Disney+ forecasts slip amid Q4 subscriber warning

Industry analysts tipped their subscriber forecasts for Disney+ downward after CEO Bob Chapek warned that the premium streaming service will miss subscriber estimates for the company's fiscal fourth quarter of 2021.

Disney+'s growth "has hit some headwinds" linked to the COVID-19 pandemic, Chapek said Tuesday at the Goldman Sachs Communacopia Conference. Disney now expects to add "low single-digit millions" of streaming subs in the company's fiscal Q4.

Disney+ and other premium streaming services rely on a fresh slate of content to drive usage, engagement and to keep churn in check. Production slowdowns caused by the pandemic and the current wave of the Delta variant of the virus will cause Disney's slate of new content to come in a little light, and are partly to blame for the expected Q4 subscriber miss, the exec said.

"The resurgence of COVID and Delta did impact some of our productions," he said, anticipating that delays will be "very short term."

Also factoring in to the revised guidance is elevated churn for the Disney+ Hotstar service in India as existing customers reach the end of subscriptions that are not paired with auto-renewals.

Disney shares dropped about 4% on Tuesday, but gained some ground back today – shares were up 1.5% in mid-afternoon trading Wednesday.

Launched in November 2019, Disney+ ended fiscal Q3 with 116 million subscribers worldwide.

Heading into this week's conference MoffettNathanson analyst Michael Nathanson expected Disney+ to tack on another 8 million subs in fiscal Q4, comprised of 500,000 domestic subs, 2.5 million international net adds and 5 million subs for Disney+ Hotstar in India, Malaysia and Thailand. His assumption is that Chapek's warning equates to a difference of about 2 million net subscriber additions.

Evercore ISI analyst Vijay Jayant noted that the new guidance comes in below his fiscal Q4 estimate of 9.2 million adds for Disney+, and consensus estimates of 11.3 million.

Though the updated guidance "is not even a rounding error" for Disney's revenue forecast, it matters because Disney's share price gains from the start of the pandemic until now have been linked to a "massive re-rating" of The Mouse's direct-to-consumer (DTC) assets, with Disney+ at the top of that list, Nathanson explained.

And it's also due in part to how Disney has positioned its still-evolving streaming business. DTC is Disney's "top priority," Chapek declared on Disney's Q3 call in August.

Looking ahead, Nathanson notes that, post-2021, Disney+ will need to add 80 million more subs over the next three years to reach guidance for fiscal year 2024 of between 230 million to 260 million subs.

"The company has done an admirable job in building and launching a service from the ground up into a +$5 billion business in less than two years," Nathanson added. "However, we feel that the service, while widely known, lacks the breadth of content to penetrate homes that aren't either fans of Marvel and Star Wars content and/or comprised of young children. Thus, the TAM [total addressable market] of the product that we see today is a subset of Netflix's TAM unless the company meaningfully invests in content verticals that broaden out the audience."

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— Jeff Baumgartner, Senior Editor, Light Reading

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