Disney wants you to focus on revenue and profit instead of streaming subscribers — just not this quarter

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The Disney+ Marvel website home screen on a laptop computer in the Brooklyn borough of New York, US, on Monday, July 18, 2022.

Gabby Jones | Bloomberg | Getty Images

The biggest companies in media and entertainment are telling investors to focus on revenue and profit instead of streaming subscriber growth — that message backfired on Disney Tuesday.

Disney added 12.1 million Disney+ subscribers and 14.6 million total direct-to-consumer customers in its fiscal fourth quarter. Both numbers surpassed most analyst estimates and blew away quarterly additions from Netflix, which gained just 2.4 million new subscribers in the quarter.

A year ago, the robust streaming growth numbers may have pushed Disney shares higher. But media and entertainment executives are pushing investors to value their companies on profit and revenue instead of purely subscriber growth. And those numbers weren’t kind to Disney this quarter.

Disney shares fell 6% after hours.

Total quarterly Disney revenue of $20.1 billion missed the average analyst estimate by nearly $1 billion, based on Refinitv consensus estimates. Net operating losses in Disney’s streaming division, which includes Disney+, Hulu and ESPN+, ballooned to $1.47 billion in the quarter. That’s more than double the loss from a year ago, which Disney partially blamed on the lack of “premier access” content, or theatrically released films for which Disney charged an extra $30 to stream, such as “Black Widow” and “Jungle Cruise.”

Better results coming

Disney said it expects this quarter to be the nadir for streaming losses, and it reaffirmed profitability is coming. Disney Chief Financial Officer Christine McCarthy said during Disney’s earnings conference call operating losses will improve by about $200 million next quarter and will be even lower in the fiscal second quarter of 2023.

Disney is launching its advertising-supported tier for $7.99 per month on Dec. 8. The company announced significant price increases that will also kick in next month. Both measures are being put in place to jumpstart revenue and profit rather than subscriber growth. The benefits from both changes will drive Disney’s improved revenue and profit, especially in next year’s fiscal second quarter, McCarthy said on the call.

“We expect our DTC operating losses to narrow going forward and that Disney+ will still achieve profitability in fiscal 2024, assuming we do not see a meaningful shift in the economic climate,” Disney Chief Executive Officer Bob Chapek said in a statement.

Disney warned core Disney+ subscribers would only increase “slightly” next quarter after the company added 9.3 million non-Hotstar customers this quarter. Core Disney+ customers are higher paying than Disney’s India subscribers with average revenue per user of $5.96 per month compared to $0.58 per month for Hotstar.

But for the moment, Disney found itself caught in between a prior narrative of robust subscriber growth and a present and future story about business fundamentals. And investors weren’t forgiving.

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