Disney's Stock Takes a Hit Due to Subscriber Shortfall and Uninspiring Outlook

Disney's Q2 Earnings Report

Despite Disney's fiscal second-quarter profits exceeding Bloomberg analysts' estimates and an increase in full-year earnings guidance, the company's shares took a hit in early New York trading. The focus of investors was primarily on the underperformance of the Disney+ streaming service, which failed to meet its forecast for the quarter.

Subscriber Count Falls Short

As of the quarter ending March 30, Disney+ reported 153.6 million subscribers, falling short of Wall Street's expectations of 155.66 million. This shortfall has cast a shadow over other positive news from the quarter.

Financial Highlights

Excluding certain items, earnings rose to $1.21 per share in the quarter, surpassing the average analyst estimate of $1.12. Revenue for the first three months of the year increased by 1.2% to $22.08 billion, almost in line with analysts' forecast of $22.1 billion. However, the entertainment revenue of $9.80 billion missed the estimate of $10.31 billion.

Disney+ Subscriber Growth Stalls

Despite adding more than 6 million subscribers to its core Disney+ streaming service in the second quarter, the growth was less than expected. CFO Hugh Johnston also revealed that the company does not expect to see subscriber growth for Disney+ in the current quarter. The profitability of the streaming service is also expected to suffer due to additional expenses for cricket rights in India, a business Disney acquired in 2019 as part of its $71.3 billion purchase of most of 21st Century Fox.

Disney Shares Slide

Following the announcement, Disney shares slid 8.5%, marking the largest intraday tumble since May 11, 2023. Despite this, the company's theme parks saw a 10% revenue increase in the second quarter and a 12% gain in operating income. However, Johnston expects little growth in the current period due to expenses like a new cruise ship, with growth expected to resume later in the year.

Theme-Park Division Performance

Earnings in Disney's theme-park division rose to $2.29 billion in the second quarter, driven by strong results internationally, particularly in Hong Kong. Domestically, the company’s cruise line and Disney World resort in Florida saw income growth, while California’s Disneyland experienced weaker performance due to higher costs.

Future Concerns

Despite other companies like McDonald's, Starbucks, and Tyson Foods reporting low-income consumers reducing purchases due to inflation, Disney's CFO claimed that this has not significantly impacted their portfolio of products. However, it may only be a matter of time before Disney sees consumers cutting back on streaming spending and expensive park tickets amid rising stagflationary threats.

Closing Thoughts

Disney's recent financial performance raises questions about the sustainability of its pricing strategy, particularly in the face of economic uncertainty. How much more can Disney increase park prices before demand disappears? What are your thoughts on this matter? Share this article with your friends and let us know your opinions. Don't forget to sign up for the Daily Briefing, which is every day at 6pm.