Walt Disney can’t seem to please the market when it comes to its streaming plans. Last year, investors didn’t like the rising losses caused by its investment in content. Now, they don’t like the falling subscriber numbers caused by its efforts to control that expense.
Disney shares were down more than 8% on Thursday.
As Disney (ticker: DIS) reported on Wednesday evening, the number of Disney+ subscribers fell unexpectedly in the first quarter. That was mostly due to Indian customers leaving after
Disney
(ticker: DIS) lost streaming rights to cricket in the country, something which was expected after it pulled out of the bidding last year when the price got too expensive.
That cost-control effort is likely to bode well for Disney’s financials in the future. With average monthly revenue per paying Disney+ subscriber up 13% in the second quarter and more price increases planned, the benefits should start to flow through to the bottom line, with a favorable effect on the stock price.
Of course, Disney still needs content to keep subscribers on board. That explains why CEO Bob Iger said that it would make content from Hulu available on Disney+ in the U.S. by the end of the year.
Analysts at
UBS
said the move “put to rest any doubt” that Disney intends to take 100% control of Hulu. Disney currently owns two-thirds of the streaming service, while Comcast (CMCSA) has the rest. The minimum valuation for Hulu, previously agreed on by the owners, is $27 billion, meaning Disney would have to pay at least $9 billion for the piece it doesn’t already own.
That might not sound much like cutting expenses, but unlike the price of the streaming rights to Indian cricket, Disney will be able to control the costs associated with Hulu. UBS reckons Disney could achieve cost savings of more than $2 billion if it bought all of Hulu by slimming down content and folding its advertising and technology functions into its own operations.
The pain for Disney stock could continue for a while. Analysts at Macquarie Research noted that the company’s executives signaled domestic Disney+ subscribers could fall again in the current quarter, before rebounding in the company’s fiscal fourth quarter in response to the release of content such as the second Avatar movie on the platform.
Macquarie’s analysts counsel patience, sticking with an Outperform rating on Disney stock. “We believe Disney has the essential assets to successfully transition to streaming, but it’s a multi-faceted effort,” the Macquarie analysts wrote.
Write to Adam Clark at [email protected]
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