Disney Earnings Preview: Disney+ Subscriber Growth Key As Netflix Embraces Ad Service

Disney may again overtake Netflix as the world’s largest streaming service as it builds on sports rights and film content amid activist pressure for change.

Walt Disney  (DIS) – Get The Walt Disney Company Report shares nudged higher in pre-market trading ahead of the media and entertainment group’s fourth quarter earnings after the closing bell, with investors once again focused on growth in its flagship Disney+ streaming service.

Disney, which has been in a back-and-forth battler with Netflix for the title of world’s biggest streaming platform, is expected to post earnings of 54 cents per share for the three months ending in September, a 46% increase from last year, on revenues of $21.247 billion.

Disney+ streaming subs, which hit a record 152.1 billion last quarter, are expected to rise by 8.9 million, down from the 14.4 million added over the three months ending in June.  

Netflix, which overtook Disney as the world’s biggest streaming platform last month, added 2.41 million new subscribers over the three months ending in September, its fiscal third quarter, thanks in part to the success of hits such as ‘Stranger Things’, ‘The Watcher’ and ‘Dahmer – Monster: The Jeffrey Dahmer Story’.

Netflix stock is up around 55% from its early July nadir as investors cheered both its better-than expected third quarter earnings and the launch of its ad-supported streaming service earlier this month. However, the shares are still down some 56.7% for the year.

Disney could unveil a similar revenue-boosting change in today’s earnings call, following reports earlier this fall that it’s mull an ‘Amazon-like” membership program — tentatively known as “Disney Prime” — designed to encourage potential members to spend more on Disney-linked products across its streaming, parks and merchandise categories.

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Disney shares were marked 0.83% higher in pre-market trading to indicate an opening bell price of $101.31 each, a move that still leaves the stock down more than 35% for the year.

Disney shares, which has been under pressure from activist investor Dan Loeb, have held up reasonably well over the past six months, falling around 6% in comparison to a 4.2% decline for the S&P 500 benchmark. 

Loeb eventually backed-down from his call to have the group sell its ESPN sports broadcasting network, but won the addition of industry veteran Carolyn Everson to the company’s board in late September. 

Loeb said in a Tweet sent from his verified account on September 12 that he and his Third Point LLC hedge fund, which manages around $14 billion in assets, have a “better understanding of (ESPN’s) potential as a standalone business and another vertical for (Disney) to reach a global audience to generate ad and subscriber revenues.

The change-of-heart followed comments from Disney CEO Bob Chapek, who told media outlets during a Disney Expo event that ESPN remains “critical” to his overall media strategy despite receiving more than a hundred enquiries from companies and investors looking to buy it. 

Chapek, who has said ESPN can ultimately lever is market-leading position into revenue generation from sports better, is also poised to to purchase the 33% stake in streaming service Hulu owned by Comcast  (CMCSA) – Get Comcast Corporation Class A Common Stock Report sometime next year, another suggestion put forward by Loeb in the late summer.

On theme parks, Chapek told the Goldman Sachs Communacopia + Technology conference in September that he sees “strong” consumer demand for the group’s parks business in the coming year, with a rebound in visitors to international parks already underway after two years of pandemic restrictions.

Revenues for the division are expected to rise more than 38% from last year to a full-year total of $22.9 billion. 

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