Walt Disney (DIS) shares slumped lower Wednesday, extending their 2022 decline to around 40%, after the media and entertainment giant posted weaker-than-expected fourth quarter earnings amid an expensive race to overtake Netflix (NFLX) as the world's biggest online streaming platform.
Disney added 14.6 million subscribers over the whole of the quarter, with ESPN+ totaling 24.3 million paid subscribers and Hulu rising to 47.2 million. Disney's total subs of 235.7 million are now firmly ahead of the 223.1 million last tallied by Netflix
Revenue per user, however, was pegged at $3.91, falling shy of analysts' estimates of around $4.24, suggesting subscriber acquisition costs continue to rise. The direct-to-consumer business division, in fact, posted a loss of $1.5 billion for the quarter, Disney said, although it expects to be consistently in the green by the start of the next fiscal year as it raises price, cuts costs and "optimizes" its content slate.
Disney said the introduction of its Disney+ price hikes, which go into effect later this year, should support revenue per user growth, but noted that it won't likely see a bump from its new ad-supported service until later in the year.
"Our approach going forward is going to be focused largely on profitability, keeping in mind, though, that the revenue growth that we have is also going to be a key component toward the overall profitability," CEO Bob Chapek told investors on a conference call late Tuesday. "But we've also got an opportunity, I believe, to manage our profitability through that pricing power that we believe we have."
"We launched these services at tremendous values to the consumer. And everything that we've got shows us that we still have some opportunity for continued price value exploration on all of our services," he added. "Our history shows that when we've taken price increases across our streaming businesses, that we don't meaningfully increase churn or cancellations."
Disney shares were marked 10.9% lower in pre-market trading to indicate an opening bell price of $89.00 each, extending the stock's year-to-date decline to around 43.1%
Overall adjusted diluted earnings for the three months ending in September, the group's fiscal fourth quarter, fell 19% from last year to 30 cents per share, missing Street forecasts by 7 cents, while group revenues rose 9% to $20.15 billion.
Parks and Experiences revenues came in at $7.4 billion, topping the Street's estimate and rising more than 35% from last year as visitors returned to re-open resorts and cruises around the world, particularly in Hong Kong and the United States. Operating income, however, was pegged at $1.51 billion -- including a $65 million hit from Hurricane Ian -- and missed Street forecasts of $1.88 billion.
"For investors that have held onto Disney over the past year, which has been brutal, we believe now is not the time to sell,: said KeyBanc Capital Markets analyst Brandon Nispel, noting that the group's linear business should outperform peers and Chapek's prediction of 'peak losses' in the direct to consumer business.
"Disney (also) holds the keys to Parks, which remains a key differentiator and resistant (not immune) to the macro downturn," Nispel added.
