Disney Quarter No Fairy Tale as Streaming Costs Mount

_{Source: Predictions based on analysts' consensus from Visible Alpha}

Walt Disney Financial Results: Analysis

The Walt Disney Company (DIS) reported quarterly results that fell below expectations late Tuesday after a bigger-than-expected loss for its Disney+ streaming service, sending shares of the entertainment and media giant 9% lower in after-hours trading.

Disney posted adjusted earnings per share of 30 cents for its fiscal fourth quarter ended Oct. 1, below the average estimate of 57 cents among analysts surveyed by Visible Alpha. Revenue rose 9% to $20.15 billion, also trailing market expectations.

The earnings shortfall was primarily the result of a wider loss at the Disney+ streaming service, which drove higher spending on original and licensed content. Losses at Disney’s direct-to-consumer segment more than doubled year-over-year to $1.5 billion even as worldwide Disney+ subscriptions grew 39% year-over-year to 164.2 million. Meanwhile, revenue per domestic Disney+ subscriber fell 10% on the same basis, in part because the service didn’t benefit in the latest quarter from premium pay-per-view movie offerings such as Jungle Cruise and Black Widow a year earlier.

Disney Parks, Experiences and Products met high expectations with all of the company’s travel businesses fully operational again during the period, thanks to the lifting of COVID-19 travel restrictions outside of China.

The company’s TV networks including ESPN and ABC saw revenue decline 5% year-over-year amid continued cord-cutting by cable subscribers, while delivering a 6% boost in operating income.

"Looking ahead we expect to see linear (TV) subscriber declines to accelerate more in line with industry trends," Disney CFO Christine McCarthy said on the earnings conference call.

The Outlook for Disney+

The losses at Disney+ and to a lesser extent Hulu caused operating income at the company’s Media and Entertainment Distribution segment to plummet 91% year-over-year to just $83 million.

“We expect our direct-to-consumer operating losses to narrow going forward,” said CEO Bob Chapek in the earnings release, adding that Disney+ “will still achieve profitability in fiscal 2024, assuming we do not see a meaningful shift in the economic climate.”

He said that the service’s profitability would benefit from a price increase due Dec. 8, along with the introduction of advertising for the lowest-cost subscriptions. The monthly cost of ad-free viewing is set to rise by $3 to $10.99 next month, while the new service tier featuring ads will cost $7.99 monthly.