Walt Disney (DIS) seems to have more in common with Meta Platforms (META) than just a steep drop in stock price in 2022.
With a more than 10% drop during Wednesday's session following the release of its fourth quarter results, Disney investors seem to have a lack of patience in seeing out the company's long-term goals.
"As we celebrate the three-year anniversary of Disney+ this week, I can't help but reflect upon how our commitment to and substantial investment in our DTC business has helped create the world's most powerful suite of streaming services," CEO Bob Chapek said during the company's earnings call.
Disney has said that it has a plan for Disney+ and that the money it is losing on its direct-to-consumer streaming products, while steep, is only a temporary problem.
The company has not wavered on its timeline of having Disney+ be profitable by 2024, with losses shrinking starting in the first quarter of fiscal 2023.
But investors live in the here and now and are way more concerned with the top- and bottom-line misses and declining profits.
Marvel Studios/TS
Plan for Disney+
Disney says that its operating income in the fourth quarter fell by $864 million year over year, as a 6% increase in Linear Network operating income was "more than offset" by wider losses in its DTC segment.
That loss occurred despite the company adding 12 million Disney+ subscriptions. But the company says the the worst is behind it, and there are three reasons why the service is on a path to profitability.
"First, the benefit of both price increases and the launch of the Disney+ ad-tier next month; second, a realignment of our cost, including meaningful rationalization of our marketing spend; and third, leveraging our learnings and experience in direct-to-consumer to optimize our content slate and distribution approach to deliver a steady-state of high-impact releases," Chapek said.
But while core Disney+ added 9 million subs in the quarter, up from 6 million the previous quarter, average revenue per user fell by 5% sequentially.
Disney says its bundled and multiproduct DTC offerings (like bundling Hulu, ESPN+, and Disney+ together) now account for over 40% of its fiscal year-end domestic Disney+ subscriber count and that its shift to more bundles has been purposeful.
Bundles drive higher total company sub revenue, according to Disney, and higher long-term subscriber value "du to notably lower churn."
For the first fiscal (current) quarter, Disney expects operating results to improve by at least $200 million sequentially, with an even bigger improvement in the second quarter.
Disney Is Playing The Long Game
Meta Platforms, formerly Facebook, has spent a fortune investing in the metaverse. CEO Mark Zuckerberg has repeatedly said that he doesn't expect a return on this investment anytime soon, but is rather investing in the long term.
But that hasn't stopped investors from punishing the company for failing to meet profit expectations in recent quarters, leading to a mea culpa from Zuckerberg this week.
"I want to take accountability for these decisions and for how we got here," said the Chief Executive Officer in a blog post announcing that he was laying off 11,000 of the company's 87,000 employees.
Reality Labs, the division in charge of the metaverse expansion, has already lost nearly $20 billion since 2021.
Disney finds itself in a similar situation. With cable television seemingly dying out and DTC streaming options being the wave of the future, Disney needs Disney+ to thrive and it is willing to take losses in the short term in order to make it happen.
However, looking at Meta, it can be easy to see how that strategy could result in pitfalls if investors begin to lose confidence.
Disney may not be in the same crisis of confidence yet, but investor patience could be wearing thin for the Mouse House.
