Disney shares tumble as subscribers head for the exits

Walt Disney shares fell more than 8% on Thursday as a surprise drop in streaming subscribers fanned worries that the media and entertainment company’s success in stemming losses at the business may be coming at the cost of growth.

The decline was set to erase about $15bn from the market valuation of the Bob Iger-led company after at least 10 analysts lowered their price targets on the stock.

"Disney+ is losing less money not because it’s gaining subscribers, but because of its price hikes and better cost management," said Forrester analyst Mike Proulx. "Cutting marketing dollars is at odds with growing subscribers."

Operating losses at the streaming unit narrowed by $400m in the second quarter from the previous three months, helped by a price hike last December in the US and Canada.

The company plans to raise the price of the ad-free Disney+ service again this year and it will also remove certain low-viewership content from its services to lower costs.

"Some investors might question this tactic given Disney just lost subscribers," said Brandon Nispel, analyst at KeyBanc Capital Markets. "However, it seems the goal is to drive more subscribers toward Disney+’s ad-supported tier … which the company believes could improve monetisation."

In the second quarter, the Disney+ service shed about 4-million subscribers, compared with estimates for net additions of 1.3 million, according to Visible Alpha.

The losses were driven by an exodus from the South Asia-focused Disney+ Hotstar offering after it lost the streaming rights to the Indian Premier League cricket matches.

Those subscribers are seen as less valuable to the company as they generate lower average revenue per user (ARPU), with the metric tumbling 20% sequentially to 59 cents.

Disney said the softness could extend into the current quarter.

"Many investors will focus on the lack of direct-to-consumer subscriber growth," media analyst Michael Nathanson said.

"(But) investors would be better off with a smaller total addressable market of higher paying customers. This is a more logical, albeit less sexy, path."

Reuters