Disney initially appeared to impress in its recent fiscal second-quarter earnings report. Surpassing profit expectations, slightly undershooting revenue targets, and boosting full-year earnings growth guidance signaled a positive trajectory. Investors were further encouraged by the announcement that the streaming division could cross the profitability threshold as early as the fiscal fourth quarter.
Yet, Wall Street’s reaction told a different story. Disney’s stock plummeted by up to 11% post-earnings, marking its sharpest one-day decline in over a year and a half. The culprit? A less-than-stellar outlook for streaming growth.
Disney+, despite adding a respectable 6.3 million subscribers, missed Wall Street’s estimates by roughly 2 million for total streaming subscribers. Moreover, the company’s CFO hinted at stagnation in the current quarter. This underwhelming forecast starkly contrasts with the lofty expectations Wall Street places on Disney’s streaming division, which spans Disney+, Hulu, ESPN, and India’s Hotstar.
Much of Disney’s future valuation hinges on whether its streaming success can mirror that of Netflix. However, to achieve this, Disney must demonstrate flawless, Netflix-caliber performance to offset concerns about its declining traditional TV business. Right now, that trajectory seems elusive – at least for investors craving rapid results.
One of our analysts points out that while Disney’s streaming strategy is headed in the right direction, the path to consistent profits promises to be turbulent. This aligns with Disney CFO Hugh Johnston’s acknowledgement that streaming profitability won’t follow a “linear” course. Further clouding the outlook is Disney’s disclosure of anticipated streaming losses in the fiscal third quarter, stemming from seasonal slowdown in Disney+ additions and costs associated with Indian cricket rights.
Despite this setback, a sense of optimism persists on Wall Street, with many analysts championing Disney’s transformation into a streaming powerhouse. As one analyst noted, Disney’s recent profitability milestone in streaming sets the stage for a significant earnings boost. Ultimately, investors will need to decide if they’re willing to be patient as Disney charts its course in this evolving sector.
