Disney (DIS)’s stock fell for a second consecutive day as investors expressed concern that the entertainment company would face additional roadblocks as it lost subscribers, but saw gains of more people visiting its theme parks.
The stock dipped by nearly 9 percent yesterday (May 11) after the entertainment company said they lost four million subscribers, partly due to losing the right to stream the cricket games of Indian Premier League on its Star India television network. The 8.7 percent drop in the stock price was the largest one since the stock declined by 13 percent on Nov. 9.
The decline on Friday was smaller and the stock fell by only 0.68 percent at 1:49 p.m. ET. But shares of Disney have fallen by 12.2 percent during the past year as competition heats up among streaming companies who are all vying for the same customers while income from its traditional segment has slumped.
The decline in subscribers marks the second consecutive quarter, but the company was able to limit its losses in the streaming division by $400 million, which is a decline of 26 percent year over year.
Disney will pay $3 billion to broadcast the cricket games, but lost out on the rights to stream the games to a competitor, Viacom18, which is a joint venture between Paramount (PARA) Global (PARA) and Reliance Industries, owned by Mukesh Ambani, an Indian billionaire. Disney offers the games through its Disney+ Hotstar division, which is provided to customers in India and parts of Southeast Asia.
Disney also lost subscribers living in the U.S. and Canada—300,000 viewers canceled their subscriptions—but it did gain almost 1 million in international markets excluding Disney+ Hotstar.
The company also owns the streaming service Hulu, which attracted 200,000 subscribers and ESPN+ saw a gain of 400,000.
Disney was able to make up the difference by increasing prices, reporting an increase in sales and profit margin during the second quarter that matched Wall Street’s predictions as revenue during the second quarter rose by 13 percent.
CEO Bob Iger said during its earnings call that the company plans to add Hulu’s tv shows and movies to Disney + later in 2023 so that Disney can offer a “one-app experience.” But the company plans to keep ESPN+ as a standalone streaming company.
Disney currently owns two-thirds of Hulu while cable company Comcast owns the remaining third. Disney executives said they have started conversations with Comcast about its stake.
UBS analysts said Disney’s plan to combine the two platforms sets aside any doubts that Disney will seek to have 100 percent ownership of Hulu.
The company expects to add more subscribers by the fourth quarter, said CFO Christine McCarthy during its conference call.
“While the softness we saw in Q2 domestic Disney+ net ads may linger into Q3, we do expect core sub growth to rebound in Q4,” she told investors. “There are still many moving pieces, including macroeconomic factors, the state of the global advertising market, and content timing shifts, which could impact our plans and expectations for the back half of this year.”
Matthew Thornton, an analyst at Truist, said consumers cared about the higher costs for domestic Disney+ prices. Less marketing also impacted the number of subscribers.
But Iger said Disney’s customers were comfortable with the increase in price for the Disney+ version that is not financed by advertising and said the impact was “de minimis.”
“That leads us to believe that we, in fact, have pricing elasticity,” he said.
Disney, which reported revenue at its parks rose by 17 percent, said it expects visits to its theme parks will drop during the second half of 2023 since last year consumers flocked to their parks because Walt Disney World celebrated its 50th anniversary.
“This comparison, coupled with inflationary cost pressures, including from a new union agreement, is expected to drive a modest adverse impact to domestic parks and experiences operating margins in the third quarter compared to the prior year,” McCarthy said. Operating margins for domestic parks and experiences should be higher than a year earlier, she added, because of ongoing strength in international parks.
