Disney stock falls to 2-plus-year low if earnings miss, weak forecast

Disney shares fell more than 12% on Wednesday — the lowest in more than two years — after the media conglomerate’s quarterly results fell short of Wall Street expectations and the company signaled that its direct-to-streaming losses and linear TV declines for the 2023 financial year are higher than expected.

Disney reported an operating loss of $1.47 billion for its streaming segment for the quarter ended October 1, 2022, approximately $800 million more than the same period last year. The company attributed the rise to a higher loss at Disney+ and a drop in earnings at Hulu. Meanwhile, revenue for Disney’s linear television networks (pay TV and broadcast) declined 3% in the quarter, with operating income falling sharply on lower advertising revenue, higher programming costs and investments in technology platforms.

CEO Bob Chapek said in prepared remarks that Disney expects streaming losses “to narrow going forward” and that Disney+ remains on track to turn a profit in fiscal 2024 “assuming we don’t see a significant shift in economic sentiment.”

On Tuesday’s earnings call, however, Disney executives said segment-adjusted earnings for fiscal 2023 would grow in the high-single digits, compared to analyst consensus estimates of 25% growth. Analysts took it as a signal that streaming losses for the year ending September 2023 would be higher than Wall Street had been expecting and that Disney’s traditional TV business would suffer from continued declines from the cable cut.

“Rarely have we been so wrong in our forecast of Disney earnings,” wrote Michael Nathanson, MoffettNathanson’s principal analyst, in a research note. “Given the company’s confidence that Parks’ trends appear robust, it appears the culprit for the massive earnings downgrade is much higher than expected [direct-to-consumer streaming] Losses and significant declines in linear networks.”

Disney’s theme parks will continue to account for the majority of the company’s earnings per share, Morgan Stanley analyst Ben Swinburne said in a statement. He wrote that “the importance of scaling streaming to profitability takes on a new urgency amid the pressure on the legacy linear TV business from cable cuts.”

On the bright side, all three of Disney’s streaming services (Disney+, Hulu, and ESPN+) grew faster-than-expected in the most recent quarter, as Disney ended its fiscal 22 with more than 235 million streaming accounts (including 164.2 million for Disney+ ) completed. . Looking ahead, Disney needs to “continue to drive international net adds as it begins to drive [average revenue per account] makes more sense with price increases and the launch of its ad tiers,” wrote Swinburne.

On Tuesday’s conference call, Disney executives said the ad-supported tier for Disney+ had received commitments from at least 100 advertisers, but said the launch won’t have any significant financial impact until later in fiscal 2023. Disney+ Basic, the name of the ad-supported plan, will first launch in the US on December 8th for $7.99/month. That’s the price of the current ad-free version of Disney+, which at this point will increase to $10.99/month, an increase of 38%, and will be known as Disney+ Premium.