ii view: Disney shares slump after warning on streaming growth
9th November 2022 15:15
by Keith Bowman from interactive investor
Shares in this entertainment icon are down by more than a third year-to-date. Buy, sell, or hold?
Fourth-quarter results to 1 October
- Revenue up 9% to $20.15 billion
- Adjusted earnings per share down 19% to $0.30 per share
- Disney’s streaming subscribers now total 235 million, up from 221 million 3 months ago
- Disney+ subscribers of 164.2 million, up from 152.1 million 3 months ago
Chief executive Bob Chapek says:
“The rapid growth of Disney+ in just three years since launch is a direct result of our strategic decision to invest heavily in creating incredible content and rolling out the service internationally, and we expect our DTC operating losses to narrow going forward and that Disney+ will still achieve profitability in fiscal 2024, assuming we do not see a meaningful shift in the economic climate.”
ii round-up:
Entertainment mammoth Walt Disney Co (NYSE:DIS) detailed new subscribers to its Disney+ streaming service that beat Wall Street forecasts, but also pointed to expectations that growth will slow.
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Total Disney+ subscribers climbed 12 million from the previous quarter to just over 164 million, ahead of analyst forecasts nearer to 160 million. However, Disney expects growth to slow in the current first quarter to the start of January.
Disney shares fell by more than 10% in US trading post the results having come into this latest announcement already down by more than a third. Shares for rival Netflix Inc (NASDAQ:NFLX) have more than halved in 2022 as it previously reported a first decline in subscribers in over a decade. The broad S&P 500 index is down by a fifth year-to-date.
Disney’s adjusted earnings fell by nearly a fifth year-over-year to $0.30 per share, missing forecasts for closer to $0.55 per share.
The average monthly revenue for the Disney+ service across its home US and Canadian markets fell by 10% year-over-year to $6.10 per subscriber. Disney continues to expect operating losses for the Direct-To-Consumer business to narrow going forward with Disney+ still forecast to achieve profitability come 2024.
Elsewhere, a more than doubling in sales for its Parks, Experiences and Products division to $1.51 billion during the quarter reflected the comparison with closures and reduced operating capacity in the year ago period due to the pandemic.
Buoyed by revenues up by nearly a quarter to an overall $82 billion, adjusted earnings for the full year 2022 rose by just over a half to $3.54 per share.
ii view:
Founded in October 1923, Disney today offers investors a one-stop entertainment business. It employs over 160,000 people. Its brands which include Lucasfilm, 20th Century Studios, 20th Century Animation and Searchlight Pictures. Total streaming subscribers of 235 million compare with 223 million at rival Netflix as of its last results.
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For investors, a cost-of-living crisis could see consumers cut non-essential spending like streaming services. Pandemic hinderances, particularly for its theme parks in Asia, still warrant consideration, as does the lack of a dividend payment, which has been suspended since the start of the Covid crisis and in contrast to a payment at rival streamer Apple Inc (NASDAQ:AAPL).
On the upside, growth in streaming customer numbers is being achieved, exposure to North American sports content that generates large audiences remains invaluable, while most of its of its theme parks have returned to normal following the pandemic.
Business diversity helping to balance out divisional ups and downs is a clear positive, and the analyst consensus fair value price is over $120 per share. But while the long-term outlook is positive, immediate headwinds like inflation, cost of living and recession could put a dampener on things short term.
Positives:
- Diversity of businesses, strong brands, and media content bank
- Growing streaming services
Negatives:
- Inflation pressured consumers may cut entertainment spending
- Dividend payment halted
The average rating of stock market analysts:
Buy
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