After Earnings Report, Disney Stock Slips On Streaming Uncertainty And Ad Weaknesses

TV & Film

May 12

Having reported its earnings for the first quarter of 2023, Disney’s stock shares have seen a decrease of up to 9%, resting at $92.86/share from its 52-week high of $126.48/share. The uncertainty of its streaming business and weak advertising outlook have been cited by analysts as reasons for that drop.

Benjamin Swinburne, an analyst for Morgan Stanley, notes that Disney is “in the early stages of restructuring its Media business, taking significant cost out and revisiting its content monetization strategy.” The overall quarterly results were modestly ahead of the firm’s expectations, though “our full year estimates will need to be revised lower – primarily due to the weak ad environment.”

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Tim Nollen, an analyst for Macquarie, called the situation a mixed one, with Disney “making headway in its cost-saving and operating-efficiency efforts amid a deteriorating linear TV business, both structurally and cyclically; DTC subs fell for the second straight quarter, but ARPU rose and operating losses narrowed nicely; Parks were robust again.” Nollen also noted that though Disney is tracking well to meet its $5.5 billion cost-savings target over the next several years, its plan to start removing content from Disney+ as part of those measures will see it hit with an impairment charge of between $1.5-$1.8 billion.

Along with the removal of content from Disney+, it is expected that the price of the ad-free tier of the service would increase before the end of the year. There are also plans in place to unite Disney+ and Hulu under a one-app experience, further enforcing Disney’s plans to keep hold of Hulu and even likely acquire it outright from Comcast.

Michael Nathanson, a senior analyst for MoffettNathanson, said that “it would be unwise for Disney to start talking up 2025 streaming profitability ahead of that closure,” and that “any commentary about cost savings and revenue synergies that would arise from uniting Hulu and Disney+ globally would have to wait until this tug of war is resolved.” However, Nathanson noted that “the long-term profit picture should be brighter than the market knows and thus we think the stock is undervalued.”

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