Disney sinks despite subscriber pace as analysts reflect on streaming market saturation

Disney (DIS) released second-quarter financial results after Wednesday’s bell missed both the high and the low, although net adds for its fledgling Disney+ streaming platform came in at 7, 9 million, well above estimates of 4.5 million.

The surprise rise 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 weaker subscriber growth in the second half. .

Shares continued to fall through Thursday’s session, down about 2% by midday.

Despite the pace, Disney’s subscriber net additions still slowed from previous quarters.

The company added 11.7 million subscribers in the first quarter of 2022, significantly beating analysts’ estimates. On a year-over-year comparison basis, the media giant reported a net increase 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 these economic conditions mean for Disney+’s longer-term outlook.

“It’s kind of a question about when did [the market] become too saturated?” Doug Creutz, senior analyst at Cowen, told Yahoo Finance.

Disney is “spending tons of money building Disney+,” the analyst continued, noting that “the company’s second fiscal quarter was the second-largest loss this segment has suffered.”

“While the company has been successful in growing subscribers, the question is, ‘at what cost?'”

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

Laura Hoy, equity analyst at Hargreaves Lansdown, agrees, saying that although investors have breathed “a big sigh of relief” that Disney hasn’t met the same fate as Netflix, the media conglomerate “is in a space very different”.

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

Still, “we really can’t beat them for what they’re doing with streaming. They’re certainly capable of retaining subscribers and attracting new ones.”

“They have this pricing power, and it seems like it’s the streaming service that people are interested in, even though they can go out and do other things,” she continued.

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

Disney+, which will open in 53 new markets in the third quarter of 2022, has 137.7 million subscribers worldwide so far, above expectations of 134.4 million.

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

Beyond Disney+, the company will also rely on theatrical rebound, with standout titles like “Thor: Love and Thunder” and “Avatar: The Way of Water” set to debut later this year.

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

“It’s just a question for both [Disney, Netflix] and all the other streaming companies, ‘What does the economy look like at the end of the day?'”

Disney’s parks, experience and consumer products business hit $1.76 billion in second-quarter operating profit

Disney parks are firing ‘on all cylinders’

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

The entertainment mecca’s parks, experience and consumer products business reported operating profit of $1.76 billion, beating expectations of $1.6 billion and just below operating profit of $2.5 billion last quarter. The segment’s revenue was $6.7 billion, closing in on its pre-pandemic total of $7.6 billion in the last quarter of 2019.

Contrary to the volatile streaming side of the business, analysts remain fairly confident that Disney’s sprawling theme parks — always important to the company’s bottom line — will experience robust and continued growth under the reopening of trade. Chapek also doubled down on the earnings call, saying the parks segment, up 110%, is firing on “all cylinders.”

“The theme parks have been great,” Creutz told Yahoo Finance, explaining, “The trajectory of recovery there post-pandemic has certainly been faster and stronger than I think anyone anticipated. “

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

“What I found even more encouraging is that operating profit has gone up, and that’s because volumes are up. So people were going there and, not only that, but they were spending more in parks than before,” she continued.

Still, possible headwinds include the impact of inflation and recession fears, though Hoy thinks “people are willing to spend [on visiting the theme parks] despite inflation” as more Americas “medicate themselves” following pandemic shutdowns.

In a new note, Bank of America (BAC) reiterated its buy rating 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 additional DTC spending, headwinds in content licenses and a higher tax rate”.

Disney’s market capitalization has slipped to just over $182 billion as shares have fallen more than 30% since the start of the year.

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

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