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Disney's stock jumps 6% after huge subscriber and earnings beat

·Senior Reporter
·5 min read

Disney (DIS) reported its fiscal third quarter earnings on Wednesday after the bell as the company works to provide more clarity on its direct-to-consumer strategy while also battling macroeconomic headwinds.

Disney shares climbed higher on the heels of the report, up about 6% in after-hours trading.

Here are Disney's third quarter results compared to Wall Street's consensus estimates, as compiled by Bloomberg:

  • Revenue: $21.5 billion versus $21 billion expected

  • Adj. earnings per share (EPS): $1.09 versus $0.96 expected

  • Disney+ subscriber net additions: 14.4 million versus 10 million expected

  • Parks, experience and consumer products revenue: $7.39 billion versus $6.65 billion expected

Disney's parks, experience and consumer products segment continued to thrive amid a surge in spring travel, particularly among international travelers. Operating income for the segment hit $2.19 billion, representing a year-over-year increase of well over 100%.

Still, analysts have cautioned that a worsening economy could spell trouble for the parks business in the quarters to come. Investors will want more clarity on how Disney's management team plans to keep up that momentum, especially in the face of macroeconomic challenges like inflation.

Similarly, Disney+ subscriber numbers blew past expectations, thanks to new market launches and a robust slate of content that includes the recently debuted "Obi-Wan Kenobi."

However, Disney did lower its 2024 subscriber guidance. The media giant now sees 215 million to 245 million subscribers by 2024 — down from the prior 230 million to 260 million. The company anticipates 135 million to 165 million 'core' Disney+ subs with its Indian brand Disney+ Hotstar's subscriber forecast set at 80 million.

The guidance slash comes amid slowing subscriber trends in addition to the loss of its streaming rights for the Indian Premium League, which could cause a dip in Hotstar subscribers.

Hotstar makes up about 36% of the total Disney+ user base. As of the period ending July 2, 2022, Disney+ Hotstar members totaled 58.4 million (up from the second quarter's 50.1 million.)

Disney unveils streaming price hikes

Disney revealed that it will be raising the price of its current Disney+ ad-free streaming plan by 38% to $10.99 a month (a $3 increase from the current $7.99 a month.)

Meanwhile, the company's upcoming ad-supported tier is expected to launch in the U.S. on December 8 and will cost, well, the same as Disney+'s current ad-free plan ($7.99 a month.)

The price of Hulu's ad-free service will rise by $2 a month to $14.99 beginning October 10th. Hulu with ads will go up by $1 to $7.99 a month.

Disney's CFO Christine McCarthy noted that Disney+ will have a lower ad frequency than Hulu.

The price hikes underscore Disney's commitment to offset high content costs for the sake of profitability.

Disney+, Hulu and ESPN+ lost a combined $1.1 billion in the third quarter, although the company maintained its goal of reaching streaming profitability by 2024.

McCarthy added that she expects peak Disney+ losses by this year.

Future of ESPN+, Hulu?

Although Disney CEO Bob Chapek revealed that the company is "still bullish on sports" and is working hard to announce something on sports betting, questions surrounding the future of ESPN+ still linger.

"When does Disney go all out with ESPN+? When does it take some of those marquee pieces of content and place them onto ESPN+?" Geetha Ranganathan, Bloomberg Intelligence senior media analyst, posed to Yahoo Finance, citing the platform's recent 40% price hike.

"Disney indicated that they are ready to do it when the time is right, so the biggest question out there is just timing. When are they going to pull that plug?" she continued.

Another headache? Disney's ESPN network is reportedly expected to lose its TV rights to broadcast the Big Ten League — a seismic shift in the media landscape since ESPN first landed a deal with the Big Ten in 1982.

Looking ahead, investors will want to see a clear plan that extends beyond the company's declining legacy business as advertising and cable network revenues slow while more consumers cut the cord.

Walt Disney Company CEO Bob Chapek gestures as he speaks at the Boston College Chief Executives Club luncheon in Boston, Massachusetts, U.S., November 15, 2021. REUTERS/Katherine Taylor
Walt Disney Company CEO Bob Chapek gestures as he speaks at the Boston College Chief Executives Club luncheon in Boston, Massachusetts, U.S., November 15, 2021. REUTERS/Katherine Taylor

Lightshed Partners' Rich Greenfield added that Chapek will have to step up, too, and convince investors that the company's vision is still viable.

"I think everyone who owns or looks at Disney is now focused on, 'Who is Bob Chapek?' 'What's the plan?'" the analyst said, noting that the executive's new three-year contract extension is reason enough for investors to question the long-term growth strategy of the media giant.

In addition to ESPN+, Greenfield also called out the future of Hulu and whether or not Disney will buy out the 33% ownership stake that Comcast still holds.

"Obviously the future is not broadcast TV and cable networks, so I think we're really trying to get a sense of what does the future of The Walt Disney Company look like? What's his strategy?" he continued.

Disney's stock has fallen more than 30% year-to-date.

Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com

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