subscribers and the latter ESPN+ reached 24.3 million. In total, the 235.7 million direct-to-consumer subscribers beat Wall Street expectations by several million. The company has projected to have between 300 million and 350 million streaming subscribers by the end of fiscal year 2024 and also says that Disney+ will turn a profit by then. Indications are that it is still on track to reach these goals.
The quarterly story was less rosy on the traditional TV front. Linear Networks revenue for the quarter fell 5% to $6.3 billion, and operating income rose 6% to $1.7 billion. A lagging component of the Linear Networks unit was International Channels, whose revenue fell 18% to $1.1 billion, with operating income also down 18%. The company blamed the decline on lower operating income from channels that operated throughout the current and previous year’s quarters, partially offset by a benefit from channel closures.
Disney entered the earnings report with some momentum after a shaky stretch in early 2022. CEO Bob Chapek came under intense scrutiny earlier this year both internally and from figures such as Florida Governor Ron DeSantis over the furor — from the right and the left — over the company’s stance on the state’s “Don’t Say Gay” legislation. Chapek admitted to having made mistakes, but has received a declaration of confidence from the board and a multi-year contract extension.
“The rapid growth of Disney+ in just three years since launch is a direct result of our strategic decision to invest heavily in creating incredible content and rolling out the service internationally, and we expect our DTC operating losses to reduce going forward and Disney+ to continue will achieve profitability in the financial year 2024, assuming we do not see a meaningful shift in the economic climate, Chapek said in the earnings release. “By adjusting our costs and realizing the benefits of price increases and our Disney+ ad-supported tier coming December 8, we believe we will be on track to achieve a profitable streaming business that will drive continued growth and generate shareholder value well into the future.”
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