By Jon Swartz
Netflix Inc. bounced back. Can Walt Disney Co.’s streaming service continue to grow despite a warning from Chief Financial Officer Christine McCarthy in May of increased costs amid macroeconomic hurdles?
Disney /zigman2/quotes/203410047/composite DIS -3.20% , like nearly every tech giant, has navigated choppy economic times that have led others to shave operating expenses and reduce revenue forecasts. Among the most badly bruised was video-streaming rival Netflix /zigman2/quotes/202353025/composite NFLX -1.78% , which has imposed at least two rounds of job cuts impacting about 450 people. Last week, Warner Bros. Discovery Inc. /zigman2/quotes/200511275/composite WBD -1.37% reported a second-quarter loss of $3.42 billion, or $1.50 a share.
“At Disney+, while we still expect higher net adds in the second half of the year versus the first half, it’s worth mentioning that we did have a stronger-than-expected first half of the year,” McCarthy said during the company’s last earnings report in May. “Additionally, note that some of the Eastern European markets we’re launching in toward the end of Q3, including Poland, are in regions being impacted by geopolitical factors.”
Read more: Disney stock turns to a loss after warning about rough road ahead for streaming
Disney, which is scheduled to report fiscal third-quarter earnings Wednesday, reported the addition of 7.9 million Disney+ subscriptions in its fiscal second quarter for a total of 137.7 million subscribers, and more than 205 million total streaming subscribers to services that also include ESPN+ and Hulu. It has targeted 230 million to 260 million total streaming subscribers by fiscal 2024.
“Increased competition, macro headwinds and the loss of streaming rights to the IPL in India could cause Disney to lower this target,” Americas Media analyst Brett Feldman said July 26, in reducing his fiscal 2024 estimate to 223 million from 242 million. He did maintain a third-quarter net-add estimate of 11 million.
The well-documented travails of Netflix and Roku Inc. /zigman2/quotes/205087179/composite ROKU -0.67% , as well as ongoing challenges for Comcast Corp.’s /zigman2/quotes/209472081/composite CMCSA -3.61% Peacock, signal an industry in a “major flux” with consolidation in the near future, contends Rahul Telang, professor of information systems at Carnegie Mellon University.
“Big changes are coming for pricing, the type and amount of content, and the streaming platform itself. Services will become more like a TV channel,” Telang told MarketWatch. “And those who are struggling, like Peacock and perhaps HBO Max, could be acquired or just go away.”
What to expect
Earnings: Analysts surveyed by FactSet on average expect Disney to report third-quarter earnings of 98 cents a share, up from 80 cents a share a year ago.
Contributors to Estimize — a crowdsourcing platform that gathers estimates from Wall Street analysts as well as buy-side analysts, fund managers, company executives, academics and others — are projecting earnings of 98 cents a share on average.
Revenue: Analysts on average expect Disney to report $21 billion in third-quarter revenue, up from $17.02 billion a year ago. Estimize contributors predict $21 billion on average.
Stock movement: Disney’s stock has fallen 32% so far this year while the S&P 500 index /zigman2/quotes/210599714/realtime SPX -1.51% has declined 13%. Shares of Disney are down 5% since the company last announced quarterly results.
What analysts are saying
In a July 26 note, Americas Media analyst Brett Feldman posed the question on analysts’ minds: Will Disney achieve its fiscal 2024 target of 230 million to 260 million streaming subscribers? He thinks Disney will land somewhere at the low end of that range.
But with international and global rollouts of Disney+ on the horizon, as well as a surge in reopened parks, cruises and live sporting events on ESPN, the Magic Kingdom is in a far stronger position than its chief rival.
“Netflix was at the top of the mountain as the [video-streaming] specialist,” but now it is at the disadvantage of competing with diversified rivals like Disney, Jon Christian, executive vice president of digital media supply chain at Qvest.US, the largest media and technology consultancy, told MarketWatch on Monday.