Walt Disney (DIS 3.49%) will report fourth-quarter and fiscal 2021 earnings on Nov. 10. The company's streaming services will take center stage -- namely, Disney+, which was launched in November 2019 and has grown to reach 116 million subscribers as of this summer's July 3.
More than any other catalyst, Disney's stock is likely to respond to Disney+'s growth or lack thereof. Management has set a long-term goal for the service of over 200 million subscribers, and investors are worried that the target may be in jeopardy of being lowered after CEO Bob Chapek delivered a warning late in September. All the more reason folks will be focused on Disney's streaming services when the company reports earnings.
Disney CEO signals choppy trajectory for Disney+
During that warning delivered late in September, Chapek told investors to look for Disney+ to add subscribers in the low-single-digit millions when it next updates figures on Nov. 10. Three headwinds are getting in the way of faster growth: a less-than-stellar launch in Latin America, a slowdown in content production caused by the rise of the Delta variant of COVID-19, and upcoming renewals for a large cohort of members that joined last year.
If the company delivers the estimate the CEO has forecast for the quarter, it would be the slowest growth since the service launched. That slowdown has some investors concerned that the company may need to revisit its 2024 target subscriber figure for Disney+ of 245 million at the midpoint. Still, Chapek reiterated his confidence in the target and elaborated on the trajectory:
I think people looked at our projections last December and said, "Oh, they want to get to 230, 260 or whatever the numbers are" and they divide it by the number of quarters and say "they need to add x per quarter." What we're finding out, as you've seen from our last several quarters in terms of our earnings, is that these numbers are -- tend to be a lot noisier than a straight line. They're not a straight-line relationship quarter to quarter to quarter. And indeed, we've seen some of that this current quarter.
In other words, he still thinks Disney+ will reach the midpoint of 245 million by 2024, but the road to that target will be volatile. If Disney can report better-than-expected subscriber growth next week, it would go a long way to assuage investor concerns about its potential. A promising sign from Netflix's earnings report could indicate Disney may add more subscribers than it thought it would in Q4.
Streaming growth is the key to unlocking gains for Disney stock
Analysts on Wall Street expect Disney to report revenue of $16.3 billion and earnings per share of $0.44 in Q4. The House of Mouse is recovering parts of its business devastated by the pandemic, like theme parks, hotels, and box office sales. That's improving overall revenue and profits, but the market seems to be focused on its streaming segment.
The stock is down 6.5% year to date, partly because economic reopening is slowing growth for its streaming segment. Disney may need to prove it can drive streaming growth as COVID-19 restrictions ease. That might be the catalyst that finally sends the stock higher.