Walt Disney stock fell hard after the company's streaming services units missed subscriber growth estimates in its late Wednesday earnings report. Meanwhile, CEO Bob Iger did not shy away from comments regarding the company's battle against Florida regulators, underscoring Disney's lawsuit against Florida Gov. Ron DeSantis.
Disney Earnings
Results: Disney's adjusted earnings fell for the third quarter in a row, dropping 13% to 93 cents per share. Revenue jumped 13.3% to $21.82 billion after sales growth slowed the past three quarters.
Expectations: Analysts polled by FactSet expected earnings falling to 93 cents per share on 13% revenue growth to $21.79 billion.
Disney's total subscribers across Disney+, Hulu and ESPN+ missed estimates as they rose to 231.3 million from 205.5 million last year. However, total subscribership was down 1.4% from last quarter. Wall Street projected Disney's total subscribers to surge to 238.88 million.
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Disney+ subscribers decreased by 2% from the previous quarter to 157.8 million as the average monthly price per subscriber leapt 20% from last year to $7.14. Analysts expected an increase to 163.51 million. ESPN+ subscribers edged up 2% to 25.3 million, but fell short of forecasts of 25.95 million. Hulu subscriber numbers were essentially flat at 48.2 million, missing estimates of 48.8 million.
Still, losses for the company's streaming business improved to $659 million from a loss of $887 million last year. FactSet projected Disney's streaming operations to record an $845 million loss.
Parks, Experiences and Products revenue increased 17% year-over-year to $7.8 billion, edging out expectations of 14% growth to $7.6 billion. Disney Media and Entertainment Distribution revenue rose 3% to $14.04 billion, shy of forecasts of $14.15 billion.
Upcoming Costs
The company recorded $150 million in restructuring charges for the quarter, primarily related to severance payments as part of its reorganization. Disney expects to record $180 million in additional severance charges for the rest of year, with a bulk coming in Q3.
Disney noted it's cutting down on streaming content and removing titles from its platforms to align with its strategic objectives and expects to recognize $1.5 billion to $1.8 billion in impairment charges in Q3 from the move. The House of Mouse also plans to produce lower volumes of content going forward.
For the rest of the year, consensus views see the Burbank, Calif.-based company's earnings turning higher and ending up 16% for the fiscal year and up 21% (calendar year) over 2022. Fiscal year revenue is expected to rise about 9%.
Face Off In Florida
During Wednesday's conference call, Iger repeated that the acrimony between regulators and Disney was about "one thing and one thing only, and that's retaliating against us for taking a position about pending legislation."
The legislation in question is the Florida law, passed in March, prohibiting classroom instruction by school personnel or third parties on sexual orientation or gender identity in kindergarten through grade 3. Disney, which has adopted increasingly inclusive guest and staff policies at its parks, began to push back against the legislation under prior chief executive Bob Chapek.
DeSantis and Florida's Senate have engaged in several rounds of back and forth with the company, most recently passing a bill last week allowing the DeSantis-appointed tourism board to cancel development agreements approved by Disney's preceding Reedy Creek Improvement District.
Disney then expanded its lawsuit against Florida Gov. DeSantis Monday to include new Florida bills that nullify previously approved development deals and put Walt Disney World's monorail system under state oversight.
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"Gov. DeSantis and his allies have no apparent intent to moderate their retaliatory campaign any time soon," Disney wrote in the additions to the civil complaint.
Disney first filed the lawsuit against DeSantis on April 26, claiming the governor is orchestrating a "targeted campaign of government retaliation" after the company spoke out against Florida's bill banning gender identity and sexual orientation discussions in elementary school classrooms last year.
The company cited DeSantis statements about plans to add hotel taxes, toll roads, more amusement parks in the district or even a state prison next to Walt Disney World.
Iger, on Wednesday, emphasized that the company's theme park park provided 75,000 well-paying jobs, attracted millions of visitors and is the largest taxpayer in central Florida.
Disney plans to invest $17 billion in Florida over the next ten years, Iger said, wrapping up his comments with a question: "Does the state want us to invest more, employ more people and pay more taxes, or not?"
MS Raises Price Target For DIS Stock
Morgan Stanley analyst Benjamin Swinburne on Monday raised earnings estimates for Disney after the company incorporated cost-cutting measures. In early February, Disney announced a major reorganization that would include slashing 7,000 jobs and cut $5.5 billion in costs, including $3 billion in content savings.
Morgan Stanley sees strong adjusted EPS growth ahead and contends the parks portion of the business "generates compelling growth through cycles," and expects it to represent the majority of earnings before interest and taxes (EBIT) for Disney's segment for "years to come." The report also noted Disney's media business is "under-earning and undervalued," as the streaming-first strategy diluted the segment's earnings power.
But "there are opportunities to rebuild," Swinburne wrote. He notched up his price target on Disney stock to 120 from 115, about 18% above where shares traded on Tuesday, and maintained an overweight rating.
Disney Stock
Disney stock dropped 8.7% to 92.34 Thursday following results. Shares closed 1% lower ahead of the report on Wednesday. DIS shares climbed 6.3% so far this year.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
