Disney+ subscriber numbers were 'a little spooky,' analyst says

CFRA Analyst Tuna Amobi breaks down Disney's Q4 earnings as the giant faces decelerating numbers in its Disney + streaming subscriptions while theme park revenues have doubled since last year.

Video Transcript

ZACK GUZMAN: Let's dig a little bit deeper into it, though, in what the analysts are saying, as we do see shares under pressure. And for more on that, happy to welcome back into the show CFRA analyst Tuna Amobi with the details on that one. And Tuna, I mean, when we look at it, you know, we've talked about some of these numbers getting pulled forward because of the pandemic. Some of the strength in streaming had been there. But this is a pretty wide miss, so wide that you cut your price target here by 20 bucks. Talk to me about whether or not this is a serious slowdown or just kind of a bump in the road.

TUNA AMOBI: Zack, good morning and great to be on. There's no doubt that the Disney subscriber number was a little spooky, despite the warning from Bob Chapek. I think that number still is a little bit of below our expectations. But as you kind of dig deeper into what happened here, you can see that the delta variant did a number on the supply chain for content, for film and television, and also the displacement of the India Cricket League. That was a factor in the roll-off of some Hotstar subscribers, which are included in the Disney Plus numbers. And also the launch of Star Plus in Latin America was a little bit delayed. All those factors, I think, conspired to see the number-- for the number that we saw.

With that being said, as we kind of look out for the rest of this fiscal year, the company is ratcheting up the content in Disney Plus. They're going to double that by the end of this fiscal year. And they're kind of ratcheting up their spending as well. So if there's anything we've learned from Netflix is the fact that in any given quarter, your subscriber numbers are going to be highly correlated to the content availability. So we did drop our target price to kind of factor in some resetting of expectations, keeping up by recommendation.

And we didn't talk about theme parks, which gets lost in the shuffle. As Emily said, you know, that division, I think, is moving in the right direction, the first quarter of profitability for the theme park since the pandemic started. So there's some positive takeaways as well.

ZACK GUZMAN: Yeah, I mean, cutting it to $200, as I said, a $20 drop there in terms of the 12-month price target. When we look at the parks business, though, and I guess what we heard from Bob Chapek on the earnings call, talking about not wanting to manage this company quarter to quarter, but really sticking to their long-term goals for what Disney Plus could be, a lot of the story at Disney obviously shifted to Disney Plus and the pandemic because parks were closed.

I wonder if what we're seeing today might just be some of that churn and analysts once again kind of shifting back to figuring out how important the parks business is here for the company. I mean, if it benefited to the upside on streaming, I suppose it's going to see, naturally, a hit here as streaming slows.

TUNA AMOBI: I think what's happened is a lot of the price action for the past couple of years, that actually factored in sky high expectations for streaming and perhaps the fact that, you know, the theme parks are going to be hit hard. And they were hit hard. So now the theme parks, for the first time worldwide, opened for the entire quarter, albeit capacity restrictions are still there.

So you kind of see they're toggling expectations there between the streaming, getting, you know, slowdown and then theme parks coming back perhaps on a pace that is not as fast as some people would like, although I would argue that as we kind of look further out, and now that the US government has approved vaccinations for 5 to 11-year-olds, and also the borders are opening up for fully vaccinated international travelers, all of those factors, we think, are going to gradually start to shift expectations back to the contribution of theme parks as they continue to rebound.

So, all in all, you know, I think, you know, our expectations remain intact for the targets the company put out for streaming. And remember, ESPN Plus also had a better than expected net adds for subscribers, about 2.2 million. And then with Hulu as well now being profitable, all of these kind of-- think about Disney as a three-pronged direct-to-consumer strategy, which is very different.

Some people forget compared to Netflix, which has a one size fits all global approach, Disney is kind of tweaking its off frame market by market. They're going to be doubling the number of markets over the next year from about 60 to about 160 they talked about by fiscal 2023. All of that gives us-- bodes well for the international runway that we see that get them to that target that they've laid out.

ZACK GUZMAN: Lastly here, though, just kind of focusing once again on the parks side, to get to that $200 price target, what are the expectations for the bounceback? How quickly does the parks side of the business need to get back in order to justify, I guess, a return or reaching 200 bucks a share?

TUNA AMOBI: Well, that's a great question, Zack. That assumes continued major sequential improvement in attendance, as we saw in the past September quarter with attendance, you know, sequentially improving. The other metric, the in-park guest spending, total guest spend per cap was up 30% over pre-pandemic levels for the just September quarter. So all of those things are going in the right direction.

To your question, we think that the parks, while they're still some ways off the peak attendance level we saw pre-pandemic, every quarter, the next few quarters, it's not inconceivable that by the early fiscal '23, they should begin to see those peak levels again. And you're going to see the profits roaring back. At that point, it's going to become really-- the story is going to start to gradually gravitate to the theme parks. And remember the traditional media business gets lost as well. Advertising and affiliate growth, those things are also coming back. And as we kind of look out the next year or so, you're going to see things start to normalize even better.

ZACK GUZMAN: And we also heard-- add Disney to the list of companies discussing metaverse plans as well. Bob Chapek saying that Disney is ready to go into the metaverse, talking about virtual reality stuff. But we've got enough here to focus in on the short-term, as we saw that subscriber number miss and everything else. Tuna Amobi from CFRA, appreciate you coming on here to break it down. We'll see what happens there, as shares continue to face pressure in the session.