Disney sinks despite subscriber defeat as analysts consider saturation in the streaming market
Disney (DIS) reported second-quarter financial results after the bell on Wednesday that missed both top and bottom earnings, although net additions for emerging streaming platform Disney+ came in at 7.9 million, well above estimates of 4.5 million.
The sudden rally caused shares to rise 5% in the post-closing trading period. However, Disney quickly wiped out those gains during the company’s earnings call as CFO Christine McCarthy warned of the challenging economic environment as well as weak subscriber growth in the second half of the year.
Shares continued their decline into Thursday’s session, down nearly 2% at midday.
Despite the tempo, Disney’s net subscriber additions are still slowing compared to previous quarters.
The company added 11.7 million subscribers in the first quarter of 2022, sharply exceeding analyst estimates. On a year-over-year basis, the media giant announced a net addition of 8.7 million in the second quarter of 2021.
The overall drop in subscribers comes as inflation continues to rise, consumers cut costs, and competition intensifies. Analysts remain divided over what those economic conditions mean when it comes to the long-term outlook for Disney+.
“That’s kind of a question about when that’s going to happen [the market] Are you saturating too much? “
Disney is “spending tons of money to grow Disney+,” the analyst added, noting that “the company’s financial Q2 was the second biggest loss for that segment.”
“Although the company has managed to increase the number of subscribers, the question is, at what cost?”
Kreutz added that Disney+ is “in an early stage of growth” compared to competitors like Netflix, which lost 200,000 users in its most recent quarter (the first time the company has lost subscribers in a quarter in 10 years).
Laura Hoy, equity analyst at Hargreaves Lansdowne, agreed, saying that although investors breathed a “big sigh of relief” that Disney did not follow the same fate as Netflix, the media conglomerate “is in a much different place.”
Howe explained that Disney+ is “at the beginning of the journey. It doesn’t face the same barriers.”
However, “we can’t really convince them what they’re doing with streaming. They are definitely able to hold onto their subscribers and are able to attract new subscribers.”
“They’ve got that pricing power, and it seems like this is the streaming service that people are interested in, even though they can go out and do other things,” she continued.
I still think in the long run that Disney+ can compete well with Netflix…Doug Kreutz, Coin Analyst
Disney+, which will open in 53 new markets in the third quarter of 2022, has 137.7 million global subscribers so far, above expectations of 134.4 million.
The company has reiterated its goal to bring 230 million to 260 million subscribers to the service by the end of fiscal year 2024. In context, Netflix has 221.64 million global subscribers.
In addition to Disney+, the company will also rely on theatrical throwback, with titles such as “Thor: Love and Thunder” and “Avatar: The Way of Water” appearing later this year.
“I still believe in the long-term that Disney+ can compete well with Netflix,” Quinn said.
“It’s just a question for both of them [Disney, Netflix] And all the other broadcast companies, “What does the economy look like in the end?”
Disney parks shoot ‘quite literally’
Although the stream has been a special focus for investors, the company’s park division has remained a bright spot in the pandemic’s recovery.
Mecca’s theme parks, experience and consumer products business turned in operating profit of $1.76 billion, beating expectations of $1.6 billion and just below fourth-quarter operating profit of $2.5 billion. Revenue for this segment came to $6.7 billion, close to the pre-pandemic total of $7.6 billion in the fourth quarter of 2019.
Contrary to the shaky, flowing side of the business, analysts remain fairly confident that Disney’s sprawling parks — a consistently important component of the company’s bottom line — will see continued strong growth amid the reopening of commerce. Chapek also doubled down on the earnings call, saying the park segment, which is up 110%, is on “all cylinders.”
“The theme parks have been fantastic,” Kreutz told Yahoo Finance, explaining that “the trajectory to recovery there from the pandemic has definitely been faster and stronger than anyone expected.”
“The parks are a big part of what Disney makes their money for,” added Howe of Hargreaves Lansdowne.
She continued, “What I thought was more encouraging was the increase in operating income, because of the higher volumes. So people were going, and not only that, but they were spending more in parks than they used to be.”
However, potential headwinds include the impact of inflation and recession fears, although Howe believes that “people are willing to spend [on visiting the theme parks] Despite inflation “as more of the Americas “finds itself” in the wake of pandemic lockdowns.
In a new note, Bank of America (BAC) reiterated the stock’s buy rating, although it lowered its target price to $140 from $191.
The bank also lowered its entire 2022 EPS target to $3.04 (from $4.26), citing “park closures in Asia, increased DTC spending, headwinds in licensing content and a higher tax rate.”
Disney’s market capitalization has fallen to just over $182 billion, with shares down more than 30% since the start of the year.
Alexandra is the Senior Entertainment and Food Correspondent at Yahoo Finance. Follow her on Twitter aliecanal8193 Or email her at firstname.lastname@example.org
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