Disney shares fall 8% on surprise drop in streaming subscribers

Decline set to erase about €13.7bn from company's market value after at least 10 analysts lowered price targets on the stock

Thu, 11 May, 2023 - 18:30

Aditya Soni

Shares in Walt Disney fell more than 8% as a surprise drop in streaming subscribers fanned worries that the media and entertainment company's success in stemming losses at the business may be coming at the cost of growth.

The decline was set to erase about $15bn (€13.7bn) from the market value of the company after at least 10 analysts lowered their price targets on the stock. Shares of rivals Warner Bros Discovery and Paramount Global fell over 2%.

"Disney+ is losing less money not because it's gaining subscribers but because of its price hikes and better cost management," said Mike Proulx, an analyst at Forrester. "Cutting marketing dollars is at odds with growing subscribers," he said.

Operating losses at the streaming unit narrowed by $400m in the second quarter from the previous three months, helped by a price hike last December in the US and Canada.

The company plans to raise the price of the ad-free Disney+ service again this year and it will also remove certain low-viewership content from its services to lower costs.

Lost subscribers

"Some investors might question this tactic given Disney just lost subscribers," said Brandon Nispel, analyst at KeyBanc Capital Markets.

However, it seems the goal is to drive more subscribers toward Disney's ad-supported tier, which the company believes could improve monetisation, he said.

In the second quarter, the Disney+ service shed about 4m subscribers, compared with estimates for net additions of 1.3m, according to Visible Alpha.

"Many investors will focus on the lack of direct-to-consumer subscriber growth," veteran media analyst Michael Nathanson said.

"[But] investors would be better off with a smaller total addressable market of higher paying customers. This is a more logical, albeit less sexy, path," he said.