UPDATED: Shares of Disney sank 13.16% Wednesday — their lowest level in more than two years — after the media conglomerate’s quarterly results fell short of Wall Street expectations and the company signaled that its direct-to-streaming losses and linear TV declines for fiscal year 2023 would be higher than expected.
Disney’s stock closed at $86.75/share on Wednesday, resulting in the company’s market capitalization shedding about $24 billion in value to stand at $158.15 billion. It’s the lowest closing price for Disney shares since March 20, 2020, when it cratered to $85.76/share amid the dramatic market sell-off at the outset of the COVID-19 pandemic.
Disney’s stock slide came amid a broader (but less severe) decline across key market indexes. The Dow Jones Industrial Average was down 1.95%, the S&P 500 dropped 2.08% and Nasdaq Index was off 2.48%.
Disney reported an operating loss for its streaming segment of $1.47 billion for the quarter ended Oct. 1, 2022, about $800 million more than the year-earlier period, while revenue increased 8% to $4.9 billion. The company attributed the increase to higher losses at Disney+ and ESPN+ and lower results at Hulu. Meanwhile, revenue for Disney’s linear television networks (pay TV and broadcast) dropped 5% in the quarter.
CEO Bob Chapek said in prepared remarks that Disney expects streaming losses “to narrow going forward” and that Disney+ remains on track to achieve profitability in fiscal year 2024, “assuming we do not see a meaningful shift in the economic climate.”
However, on the earnings call Tuesday, Disney execs said fiscal year 2023 segment operating earnings would grow in the high single-digits — compared with analysts consensus estimates of growth of 25% for the year. Analysts interpreted that as a signal that streaming losses would be higher for the year ending September 2023 than Wall Street anticipated, and that Disney’s traditional TV business would suffer ongoing declines from cord-cutting.
“Rarely have we ever been so incorrect in our forecasting of Disney profits,” MoffettNathanson principal analyst Michael Nathanson wrote in a research note. “Given the company’s confidence that Parks trends appear resilient, it appears that the culprit for the massive earnings downgrade is much higher than expected [direct-to-consumer streaming] losses and significant declines at linear networks.”
Disney’s theme parks will continue to represent the majority of the company’s earnings per share, Morgan Stanley analyst Ben Swinburne wrote in a note. He wrote that “the importance to scaling streaming to profitability takes on a new level of urgency given the pressure on the legacy linear TV business from cord-cutting.”
On the positive side, all three of Disney’s streaming services (Disney+, Hulu and ESPN+) grew faster than expected in the most recent quarter, as Disney ended its fiscal year ’22 with more than 235 million streaming accounts (including 164.2 million for Disney+). Looking ahead, Disney “will need to continue to drive international net additions while it begins to drive [average revenue per account] more meaningfully through price increases and the introduction of its ad tiers,” Swinburne wrote.
On the earnings call Tuesday, execs said Disney had secured commitments from at least 100 advertisers for the ad-supported Disney+ tier but said the launch would not produce meaningful financial impact until later in its fiscal 2023. Disney+ Basic, the name of the ad-supported plan, will launch first in the U.S. for $7.99/month on Dec. 8. That’s the price of the current ad-free version of Disney+, which at that time will bump up to $10.99/month, a 38% increase, and will be known as Disney+ Premium.
In a note titled “On the long road to DTC profitability,” UBS analyst John Hodulik revised estimates for Disney’s streaming segment losses to be $3.3 billion in FY2023 (double the previous $1.6 billion estimate). “While the macro environment presents challenges, we still view Disney as best positioned for the transition to a streaming future,” Hodulik wrote in a note to clients Wednesday.
