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Disney earnings miss across the board with slowing streaming growth

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November 10, 2021
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Disney reported fiscal fourth-quarter earnings on Wednesday after-the-bell. The company missed Wall Street estimates across the board during the quarter ended Oct 2., sending the stock down more than 4% in after-hours trading.

Earnings per share: 37 cents adj. vs 51 cents expected, according to RefinitivRevenue: $18.53 billion vs $18.79 billion expected, according to Refinitiv

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The company added 2.1 million Disney+ subscribers to reach a total of 118.1 million, in line with Disney’s estimates. During the Goldman Sachs Communacopia Conference in September, CEO Bob Chapek said the segment’s growth had “hit some headwinds” and that Disney expected to add “low single-digit millions” of streaming subscribers in the fourth quarter.

However, Wall Street seemed more bullish than Chapek. StreetAccount estimated the company would report 125.4 million total Disney+ subscribers as of the fourth quarter, suggesting 9.4 million new subscribers since the third quarter.

During the company’s earnings call, Chapek reiterated the company’s goal of reaching 230 million to 260 million Disney+ subscribers by 2024.

“We remain focused on managing our DTC business for the long term, not quarter to quarter,” Chapek said.

Disney is expecting to ramp up content for Disney+ in the fourth quarter of 2022.

“Q4 will be the first time in Disney+ history that we plan to release original content throughout the quarter from Disney, Marvel, Star Wars, Pixar, and Nat Geo, all in one quarter. This includes highly anticipated titles such as Ms. Marvel, and Pinocchio,” Disney Chief Financial Officer Christine McCarthy said.

She added the company expects its Disney+ adds in second half of fiscal 2022 will be meaningfully higher than first half of the year. Chapek explained the company plans to achieve that growth by expanding its Disney+ markets in the third quarter while the aforementioned new content will drive new subscriptions in the fourth quarter.

Average monthly revenue per subscriber for Disney+ came in at $4.12, down 9% year over year. The company attributed the dip to a higher mix of Disney+ Hotstar subscribers compared with the prior-year quarter.

Disney’s average revenue per user has shrunk in recent quarters because of the lower price points for its Disney+ and Hotstar bundle in Indonesia and India. The service has lower average monthly revenue per paid subscriber than traditional Disney+ in other markets, pulling down the overall average for the quarter.

Overall, Disney reported 179 million subscriptions across Disney+, ESPN+ and Hulu at the end of the fourth quarter. Revenue for the direct-to-consumer segments increased 38% to $4.6 billion. Average monthly revenue per paid subscriber rose slightly for ESPN+ and Hulu.

Content sales and licensing revenues increased 9% to $2 billion.

The company released films such as “Black Widow,” “Free Guy” and “Shang-Chi and the Legend of the Ten Rings” during those three months and delivered solid box-office results.

However, higher operating and marketing costs led the company’s content sales and licensing segment to post an operating loss of $65 million during the quarter.

“While theaters have generally reopened, we are still experiencing a prolonged and gradual pace of recovery in this business,” McCarthy said.

Additionally, while much of Disney’s film and television production has resumed, the studio continues to see disruptions due to the pandemic.

“Fewer theatrical releases and production delays have limited the availability of film content to be sold in distribution windows subsequent to the theatrical release,” the company said.

Looking to the last stretch of the year, Disney will release hotly anticipated films “Encanto” and “Spider-Man: No Way Home,” which are expected to be big draws for audiences domestically and abroad.

Disney talks about the metaverse

Chapek nodded toward the company’s efforts to build its own “metaverse,” a type of immersive virtual reality experience that several companies have been investing in.

“Suffice it to say our efforts to date are merely a prologue to a time when we’ll be able to connect the physical and digital worlds even more closely, allowing for storytelling without boundaries in our own Disney metaverse,” he said during the call.

“And we look forward to creating unparalleled opportunities for consumers to experience everything Disney has to offer across our products and platforms wherever the consumer may be. As we look ahead to this next frontier, given our unique combination of brands, franchises, physical and digital experiences, and global reach, we see limitless potential, and that makes us as excited as ever about The Walt Disney Company’s next 100 years,” Chapek added.

Parks begin to show rebound from pandemic

With Covid-19 vaccinations on the rise, Disney’s theme parks have seen a pick-up in attendance in the second-half of 2021.

The company’s parks, experiences and products segment finally produced positive operating income for the first time since the pandemic began last quarter and improved on those results during the most recent period.

All of Disney’s global theme parks were open during the fiscal fourth-quarter and all of its cruise ships resumed sailing. The business unit as a whole, which includes theme parks, hotels and merchandise, saw revenue grow 26% to $5.45 billion.

Disney noted that the company as a whole incurred a total cost of $1 billion throughout fiscal 2021 in order to meet government regulations and increase safety measures for its workers and guests.

On Monday, the U.S. lifted its pandemic travel restrictions, which had barred many international visitors from entering the country since early 2020.

Disney said it is looking forward to the return of international attendance to its domestic parks, but doesn’t expect this traffic will substantially impact the company until the second half of fiscal 2022. McCarthy noted that this is due to longer vacation planning lead times.

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