waltz disney (DIS) reported a decline in Q4 earnings Tuesday afternoon, ending the company’s growth streak. The Dow Jones entertainment giant’s earnings have steadily improved over the last six quarters as it recovered pandemic losses. Disney stock fell after hours following the results. And DIS shares have tumbled roughly 44% over the past year.
Analysts will closely watch the number of Disney+ subscribers after Disney lowered its forecast for 2024, introduced ad tiers and hiked the price in the third quarter.
The streaming industry is grappling with slowing subscription growth and soaring production costs for new content. In response, the “House of Mouse” announced the price for the ad-free version of its streaming service will surge 38% to $10.99 a month, starting Dec. 8. And it will introduce a lower-priced, ad-supported tier, similar to what its competitor netflix (NFLX) just launched.
In August, Disney lowered its target to 215 million to 245 million Disney+ subscribers by the end of 2024, down from its February forecast of 230 million to 260 million. Still, the company expects Disney+ to be profitable within two years.
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Disney’s theme-park revenue leapt 70% to $7.39 billion in fiscal Q3, thanks to a post-pandemic rebound in travel. However, foot traffic at its Shanghai resort has been slow to recover as China continues with its “zero-COVID” policy strategy. And theme-park sales could take another hit China implements further lockdowns.
Disney’s traditional media business faces exposure to negative macro trends, but the focus on sports with its ESPN and Hulu properties position it favorably, KeyBanc analyst Brandon Nispel wrote in a late-October research note. He believes Disney’s platform of services provides a competitive advantage in their ability to convert linear TV watchers to streaming subscribers. And despite park attendance softening, he thinks Disney’s are resilient and provide significant cash to help fund the transition to streaming. Nispel lowered his price target on Disney stock to $143 from $154 but maintained an Overweight rating.
Expectations: Disney earnings were expected to jump 48% to 56 cents per share while revenue grew nearly 15% to $21.3 billion.
Results: Disney’s earnings fell 18% to 30 cents per share and revenue grew 9% to $20.5 billion.
The company added 12.1 million new Disney+ subscribers during the quarter. Including Hulu and ESPN+, Disney added 14.6 million new subscribers during Q4, bringing the total to 235 million across all platforms.
For the fourth quarter, Wall Street saw Disney+ adding 8.9 million Disney+ subscribers to 161 million. That would be a downshift from fiscal Q3, when Disney+ added 14.4 million subscribers.
Including ESPN+ and Hulu — which already raised prices — analysts see Disney adding 10.4 million users to 231.5 million.
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Disney stock rose fell more than 6% after market close Tuesday following the earnings report. It currently has a Relative Strength Rating of 34 out of a possible 99, indicating it has underperformed against its peers. However, the stock’s relative strength has improved from its lows in June. DIS shares are down about 8% over the past three months and 35% so far this year.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
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