The Disney share price has been struggling for a good part of this year, trading at or around two-year lows for most of the last 3 months.
We did see a decent rally in August; however, the shares have drifted back since then, and last night’s Q4 numbers could well see a retest of those lows, after missing across the board.
It is true that in the streaming space Disney has been outperforming its main rival Netflix, adding to its subscriber base, but that’s only because the numbers from Hulu, and ESPN are included in the total subscriber numbers. Disney+ numbers are still well below Netflix numbers, and while they also have plans to add an ad supported tier of Disney+ next month, there is a risk that could dilute their offering even as they modestly raise prices.
Last night’s Q4 numbers saw revenues come in short of expectations at $20.15bn, while profits came in at $0.30c a share, short of the $0.53c expected.
The revenues number was well below Q3’s $21.5bn which perhaps shouldn’t be too surprising given that Q4 tends to see a drop-off anyway.
The parks business in Q4 generated $7.43bn, a 36% increase on last year but below estimates of $7.59bn, with some of that shortfall probably due to the impact of Hurricane Ian which saw the parks take a $65m hit.
The misses on revenues and profits haven’t been well received although as far as streaming is concerned Disney is delivering decent subscriber growth.
The company added 14.6m new subscribers, 5m above forecasts with Disney+ the main driver, with 12.1m new adds, pushing the total to 164.2m subscribers.
That still puts it behind Netflix, although when ESPN and Hulu are added to the numbers, they exceed Netflix. The streaming business is still very much a loss leader, losing $1.5bn during the quarter, with Disney saying it expects to be profitable by 2024.
Its Hotstar service in India, saw monthly revenue per user decline to $0.58c from $0.64c. This is in stark contrast to its international Disney+ service which saw average revenue per user rise to $5.83c a share from $5.62c.
It is clear from these numbers, especially in India that Disney is placing its focus on subscriber numbers over profitability. That model may not be fit for purpose anymore and is a model Netflix is moving away from.
At its most recent earnings update Netflix said it would no longer be publishing guidance of its subscriber numbers, saying it wants investors and shareholders to focus less on subscriber numbers and concentrate more on the key metrics of revenue, operating income, margin and net income.
How long before Disney is forced to do the same?