While pure-play over-the-top (OTT) companies like Netflix (NFLX) have done well in Q3, The Walt Disney Company’s (DIS) direct-to-consumer service, Disney+ seems to be lagging behind.
During fiscal Q4, while Disney+ paid subscribers ballooned 60% year-over-year to 118.1 million, average monthly revenue per paid subscriber fell 9% year-over-year to $4.12. (See Analysts’ Top Stocks on TipRanks)
The decline in average monthly revenues at Disney+ was a result of higher Disney+hotstar subscribers in this quarter (fiscal Q4) as compared to the same period last year. According to Disney, Disney+hotstar “average monthly revenue per paid subscriber is significantly lower than the average monthly revenue per paid subscriber for Disney+ in other markets.”
The lower average monthly revenues and higher programming and production costs at Disney+ also weighed upon Disney’s Direct-to-Consumer segment. Operating loss for this segment widened from $0.4 billion to $0.6 billion in fiscal Q4, even as revenues grew 38% year-over-year to $4.6 billion.
However, this loss notwithstanding, Rosenblatt Securities analyst Mark Zgutowicz brushed aside Disney+ troubles as a near-term pain and remained upbeat with a Buy rating and a price target of $220 (35.7% upside) on the stock.
Indeed, Christine McCarthy, Disney’s senior EVP, and CFO commented that while the company did not anticipate that “that sub growth will necessarily be linear from quarter to quarter,” the company does expect that Disney+ subscriber net additions will be “meaningfully higher” in the second half of FY22 than the first half of the year.
Moreover, McCarthy added. “Additionally, we now expect that Disney+ will reach its peak year of losses in fiscal 2022 instead of in fiscal 2021 as better-than-expected revenue and lower content expenses due to production delays contributed to lower-than-expected losses in 2021.”
To support the growth of Disney+ with an emphasis on local and original content, Disney intends to ramp up its content expense from an earlier announced range of $8 billion to $9 billion. In addition, the company also intends to expand Disney+ service in more countries.
According to analyst Zgutowicz, the expansion of Disney+ could nearly double to 160 countries by FY23. Moreover, the analyst pointed out, “Despite the NT [near term] subs deceleration, hurt by the large Hotstar cohort expiration this past quarter, Disney+ has steadily achieved gains against Netflix through and out of the pandemic.”
Indeed, Disney still expects to be on track to achieve subscribers between 230 million to 260 million by FY24.
Taking a look at the unique visitors to the disneyplus.com website using the TipRanks’ Website Traffic data provided by SEMRush Holdings (SEMR), there is a divergence between the unique visitors to the site and the stock price.
While unique visitors to the disneyplus website have plunged by 70.7% from 288.7 million in fiscal Q4 to 84.8 million in fiscal Q1 so far, the share price has dropped by only 7.9% in this same period. This data gives rise to the possibility that Disney+ subscriber net additions could be slowing down in fiscal Q1 so far.
Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article.
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