Walt Disney shares rose after the company reported better-than-expected subscriber growth for its streaming service in the third quarter and said it would raise the price of Disney+ by 38 per cent, part of plan to generate more revenue from the money-losing online business.
On December 8th, Disney will introduce an ad-supported version of the flagship streaming service and raise the price of the ad-free option to $11 (€10.60) a month, the entertainment giant said Wednesday. Prices for some packages that include Hulu and ESPN+ will also rise.
The price increases, subscriber gains and a strong third-quarter performance from Disney’s namesake theme parks may help reverse investor sentiment that sent the shares down 27 per cent this year through Wednesday’s close. The company added 14.4 million new Disney+ subscribers in the quarter, beating analysts’ estimates of 9.8 million and bucking the downdraft that has hit Netflix.
While Disney “shares have underperformed, the business has continued to outperform”, analysts at Morgan Stanley wrote in a note following the results.
Disney shares rose 7.6 per cent in early trading before markets opened in New York. The stock rose 4 per cent to close at $112.43 on Wednesday.
Still, many analysts have been sceptical that Disney could meet the ambitious fiscal 2024 target for up to 260 million subscribers that it set two years ago. Chief financial officer Christine McCarthy told investors on a call that the company now expects between 135 million and 165 million core Disney+ customers and as many as 80 million customers for the Disney+ Hotstar product in India by the end of fiscal 2024, or a maximum of 245 million.
The world’s largest entertainment company, Disney is trying to stem losses in its direct-to-consumer business as it navigates a transition from traditional TV viewing to online options. Disney+, launched in November 2019, includes films and TV shows from the company’s vast library, as well as new series tied to company brands such as Marvel and Star Wars. The company has said it expects Disney+ to be profitable in fiscal 2024.
The introduction of an ad-supported tier is meant to boost subscribers and generate more revenue by giving customers options for how much they want to pay for the service. Disney said last month it sold $9 billion (€8.7 billion) of ads for the upcoming TV season, with 40 per cent of that going to its online offerings.
Current Disney+ subscribers will begin receiving the ad-supported version unless they agree to pay more for the commercial-free plan.
The Burbank, California-based company reported fiscal third-quarter sales and earnings that beat analysts’ expectations, driven in part by strong performance of its theme parks. Sales in the period ended July 2nd jumped 26 per cent to $21.5 billion (€20.8 billion), led by soaring park revenue and beating analysts’ expectations of $21 billion (€20.3 billion). Earnings jumped to $1.09 a share excluding some items, topping estimates of 96 cents.
With last quarter’s gain, the total number of Disney+ subscribers has climbed to 152.1 million. ESPN+ now has 22.8 million subscribers and Hulu, including live TV, has 46.2 million. Netflix had 220.7 million subscribers at the close of its latest quarter.
Operating losses at the direct-to-consumer business, which includes the streaming services, more than tripled to $1.06 billion (€1.03 billion) as the company continues to invest in new programming and expand to new territories. That was worse than the $697 million (€675 million) analysts expected. Disney expects to spend about $30 billion (€29 billion) on programming in the current fiscal year, down about $3 billion (€2.9 billion) from its original plans.
Ken Leon, director of equity research at CFRA, told Bloomberg TV that he remains concerned about losses in the company’s streaming services and its reliance on low-cost subscribers in India. The standouts for him were the company’s TV networks and its theme parks.
“This was a strong quarter, mostly from the traditional, established businesses,” Mr Leon said.
Profit in its traditional TV business, which includes the ABC and ESPN networks, rose 13 per cent to $2.47 billion (€2.39 billion), thanks to higher ad revenue and fees from cable distributors. Programming costs were flat to down.
Profit at the company’s theme parks, a star in recent months as consumers went on vacations again after two years of the pandemic, rose sixfold to $2.19 billion (€2.12 billion). US resorts were the main driver, while international parks lost money and consumer products delivered only a modest increase.
The company reported a 26 per cent jump in sales for its film studio to $2.11 billion (€2 billion), but suffered a loss of $27 million (€26 million) as the strong performance of Doctor Strange in the Multiverse of Madness in theatres was offset by lower home-entertainment revenue.
– Bloomberg
