Disney Shares Drop Sharply After Big Subscriber Miss

Sam Blake

Sam primarily covers entertainment and media for dot.LA. Previously he was Marjorie Deane Fellow at The Economist, where he wrote for the business and finance sections of the print edition. He has also worked at the XPRIZE Foundation, U.S. Government Accountability Office, KCRW, and MLB Advanced Media (now Disney Streaming Services). He holds an MBA from UCLA Anderson, an MPP from UCLA Luskin and a BA in History from University of Michigan. Email him at samblake@dot.LA and find him on Twitter @hisamblake

Anyone who thought Netflix's recent slowdown in subscriber growth could open up a path for Disney to make some headway in the streaming war should think again. All eyes were on Disney Plus during Thursday's earnings call, and the streaming service badly underperformed Wall Street estimates for quarterly subscriber growth.

Disney Plus now counts 103.6 million subscribers as of April 3, about 5 million fewer than consensus analyst expectations.

The service surpassed the 100-million-subscriber mark in March, just 16 months after its November 2019 launch – a milestone that took Netflix ten years to achieve. With Disney's lucrative Parks division continuing to suffer from the pandemic, so far results from the company's big bet on streaming have kept its business outlook buoyed. Yet with rapid growth comes great expectations, and in the immediate aftermath of Disney's reported shortfall on Thursday, the company's stock fell as much as 4.5% in after-hours trading.

Nevertheless, chief executive Bob Chapek said the service remains on track to reach between 230 and 260 million subscribers by 2024, as the company forecasted in March.

Analysts had been bullish that the two Marvel series debuting this quarter – "WandaVision" and "Falcon and the Winter Soldier" – would boost demand. Evidently the appeal of Marvel's expansive foray into streaming television did not quite materialize.

Disney also missed consensus revenue expectations, coming about $300 million below the consensus $15.6 billion.

Despite the misses, Chapek said he was "extremely pleased" with how customers responded to Disney Plus's price increase. Hikes in March in the U.S. did not significantly increase churn, he added.

Brett Feldman of Goldman Sachs said in his most recent investor note that a positive consumer response to the service's first-ever price increase would bode well for its long-term growth and profitability prospects. Disney has said it hopes Disney Plus will begin turning a profit in 2024.

And Brandon Nispel, equity research analyst at KeyBanc Capital Markets, wrote in his earnings preview that "profits in streaming will be dominated by a select few," and suggested that Disney is well positioned to be one of those winners. That the service — especially in such a competitive market — can retain customers despite hiking prices is a strong sign of durability.

Disney shares have been trading relatively flat of late, following an extended recovery from its pandemic plummet. By the first Monday after lockdown in March 2020, the stock had fallen over 40% to $86 from its November 2019 then all-time high of $150. It reached a new all-time high by March 2021, surpassing $200, before settling into a stagnant hover between $180 and $190 over the last month, closing at $178 on Thursday.

Investors were hoping for a positive earnings report to help break through that inertia, but instead saw the ticker going the wrong direction, at least for now.


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