Shares of the Walt Disney Company dropped nearly 9% Thursday after the entertainment giant reported ongoing subscriber losses, even as average revenue per user surged in its fiscal second quarter.
It also announced plans to remove “certain content” from its streaming platforms as a cost-cutting effort, and said it would be producing “lower volumes of content.”
Disney stock fell $8.83, or 8.7%, to $92.31, with nearly three times the number of shares traded in the first hour as in a typical full-day session. It saw by far the largest decline of the 30 stocks in the Dow Jones Industrial Average amid a broad market slump that saw the index fall 1.1%.
Disney stock hit an annual low $84.07 in December, and ended Wednesday’s session up 13.7% since the start of the year.
After the markets closed Wednesday, the House of Mouse reported net income of $1.27 billion and adjusted earnings per share of 93 cents, topping Wall Street’s expectations for 89 cents per share. Revenue for the quarter rose 13% year over year to $21.82 billion.
While the company said its average monthly revenue per user leaped 20% in the first three months of 2023, thanks to its move to raise prices in December, it also announced that shed 4 million subscribers, a 4% drop during the period. While lower marketing costs and the ARPU increase helped narrow Disney’s streaming losses, the subscriber figure fell well short of the 162.5 million Wall Street analysts had forecast.
Deutsche Bank analyst Bryan Kraft lowered the firm’s price target on Disney to $131 from $135, keeping a “Buy” rating on the shares, according to TheFly.com. The analyst also lowered his 2023 and 2024 estimates, but in a note to clients said he views the stock selloff as a buying opportunity.
“While near-term return to operating income growth has been pushed out slightly, longer term Disney will benefit from cost cutting, direct-to-consumer pricing and streaming ad growth,” the analyst wrote.
Loop Capital analyst Alan Gould also lowered his firm’s price target, to $125 from $130, but likewise kept a “Buy” rating on the stock. Gould said in a note to clients, however, that Disney’s $700 million direct-to-consumer losses were $200 million better than he expected. He remained positive on the stock as a long-term investment, pointing to CEO Bob Iger as “able to position the company to a profitable streaming future.”
Morningstar analyst Neil Macker characterized the quarter’s results as “disappointing,” pointing to the decline in Disney+ subscribers and “very modest gains” in Hulu subscribers.
“While the direct-to-consumer segment appears on the way to profitability by the end of fiscal 2024, we think Disney needs to expand the DTC customer base and drive stronger top line growth to replace declining linear networks revenue,” Macker wrote. He cut his price target on the stock to $145 from $155.
Disney also on Monday expanded its lawsuit against Florida Gov. Ron DeSantis, accusing the Republican of “retaliation” against the company by signing legislation to void Disney’s development deals in Orlando.