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Why Disney Stock Dropped Today

By Rich Smith – Sep 21, 2021 at 4:58PM

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Disney+ subscriber growth is slowing, and dividends remain a distant hope.

What happened

Shares of entertainment conglomerate The Walt Disney Company (DIS -3.52%) closed down 4.1% in Tuesday trading after the House of Mouse disclosed a disappointing forecast for growth in its Disney+ division.

Speaking at the Goldman Sachs "Communacopia" conference today, Disney CEO Bob Chapek estimated that fiscal fourth quarter paid subscribers to Disney's streaming service will rise by only "low single-digit millions".

Person looks askance at a red stock arrow going down.

Image source: Getty Images.

So what

Chapek went on to explain that Disney exceeded expectations, netting 12.4 million new customers in Q3, but "hit some headwinds" in Q4 (that's this current quarter for Disney), reports Variety magazine. Chapek didn't seem upset about this, however, noting that "our last several quarters" have shown that Disney's performance is "a lot noisier than a straight line" of steadily rising numbers.  

That being said, while Disney's success so far is undeniable, if its growth is starting to peter out at its current level of 116 million subscribers already, this could make it hard for the service to catch up to Amazon Prime and Netflix -- each with more than 200 million subscribers.  

Now what

Indeed, the Q4 slowdown in Disney+ growth also puts into question the company's expressed hope of reaching 230 million to 260 million subscribers by the end of fiscal 2024, a number that would in theory lift it to the No. 1 or No. 2 position in streaming, from its current strong No. 3 position.

Adding to investors' disappointment, Chapek then proceeded to comment that Disney has no immediate plans to reinstate its dividend or resume share buybacks. Citing the lack of a "more normalized operating environment," as well as cashflow and debt constraints, the Disney chief lamented that all of "that's sort of in the distant future," and Disney doesn't contemplate doing either of these things until "this pandemic is in the rearview mirror."

In short, investors had two big reasons to be disappointed with Disney today, and you can see the effect in the stock price.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Netflix, and Walt Disney. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

Stocks Mentioned

Walt Disney Stock Quote
Walt Disney
DIS
$95.93 (-3.52%) $-3.50

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