Shares of The Walt Disney Company (DIS, Financial) plunged nearly 5% on Wednesday's after-hours session of trade following the release of a mixed bag of results. Undoubtedly, the woes for the House of Mouse continue, with the struggling media company and popular hedge fund holding reporting some underwhelming subscriber growth over at its streaming service Disney+. It's not a pretty situation to be in for CEO Bob Iger as he looks to steer Disney back on the right track after many years of struggles.
With another painful quarter in the books, questions linger as to who will take over after Iger finally does retire for real. Though the Nelson Peltz (Trades, Portfolio) proxy fight is over for now, one has to wonder what will happen if Disney stock fails to deliver over the next 18 months. Arguably, Disney has had more than enough opportunity to prove itself. If the Peltz-Disney battle has another round (which I think is a possibility), it's really hard to tell what the next course will be for a stock that seems stuck at multi-year lows.
Meanwhile, neither DeSantis' bid to limit corporations' rights to free speech in Florida nor the ongoing writer's strike are helping investors gain any sort of enthusiasm. For now, Disney stock looks like a hot potato in my opinion. However, patient investors may have reason to hang in there for a while longer as the company attempts to get Disney+ in the right spot.
Disney+ loses subscribers again, but it's not time to panic
For the latest quarter, Disney+ lost around 4 million subscribers, which was the big headline. It marked the second consecutive quarter of subscriber losses. Macro headwinds and inflation may deserve part of the blame. However, Disney needs to stop the bleeding while getting prices in a sweet spot if it's to pull the brakes on the stock's recent decline.
It's never encouraging to see a company bleeding subscribers, just years after it was touted as a major source of growth. Still, the quarterly subscriber losses at Disney+ should have come as no surprise. Iger hinted he was going after profitability, not subscriber growth moving forward.
With rates on the rise, profitability must be a key focus for companies, especially those in the media and video-streaming space. These industries require quite a bit of content investment. In that regard, Disney has not shied away from spending considerable sums to create a platform to better compete with the likes of the streaming top dogs.
There is no question that streaming is a hard place to be these days with all the competition. That said, the industry is bound to mature, and when it does, we may witness all the players shifting from growth to more of a profitability focus. At this juncture, it's really hard to tell just how many users will end up canceling in the face of price increases.
A streaming platform like Disney+ offers considerable value for the price, at least in my opinion. You're getting a huge content library of all the classics and some of the newer hits. Further, there are the hit television shows that are more than binge-worthy. Still, consumers have spoken with their money. With so many alternative options to choose from, it makes it easy to cancel a subscription.
It's a hard game when there are little to no switching costs. As the economy flirts with a recession, it's hard to say when Disney+ subscriber growth will turn positive again. Once the next economic cycle lands, Disney+ may finally be in a spot where Iger wants it to be. I don't think it's at all far-fetched to view the Disney+ platform as a profitable grower at some point down the road. It will take time, but those with faith in Iger may wish to stick with the stock as it continues its horrific slog.
For now, I believe investors are unfairly punishing Disney for a quarter that wasn't as bad as the after-hours reaction made it out to be.
Disney+ and Hulu: Could that be the magic combo?
Disney is increasing prices on its ad-free tier. However, it's also adding more value for its users to justify such hikes. Reportedly, the company is looking to bring in some content over from Hulu to the Disney+ platform. With Hulu and Disney+ rolled into one, I do think the resulting streaming service could help the company break out of the slump.
Warner Bros. Discovery (WBD, Financial) is another streaming company that's consolidating content. The company is swapping out HBO Max for a streaming platform named just "Max." The new "Max" app is effectively a new and improved version of HBO Max with Discovery+ content. The new app is expected to offer a more personalized experience for its users.
Final thoughts
As streaming business merge their content and the industry matures, I think the consumer experience is bound to improve. Eventually, such moves could bring forth positive changes for the likes of Warner Bros. and Disney that can come out on top. Personally, I find the recent news from Disney encouraging for the long-term, especially the Hulu-Disney+ content merger.
