Shares jumped after the media and entertainment giant reported better-than-expected earnings and subscriber growth.
The company said Wednesday evening that it will raise the prices of its Disney+ streaming service starting in December and introduce a cheaper ad-supported tier.
Disney (ticker: DIS ) reported fiscal third-quarter adjusted earnings of $1.09 a share, compared with analyst expectations of 97 cents a share, according to FactSet. Sales of $21.5 billion were ahead of estimates of $20.99 billion.
Disney+ ended the quarter with 152.1 million subscribers, ahead of the FactSet consensus estimate of 147.69 million. Total ESPN+ subscribers reached 22.8 million while Hulu subscribers reached 46.2 million.
It wasn’t all good news. The company expects to have between 135 million and 165 million core Disney+ subscribers by the end of fiscal 2024, Chief Financial Officer Christine McCarthy said on the company’s earnings call. Disney + Hotstar’s new vision in India is to reach 80 million subscribers by the end of fiscal 2024. A total of 245 million topped both estimates, a reduction from the previous range that topped 260 million.
The ad-supported Disney+ option will be available on Dec. 8 for $7.99 a month, the company said, the current price for the ad-free tier. Such subscribers who don’t want ads will have to fork over $10.99. The price of an ad-free Hulu subscription will increase from $12.99 to $14.99 per month.
Disney stock rose 9.2% in premarket trading on Thursday the morning after the results were released.
“We had an excellent quarter with our world-class creative and business teams delivering outstanding performances at our domestic theme parks, a large increase in live-sports viewership and significant subscriber growth in our streaming services,” CEO Bob Chapek said in earnings. release “With the addition of 14.4 million Disney+ subscribers in the fiscal third quarter, we now have 221 million total subscriptions across our streaming offerings.”
While streaming is the focus, Wall Street is looking at how inflation will affect the theme-park segment. Cost inflation, volume growth and new guest offerings led to higher costs in the Parks, Experiences and Products segment, which reported $7.39 billion in revenue and $2.19 billion in operating profit.
The media and entertainment distribution division reported revenue of $14.11 billion with operating income of $1.38 billion.
The report is welcome news for Disney investors, as the stock has fallen 27% in 2022, compared with a 12% decline for the S&P 500 index. Disney stock gave up gains made during the pandemic as Wall Street began to focus on profits rather than subscriber growth. Concerns that the company may struggle to meet forecasts that Disney+’s subscriber base will expand to between 230 million and 260 million accounts by the end of fiscal 2024 weighed on the stock.
RBC Capital Markets analyst Kutgun Maral rates Disney stock at Outperform but cut his price target to $150 from $176 ahead of the earnings release on Wednesday, saying the streaming and growth stocks’ lower valuations relative to earnings could affect what investors are willing to pay for Disney’s own direct payout. -Media operations for clients.
“Disney remains one of our top picks across our range, as the Street appreciates the re-rating we see going forward as a good DTC growth opportunity and durable strength in the parks,” Maral wrote.
Maral warned that if Disney cuts its streaming targets, it could hurt the stock.
“Hence, the medium to long-term opportunity remains too compelling for us to ignore, as stocks may be volatile in the very near term,” he wrote.
Maral believed that the parks business would show continued momentum, indicating positive signs
(CMCSA), reported strong growth in its own theme-park segment in the second quarter.
“While clearly not immune to macro challenges, we believe recent investments and improvements in capacity across technology, guest management and monetization, and cost structure efficiencies have positioned the parks as they face a potential recession,” Maral wrote. .
Write to Connor Smith at [email protected]