Disney sinks despite subscriber pace as analysts assess saturation in streaming market

Disney (DIS) reported second-quarter financial results after Wednesday’s bell that hit neither the top nor the bottom, though net adds for its fledgling Disney+ streaming platform came in at 7.9 million, well above estimates of 4.5 million.

The surprise rally sent shares up as much as 5% in after-hours trading; however, Disney quickly erased those gains during the company’s earnings call in which Chief Financial Officer Christine McCarthy warned of both a tough economic environment and slower subscriber growth in the second half of the year.

Shares continued to slide into the session on Thursday, down about 2% in midday trading.

Despite the pace, Disney’s net subscriber additions still experienced a slowdown compared to previous quarters.

The company added 11.7 million subscribers in the first quarter of 2022, far exceeding analyst estimates. In a year-over-year comparison, the media giant reported a net addition of 8.7 million in the second quarter of 2021.

The overall decline in subscribers comes as inflation remains high, consumers cut costs and competition intensifies. Analysts remain divided on what those economic conditions mean when it comes to Disney+’s long-term prospects.

“This is kind of a question about when [the market] Does it get too crowded?” Doug Creutz, a senior analyst at Cowen, told Yahoo Finance.

Disney is “spending tons of money to grow Disney+,” the analyst continued, noting that “the company’s fiscal second quarter was the second-biggest loss that segment has ever had.”

“Although the company has managed to increase subscribers, the question is: ‘At what cost?'”

Creutz added that Disney+ “is at an earlier stage of growth” compared to competitors like Netflix, which lost 200,000 paying users in its most recent quarter (the first time the company had lost subscribers during a quarter in 10 years).

Laura Hoy, an equity analyst at Hargreaves Lansdown, agreed, saying that while investors breathed “a huge sigh of relief” that Disney didn’t follow the same fate as Netflix, the media conglomerate “is in a very different space.”

Disney+ is “fairly early in the journey. It doesn’t face the same hurdles,” Hoy explained.

Still, “we can’t really fault them for what they’re doing with streaming. They can definitely retain their subscribers and attract new ones.”

“They have 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,” he continued.

I still think that, in the long run, Disney+ can compete well with Netflix…Doug Creutz, Senior Analyst at Cowen

Disney+, which is set to open in 53 new markets in the third quarter of 2022, has 137.7 million global subscribers to date, above expectations of 134.4 million.

The company reiterated its goal of attracting 230 million to 260 million subscribers to the service by the end of fiscal 2024. For context, Netflix’s subscriber count stands at 221.64 million global subscribers.

Beyond Disney+, the company will also lean into the movie rebound, with major titles like “Thor: Love and Thunder” and “Avatar: The Way of Water” set to debut later this year.

“I still think Disney+ can compete well with Netflix in the long run,” Cowen’s Creutz said.

“It’s just a question for both [Disney, Netflix] and all the other streaming businesses, ‘What’s the economy ultimately like?'”

Disney’s parks, experience and consumer products business achieved an operating profit of $1.76 billion in the second quarter

Disney parks fire ‘full steam ahead’

Although streaming has been a particular focus for investors, the company’s theme park division has remained a bright spot in its recovery from the pandemic.

The entertainment mecca’s parks, experience and consumer products business achieved an operating profit of $1.76 billion, beating expectations of $1.6 billion and just below last quarter’s operating profit of $2.5 billion. Revenue for the segment totaled $6.7 billion, approaching its pre-pandemic total of $7.6 billion in the last quarter of 2019.

Unlike the shaky streaming side of the business, analysts remain fairly confident that Disney’s expanding theme parks, a consistently important element to the company’s bottom line, will see continued strong growth amid the reopening of business. . Chapek also doubled down during the earnings call, saying the parks segment, up 110%, is running “flat out.”

“Theme parks have been great,” Creutz told Yahoo Finance, explaining, “The trajectory of the recovery there from the pandemic has definitely been faster and stronger than I think anyone anticipated.”

Hoy from Hargreaves Lansdown added: “The parks are a big part of where Disney makes its money.”

“What I thought was even more encouraging is that the operating income increased, and that was because the volumes increased. So people were going and, not only that, but they were spending more at the parks than before,” he continued.

Still, potential headwinds include the impact of inflation and recession fears, though Hoy believes “people are willing to spend [on visiting the theme parks] despite inflation” as more Americas “treat themselves” after the pandemic lockdowns.

In a new note, Bank of America (BAC) reiterated its Buy recommendation on the stock, although it lowered its price target to $140 from $191.

The bank also lowered its full-year 2022 EPS target to $3.04 (from $4.26), citing “park closures in Asia, increased incremental DTC spending, content licensing headwinds and a higher tax rate.” .

Disney’s market capitalization has shrunk to just over $182 billion, and the stock is down more than 30% year-to-date.

Alexandra is a senior food and entertainment reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 or email alexandra.canal@yahoofinance.com

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