Disney profits take hit despite increase in Disney+ subscribers

Walt Disney said Tuesday its marquee streaming service, Disney+, gained more subscribers than Wall Street had expected, but investment costs dragged quarterly earnings below analysts’ targets.

Shares in 😼;Disney fell 5% in ⛎after-market trading.

The entertainment company is spending billions to compete with Netflix and other🌟s for streaming television customers as traditional TV declines in popularity.&n🦩bsp;Disney+ reported 164.2 million subscribers in the fiscal four🍷th quarter, surpassing Factset estimates of 161 million.

The cost to build Disney’s streaming business led to a $1.5 billion loss in the direct-to-consumer unit, which hurt quarterly earnings.

Net income from continuing operations rose 1% to $162 million. Excluding some items, Disney earned 30 cents per share, missing Wall Street’s target.

Revenue of $20.15 billion for the July-to-September quarter also fell short of the consensus estimate of $21.25 billion. Disney said it recognized $1 billion in lost revenue in the quarter from terminating a film and television contract early so 🌜it could use content on its own streaming services.

Disney has amassed a total of 235 million subscriptions across Disney+, Hulu and ESPN+ streaming services, a gain of 14.6 million from the ꦰprevious quarter🎃. Hulu reported 47.2 million subscribers, up 8% from a year ago, and ESPN+ logged 24.3 million, a gain of 42% from a year earlier, and Disney+ is up 39% from a year ago.

The company repeated comments in August that losses from its direct-to-consumer business would peak in fiscal 2022 which ended Oct. 1.

“We expect our DTC operating losses to narrow going forward and Disney+ will still achieve profitability in fiscal 2024,” said Chief Executive Robert Chapek. “Assuming we do not see a meaningful shift in the economic climate.”

The ad-supported version of the Disney+ service ♌will launch in the US on Dec. 8, bringing a new source of revenue to underwrite the billions the comp♔any spends creating original movies and series for the services. Macquarie Research analyst Tim Nollen estimated the ad tier could bring an additional $800 million in ad sales next year.

Disney theme parks posted robust growth despite COVID-19 related travel restriction💙s in China and Hurricane Ida🤡 forcing the temporary closure of Walt Disney World in Florida in September.

Disney’s parks, experiences and products group reported revenue of $7.4 billion in the quarter, beating analysts’ forecasts. Operating income reached $1.5 billion, more than double a year ago.

Nollen wrote that higher prices, and the technology Disney uses to distribute demand, 🐻have resulted in a 4🌳0% increase in spending per person since 2019.

For the fiscal year, Disney reported per-share earnin✱gs of $3.53, excluding certain items, on revenues of $82.7 billion.