What’s Going On Here?Disney’s gone from hero to zero: the firm reported disappointing quarterly results this week. What Does This Mean?Disney’s fairy tales might tell sparkling rags-to-riches stories, but the company’s results sound more riches-to-rags right now. The firm celebrated some magic, sure: Mickey-Mouse-ear-clad crowds flocked to Disney’s US theme parks in almost pre-pandemic force, each spending 40% more on average than in 2019. And the firm's streaming services – Disney+, ESPN+, and Hulu – were the belle of the ball, captivating nearly 15 million new subscribers last quarter, enough to keep Disney’s total count well above Netflix’s. But that’s where the magic ends: the streaming growth came after dizzying marketing and content spending, so the segment’s operating losses more than doubled to reach $1.5 billion. That sure broke the spell: overall revenue and profit fell well short of analysts’ expectations, prompting disenchanted investors to send shares down 10%. Why Should I Care?Zooming in: Turn this frog into a prince. Disney was quick to assure investors that while streaming growth might slow, the segment’s “peak losses” were behind it. In fact, the firm believes Disney+ will turn its first profit in 2024, and that’s not just wishful thinking: the entertainment giant’s set to hoist its flagship streaming service’s prices by nearly 40% next month, and it’s launching an ad-supported version that’s tipped to make $800 million in ad sales each year. Sprinkle in that the segment’s spending is forecast to dip next year, and that goal could be within reach – Bibbidi-Bobbidi-Boo indeed.
The bigger picture: Better the devil you know. Disney and Netflix look like they’re following similar tracks right now, prioritizing making more money from existing subscribers over attracting new ones. After all, it’s getting trickier to grow memberships and profit at the same time, and analysts prefer profit right now. Just look at Paramount Global: it reported robust subscriber growth last week, but the fact it missed profit expectations by a mile sent shares plummeting 12%. |