Revenue preview: Is Disney+ ready to wake up like Netflix?

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Is The Walt Disney Co. headed for a lack of subscribers, like its biggest streaming rival?

Disney DIS,
-3.00%
ferociously ate rival Netflix Inc.’s NFLX,
-4.35%
subscriber base since the launch of Disney+ in November 2019, climbing to 129.8 million subscribers. That’s more than half of Netflix’s total of 219.6 million, which fell by 200,000 subscribers in the first quarter, sending Netflix shares plummeting and raising questions about the streaming service environment.

Analysts think something similar, albeit to a lesser extent, could happen for Disney.

“The March quarter is expected to be light on Disney+ net additions due to limited new content + market launches,” Wells Fargo analyst Steven Cahall said in a note last week. He expects 3.5 million net additions, while analysts are forecasting an average of 5.27 million, according to FactSet.

A perfect storm of factors — inflation, an explosion in streaming services, the war in Ukraine, and subscriber fatigue among them — have conspired to muzzle streaming subscriptions as belt-tightening consumers shift from one service to another, according to Deloitte. [Some 89 million streaming subscriptions were added in the U.S. in 2021, and another 77 million are forecast in 2022, according to the Convergence Research Group.]

Disney emerged best positioned among the major players, which also include Apple Inc. AAPL,
-3.32%,
Warner Bros. Discovery Inc.WBD,
-3.66%
and Amazon.com Inc. AMZN,
-5.21%,
because of its content (Pixar, Marvel, “Star Wars”) and its enduring appeal to young viewers and parents, according to Tricia Biggio, chief executive of entertainment technology company Invisible Universe.

“Netflix established the market, yes, but it was Disney who came late to the party and is now party,” Biggio told MarketWatch. “In an industry increasingly dependent on content and [intellectual property] when consumers are more discerning with their money, Disney clearly has the upper hand.

Disney’s other advantages over Netflix include a robust sports menu with ESPN+, as part of its streaming offering with Hulu, and plans for an ad-supported version of Disney+ in the US later. This year.

Conversely, Disney spends $11 billion on streaming content, a significant portion of its overall $26 billion budget for TV and film production. Netflix is ​​spending $18 billion on content this year.

Streaming is just one part of a media empire whose portfolio includes amusement parks, hotels, cruise lines and consumer products.

FactSet analysts expect healthy sequential declines in revenue from Disney Media and Entertainment Distribution ($13.75 billion) and Disney Parks, Experiences and Products ($6.3 billion). Both segments will likely be the weakest quarters of the fiscal year for the Magic Kingdom.

Somewhere in the middle is beleaguered general manager Bob Chapek, who had a falling out with his predecessor Bob Iger before a series of controversies further undermined his leadership. A belated response to Florida’s so-called ‘Don’t Say Gay’ bill, an escalating dispute with Florida Governor Ron DeSantis, a messy corporate restructuring — plus a lawsuit since settled by the ” Black Widow” Scarlett Johansson – have all added to many headaches for Chapek, whose contract expires in February 2023.

What to expect

Earnings: Analysts polled by FactSet on average expect Disney to report second-quarter earnings of $1.19 a share, up from 50 cents previously. a share a year ago. At the end of January, analysts had predicted $1.25 per share.

Contributors to Estimize — a crowdsourcing platform that collects estimates from Wall Street analysts as well as buy-side analysts, fund managers, business executives, academics and others — predict earnings of $1.19 per share on average.

Revenue: Analysts on average expect Disney to post revenue of $20.05 billion in the second quarter, up from $15.6 billion a year ago. Estimate contributors predict $20.05 billion on average.

Movement of stock: As of Monday’s close of trading, Disney stock has fallen 31% so far this year, while the S&P 500 SPX index,
-3.20%
is down 16%. Disney shares are down 27% since the company’s last quarterly earnings announcement.

What analysts say

Analysts are generally concerned about streaming but divided on park activity, as talk of inflation and a possible recession picks up.

“Disney’s stock price seems to be dropping every day as fears mount over the two [direct-to-consumer] and recession for Parks,” Steven Cahall of Wells Fargo said in a note on April 27. “We think the sentiment on the two is overdone. Although recession fears may prove more temporary – and we expect strong results from Parks – DTC is a real Show Me story.

Morgan Stanley’s Benjamin Swinburne is bullish on a rise in the parks segment and reiterated an overweight rating on Disney shares with a price target of $170 in a note last month. However, streaming remains a “demonstration story,” he warned.

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