Disney (NYSE: DIS) reported its earnings for the fiscal fourth quarter of 2022 yesterday and missed both topline as well as bottomline estimates. Its streaming losses also widened in the quarter even as it built on the lead over Netflix in terms of total subscribers.
Disney reported revenues of $20.15 billion in the quarter, a YoY rise of 9%. The metric however fell short of the $21.24 billion that analysts were expecting. The company’s Media & Entertainment division reported revenues of $12.7 billion. Sales fell 3% YoY and were below the $13.9 billion that analysts were expecting.
The company’s Parks segment posted revenues of $7.4 billion in the quarter, which while 34% higher than the corresponding quarter last year, fell slightly short of the $7.5 billion that analysts were expecting. It was nonetheless a record quarter for the company’s Parks segment.
The Parks segment posted an operating profit of $1.5 billion in the quarter. However, the DTC (direct-to-consumer) business lost $1.47 billion in the quarter as the streaming business continues to post losses.
Overall, Disney posted an adjusted EPS of 30 in the quarter which was below the 55 cents that analysts were expecting.
Disney Reports Q4 2022 Earnings, Gains More Subscribers than Netflix
Disney added a total of 14.6 million streaming subscribers in the fiscal fourth quarter of which 12.1 million were Disney+ subscribers. At the end of the quarter, Disney+ had 164.2 million subscribers which were ahead of the 160.45 million that analysts expected. Of these 102.9 million are core Disney+ subscribers and the remaining 61.3 million are Disney+ Hotstar subscribers.
ESPN had 24.3 million subscribers at the end of the quarter while Hulu had a total of 47.2 million subscribers. Overall, Disney had 235 million streaming subscribers across formats. Netflix only had about 223 million streaming subscribers at the end of September.
However, while Disney might be ahead of Netflix in terms of subscribers, it still has a lot of catching up to do in terms of ARPU (average revenue per user) and profitability. Netflix has a profitable business while Disney’s streaming business has been losing money since it was launched in the back half of 2019.
Disney Expects streaming Business to Become Profitable in Fiscal Year 2024
Disney has said multiple times that its streaming business will become profitable in the fiscal year 2024. It reiterated the views in the fiscal fourth-quarter earnings call. The company’s CEO Bob Chapek said that the operating losses at the DTC business have “peaked” and would decline going forward.
He highlighted three factors to back up his assertion. Firstly, he said that Disney+ would benefit from the price hike and the rollout of an ad-supported platform. Notably, next month, Disney would start offering an ad-supported platform in the US at $7.99 per month.
Netflix launched its ad-supported tier earlier this month only and priced at $6.99 per month, $1 below what Disney would offer. Disney would increase the price of the ad-free tier by $3 to $10.99 as the company strives to make its DTC business profitable.
Chapek listed “realignment of our cost, including meaningful rationalization of our marketing spend” as the second factor he believes the losses at DTC operations have peaked.
Finally, he said Disney would leverage its “learnings and experience in direct-to-consumer to optimize our content slate and distribution approach to deliver a steady state of high-impact releases that efficiently drive engagement and subscriber acquisition.”
Streaming War is Heating Up
Meanwhile, the streaming war is heating up. However, as Netflix pointed out during its Q3 2022 earnings call, the industry might post $10 billion in operating losses this year. In contrast, Netflix would post an operating profit of between $5-$6 billion this year.
Netflix stock has rebounded from its 2022 lows even as most other Big Tech companies are languishing near their 52-week lows. Many analysts are bullish on Netflix stock, expressing optimism over the ad-supported tier, which Netflix has said would be incrementally positive to its ARPUs. We have a guide on how beginners can buy Netflix stock.
Coming back to Disney, the stock is down almost 8% in premarkets today and might retest its 52-week lows.
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