Disney's gone from hero to zero after the company this week released poor quarterly statistics.
What does this mean?
Disney's fairy tales may depict glistening rags-to-riches adventures, but the company's current results appear to be more a case of riches-to-rags. The company acknowledged a little bit of magic: people with Mickey Mouse ears descended upon Disney's US theme parks in nearly pre-pandemic numbers, each paying 40% more than the previous year on average. The company's streaming services, Disney+, ESPN+, and Hulu, were the star of the show last quarter, attracting close to 15 million new subscribers and keeping Disney's overall number of subscribers well above Netflix's. The enchantment, however, ends there because the segment's operating losses more than doubled to $1.5 billion because the streaming growth occurred after staggering marketing and content expenditures. Overall revenue and earnings fell far short of analysts' estimates, breaking the enchantment and leading disillusioned investors to send shares down 10%.
Source: Google Finance
Why should I care?
While streaming growth would decrease, Disney was quick to reassure investors that the segment's "peak losses" were behind it. Disney+ will actually start making money in 2024, according to the company, and that prediction isn't just wishful thinking given that the entertainment giant is raising the cost of its flagship streaming service by almost 40% next month and introducing an ad-supported version that's expected to generate $800 million in ad sales annually. The aim might be achievable if you add in the fact that the segment's spending is anticipated to decline the following year; Bibbidi-Bobbidi-Boo indeed.
Source: Reuters
Disney and Netflix appear to be on parallel paths at the moment, focusing increasing revenue from current users above acquiring new ones. Since it's becoming more difficult to increase memberships and profit at the same time, experts currently favor profit. Just take a look at Paramount Global. It just reported strong subscriber growth, but the fact that it drastically missed profit targets caused shares to drop 12%.
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