Walt Disney Co (DIS)

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Disney Crushed
By: 24/7 Wall St. | November 9, 2022

Walt Disney Co. (NYSE: DIS) streaming services picked up more subscribers than expected. Financially, it was battered in the process. Overall, Disney results disappointed, leaving investors to ask whether improvements in the streaming business are worth it.

Considering the entertainment company’s problems, The Wall Street Journal reported, “Disney’s streaming segment lost $1.47 billion in the fourth quarter, a loss of more than twice that of the year-earlier period and 38% wider than what analysts polled by FactSet had predicted.” That brings losses since the launch of the service three years ago to $8 billion, the article pointed out.

Disney hopes two moves will improve streaming financials. The first is that it will raise prices. The other is that it will have an advertising-supported service. The trouble with these moves is that Disney may be unable to raise prices and keep subscriber counts high in an extremely competitive sector. The second is that the recession has badly hurt the advertising markets. The earnings at Meta and Alphabet show this.

Disney’s streaming competition includes Netflix, Amazon, HBO and Apple, just to name those backed by corporations with strong balance sheets. Each already has a huge roster of TV shows and movies. Apple is the exception, but it may have the strongest balance sheet of any company in the world. Additionally, Apple has a built-in customer base of billions of iPhones, iPads and Macs. No other company has a hardware and operating system user network that matches that.

Disney’s stock, which already has been punished, dropped another 7% on the poor earnings news. The shares, at $99, sit near the 52-week low. They are down 44% in the past year, a drop much greater than the S&P’s 19% loss.

Finally, the news calls into question whether CEO Bob Chapek was the man the board should have appointed. Virtually every major move he has made has undermined Disney’s prospects.
The streaming business is brutal. Disney has to decide what it is willing to pay to continue some level of growth.

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