Disney+ beats subscriber expectations, but that growth comes at a cost

New York
CNN Business

Disney’s fourth-quarter earnings were good and bad news for the company.

The good news: The company added 12.1 million new Disney+ subscribers for a global total of 164.2 million, beating Wall Street’s expectations.

The bad: Disney missed forecasts on other business fronts, including revenue. What’s more, its streaming business is expensive. It lost $1.5 billion in the quarter, compared with a loss of $630 million in the fourth quarter of last year.

Revenue for the quarter was $20.1 billion, up 9% from last year. Analysts, however, expected more than $21 billion. Profits were $162 million, up 1% from last year.

As a result, Disney shares fell about 10% in after-hours trading.

In a letter to investors Tuesday, Disney CEO Bob Chapek said: “Disney+’s rapid growth in just three short years after launch is a direct result of our strategic decision to Investing heavily in creating incredible content and launching the service internationally.” “We look forward to our [direct to consumer] Operating losses will narrow in the future. ”

Chapek added that the streaming segment will still be “profitable in fiscal 2024.” However, he offered an important caveat to the pledge, saying “assuming we don’t see a meaningful shift in the economic environment”.

“By realigning our costs and realizing the benefits of price increases and the launch of Disney+’s ad-supported tier on December 8, we believe we are on a path to a profitable streaming business that will drive continued growth and increase in Create value for shareholders for a long time to come,” he said.

Disney’s earnings are at an inflection point in how investors measure success in the streaming world.

For years, Wall Street has focused on the growth rate and scale of streaming services. That’s changed this year, as services like Netflix have come under more scrutiny when it comes to profitability.

Disney appears to be under the same microscope.

Growth in its streaming segment was solid during the quarter, and the company has more than 235 million total subscribers across Disney+, Hulu and ESPN+. Even so, its shares fell on Tuesday night due to the extent of those losses.

Ultimately, the costs associated with Disney’s streaming business were the reason the company decided to raise prices earlier this year. It also introduced a new ad-supported subscription tier to offset those losses.

The company announced in August that the Disney+ premium package with no ads would go up by $3 a month to $10.99. This is the biggest price increase for the platform since its debut in November 2019.

Its new advertising program will debut in the US on December 8, and will cost $7.99 per month. That price point is what consumers would pay for Disney+ without advertising.

Elsewhere in Disney’s media kingdom, the company’s parks, experiences and products division reported revenue of $7.4 billion, up 36 percent from last year.

That’s impressive considering the coronavirus restrictions have hit Shanghai Disneyland and Florida’s Disney World, which were briefly shut down by Hurricane Ian in September.

When it comes to movies, Disney has a lot to look forward to when it comes to the box office. Marvel’s “Black Panther: Wakanda Forever” and “Avatar: Way of the Water” may be two of the biggest blockbusters of the year, set to hit theaters over the next two months.

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