Disney+ subscriber growth slows and may stay slow until next summer; stock falls

Disney has struggled to produce streaming content at the cadence it hoped due to the COVID-19 pandemic, and executives said Wednesday that it will not reach its goal of fresh content every week from its major intellectual-property offerings until next summer. That will lead to bigger losses from the streaming division next year, which was previously targeted as the year when that line started moving up.

“The fourth quarter will likely be more indicative of what our slate could look like once we have tentpole content flowing steadily from all of our industry-leading creative engines,” Chief Financial Officer Christine McCarthy said in a conference call Wednesday, referring to Disney’s fiscal fourth quarter of 2022.

“We don’t anticipate that sub growth will necessarily be linear from quarter to quarter, so putting this all together and also taking into consideration the timing of our planned international launches in 2022, we expect Disney+ subscriber net adds in the second half of fiscal 2022 will be meaningfully higher than the first half of the year,” McCarthy added. “Additionally, we now expect that Disney+ will reach its peak year of losses in fiscal 2022 instead of in fiscal 2021, as better-than-expected revenue and lower content expenses due to production delays contributed to lower-than-expected losses in 2021.”

Executives were still positive about the long-term trends for Disney+ and the rest of the company’s streaming efforts, imploring investors to look at a wider horizon instead of quarter-to-quarter movements.

“As we celebrate the two-year anniversary of Disney+, we’re extremely pleased with the success of our streaming business, with 179 million total subscriptions across our DTC portfolio at the end of fiscal 2021 and 60% subscriber growth year-over-year for Disney+,” Chapek said in a statement announcing the results. “We continue to manage our DTC business for the long term, and are confident that our high-quality entertainment and expansion into additional markets worldwide will enable us to further grow our streaming platforms globally.”

The disappointing growth had an effect on Disney’s fiscal fourth-quarter financial results, which came in lower than analysts had expected. Disney reported fiscal fourth-quarter net income of $159 million, or 9 cents a share, compared with a loss of 39 cents a share in the year-ago quarter. After adjusting for restructuring costs, amortization and other effects, the company reported earnings of 37 cents a share, compared with an adjusted loss of 20 cents a share a year ago. Revenue improved to $18.53 billion from $14.71 billion a year ago.

Analysts surveyed by FactSet had expected adjusted net income of 52 cents a share on revenue of $18.8 billion. Shares fell more than 4% in after-hours trading Wednesday following the release of the results, after declining 0.3% to $174.53 in the regular session.

Disney breaks down its operations into two segments, “Media and Entertainment Distribution” and “Parks, Experiences and Products.” In the fourth quarter, the media business collected revenue of $13.08 billion in total, while analysts on average expected $13.4 billion.

The streaming segment, which also includes international products, hauled in $4.56 billion in revenue, roughly in line with analysts’ forecasts of $4.58 billion on average, though an operating loss of more than $600 million was much larger than expected. The company’s television networks provided sales of $6.7 billion, trailing analysts’ average estimate of $6.89 billion, while the film business reported revenue of $2.05 billion vs. expectations of $2.15 billion.

Disney’s theme parks and product sales segment reported $5.45 billion in revenue as attractions slowly reopened in the U.S. and abroad, a spike from $2.7 billion a year ago. The average analyst estimate was $5.45 billion.

Disney stock has struggled so far this year, falling 3.9% as the S&P 500 index SPX, -0.82% gained 26.2% and the Dow Jones Industrial Average DJIA, -0.66% — which counts Disney as a component — has increased 18.7%.