Walt Disney
DIS
-10.38%
stock was falling hard on Tuesday after management offered guidance for its streaming division that left investors disappointed.
Disney stock was down 10% to $104.86 in late morning trading, on track for its largest decline since Nov. 9, 2022, when it dropped 13%, according to Dow Jones Market Data. The company had posted gains after each of its last three earnings reports.
Within its combined direct-to-consumer streaming business, combining its entertainment DTC business and ESPN+ in sports, it reported a loss of $18 million, much narrower than the loss of $659 million a year prior. The company posted operating income of $47 million within its entertainment DTC business and an operating loss of $65 million for ESPN+.
Paid core subscribers to Disney+ in the second quarter were 117.6 million, topping expectations.
“We’re pleased with the progress we’re making in streaming although as we said before, the path to long-term profitability is not a linear one,” Chief Financial Officer Hugh Johnston said on a call to discuss earnings. “On that note, we are forecasting a loss for entertainment direct-to-consumer in the third quarter. The vast majority of which is due to Disney+ Hotstar’s ICC Cricket rights.”
“We also do not expect to see core subscriber growth at Disney+ in the third quarter but anticipate sub-growth will return in Q4,” he continued. The company still expects its combined streaming businesses to be profitable in the fourth quarter and plans to build on that in the following fiscal year.
For its second quarter, ended March 30, the entertainment company reported a loss of one cent a share, compared with earnings of 69 cents recorded a year prior. The company recorded a $2.05 billion charge related to its Star India and entertainment linear networks in the latest second quarter.
Adjusted earnings in the quarter were $1.21 a share, better than analysts’ forecasts of $1.10 and up from 93 cents a year earlier. Revenue rose 1% to $22.08 billion but missed the consensus call for $22.12 billion.
For the full year, Disney now forecasts adjusted earnings-per-share growth of 25%, up from a prior call for at least 20%.
The company has plans to start cracking down on password sharing this summer.
Netflix
NFLX
0.98%
, one of the strongest players in streaming, made a similar decision last year. It gained more net new subscribers than expected in its most recent quarter, but management said that it will stop reporting subscriber totals altogether next year.
BofA Securities analysts reiterated their Buy rating and price target of $145 on Disney in a Tuesday report.
“DIS has a collection of best-in-class premiere assets (in content/intellectual property as well as Theme Parks),” BofA wrote. “Near term catalysts include: 1) additional updates on strategic priorities for DIS, 2) an inflection in profitability in [direct-to-consumer].“
Despite Tuesday’s stock decline, shares are still up 16% this year, boosted by CEO Bob Iger’s victory in a proxy fight against Nelson Peltz’s hedge fund Trian Partners last month.