Disney posts Q2 revenue miss as Disney+ subscribers fall short

Yahoo Finance’s Brian Sozzi, Julie Hyman, and Myles Udland break down Disney’s latest earnings report.

Video transcript

JULIE HYMAN: Let's start with what's going on on the earnings front because we have a lot to talk about.

Let's start with Disney where subscriber growth actually disappointed, surprising investors. You did have earnings per share beating estimates, revenue missing by a little bit.

But just like we have seen the most important numbers for many of the streaming services like Netflix, be the subscribers, that's really where the focus was this quarter for Disney.

Disney Plus adding 8.7 million subscribers. That means a total of 103.6 million. 109 million, or you see here 110 million, was the estimate. Any way you slice it, it was below what had been estimated.

This as we saw in the other parts of the business, sort of uneven, products relatively strong. Of course, the parks still showing year over year declines.

You see there the media and entertainment numbers, a little bit light of estimated. And then operating, looks like that's actually operating revenue, perhaps, for the parks and experiences.

So when you sort of take it all together, and you look at how Disney is reacting here this morning, because Disney has sort of staked its future on the streaming, and yes, of course, when parks come back that should provide some upside. But the shares are trading lower by 4%

So Myles, as we think about Disney, I guess this is sort of the blessing and the curse, right, of making your business really focused on the streaming part?

MYLES UDLAND: Yeah I think the thing with Disney is, you've got to look at the stock over the last year. This stock tanked during the beginning period of COVID because there was so much uncertainty around what the theater business was going to be, obviously the parks business, and obvious COVID impact.

Remember ESPN also hurt, where basically no sports for two straight months. And then it got back to a record high.

So Disney is trading at a record high, again kind of the market suggesting that the absolute best days for Disney's empire are ahead of it.

And as you mentioned, a lot of that is levered to what is or is not going to happen with the Disney Plus bundle.

Now they reiterated on the call a number of times, 2024 is when they expect to see that part of its business no longer be a loss-maker. So they didn't pull that forward at all.

But I think in an environment where Netflix clearly showed you that there has been a lot of pull forward on people changing their consumption habits during the pandemic, Disney, it seemed the street believed, would be largely immune to that.

But if you start to look at Disney Plus ads over time obviously one they had to pull forward during the pandemic.

Another thing, Sozzi, they mentioned on the call, which I thought was very interesting, I think this was a comment from Bob Chapek, that the biggest success they've had in getting new Disney Plus members is when they're bundling the service with something else.

So maybe it is ESPN Plus with Hulu. Maybe it is Disney Plus, we've seen it with what Verizon did with Fios I think that was back at the launch. That program's over now, but for a little while Verizon was subsidizing a year of Disney Plus for its members.

And I thought that was a real interesting way to frame it. They're talking about doubling their subscriber base over the next three years and thinking of bundles to do it. But the whole meme, right, is that this is the great unbundling.

So I think a really interesting quarter for, does this change how anyone was thinking about what Disney Plus is going forward?

BRIAN SOZZI: Right on, Myles. That is indeed a red flag to toss onto the field as it pertains to Disney Plus. You know, worth noting here, Disney Plus added 8.7 million new subscribers, as Julie mentioned. That is the slowest amount of additions since the service launch.

You have to wonder one, is competitive forces-- you name it whether it's a Viacom or New HBO Max, or those are starting to chip away at some of those Disney Plus momentum.

Number two, let's keep in mind Disney Plus just implemented a price increase. I would say some of the popularity of Disney Plus early on is because it was so darn cheap.

Well now they're starting to hike up prices to ultimately reach their longer-term growth targets in terms of profits.

One more juicy nugget from the earnings call, guys here. 45 day window in terms of exclusivity on two movies later this year, "Free Guy" and Marvel's "Shang-Chi." Now the exclusivity period is usually 90 days.

And I am shocked, I'm shocked to see AMC shares up 5% here in the free market because I thought the stock would have been hammered when you hear Disney saying we're going to put out movies for 45 days in theaters. But we're then going to quickly put them on our streaming devices. That is a major change to their model.

JULIE HYMAN: Right. And a lot of their movies they are still keeping direct to stream as well, or at least simultaneous release. They're still doing some of their movies.

One final quick note on that pricing that you mentioned. The company itself, Brian, did say it didn't result in significant user cancellations.

But we also don't know if it prevented new people from signing up, right? If they're looking at the suite of streaming services out there and making choices, how did that price increase sort of factor in?