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Why Disney+ Became a Minus for the Stock Today

By Howard Smith – Nov 11, 2021 at 10:48AM

Key Points

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Growth in the Disney+ streaming service helped Walt Disney's business navigate the pandemic, but it is now causing investors to bail.

What happened

Global economies continue to reopen, helping businesses like Walt Disney's (DIS -0.11%) theme parks and film studios. But the segment that carried the company through the pandemic is taking a toll on the stock today. With subscription growth slowing for its Disney+ streaming service, investors are taking the stock to the woodshed early Thursday. As of 9:50 a.m. EST, Disney shares were tumbling about $15, or 8.5%. 

So what

The entertainment giant reported its fiscal fourth-quarter and full-year results last night, and it pointed to a recovery for the businesses that have been slowly coming back from pandemic impacts. Total revenue grew 26% year over year, and cash from operations soared 58%.

Rainbow over Disney's Cinderella castle.

Image source: Walt Disney.

But investors ironically focused on the one area that showed strength throughout the pandemic, but is now slowing. Growth in the company's Disney+ streaming service slowed dramatically in this reporting period. Year-over-year subscribers increased by 60%, but it represented a quarterly sequential increase of just 1.8%. 

Now what

Annual subscriber growth of 60% in Disney+ marked the first time since the service launched that this metric was below 100%. Its ESPN+ offering actually grew subscribers at a higher rate with a 66% year-over-year increase. Disney had previously warned investors that Disney+ growth would be slowing, but it seems the additional 2.1 million subscribers it picked up since the previous fiscal third quarter was less than investors expected. 

But for the first full quarter since the start of the pandemic, all of Disney's theme parks were open to visitors. In the company's earnings call with investors, Disney CFO Christine McCarthy noted that operating income in the parks and experiences segment increased by $1.6 billion in the quarter, marking a profitable quarter for the segment.  

Some of its parks, and its cruise operations, are still operating at limited capacity. The recovery from the pandemic certainly isn't finished yet, and there should be more room for growth as that recovery progresses. But investors today are focusing just on the slowdown in Disney+ subscriber growth, which could mark a good opportunity for long-term investors

Howard Smith owns shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool has a disclosure policy.

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