Disney CEO Bob Chapek warned that Disney+ subscriber growth would slow down during the third quarter and that’s exactly what happened, casting some doubt on 2024 guidance.
Disney+ added just 2.1 million new subscribers during the quarter—taking its total to just over 118 million—and saw its ARPU drop slightly to $4.12. During a Goldman Sachs investor conference in September, Chapek predicted that Disney+ subscribers would increase by “low single-digit millions” during his company’s fiscal fourth quarter, compared to the more than 12 million subscribers added during Disney’s fiscal third quarter.
In the wake of Wednesday’s earnings, some analysts are re-evaluating Disney’s forecast for its two-year-old streaming service, which it predicted would have between 230 million and 260 million subscribers by 2024.
Atlantic Equities cut the company from buy to neutral and lowered its price target.
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"Disney's focus on franchises led to excellent sign-up rates out of the gate, but we are increasingly convinced that the penetration of this fan base is close to saturated in launched markets," wrote analyst Hamilton Faber, according to Seeking Alpha. "While there are new geographies to come, we believe volume growth will disappoint."
Faber said that the Disney+ subscriber guidance for 2024 looks overly aggressive and cut his firm’s forecast to 218 million.
MoffettNathanson analyst Michael Nathanson, on the other hand, sees Disney+ still on track to land smack dab in the middle of its 2024 subscriber guidance range, pointing out that Disney+ still managed to add an “impressive” 44.4 million subscribers during the company’s fiscal 2021, 50% of which came in through Disney+ Hotstar.
“However, excluding Disney+ Hotstar, Disney+ only added around 20 million subscribers over the year, with almost 70% of those coming in the first fiscal quarter of the year,” wrote Nathanson in a research note. “Calendar year-to-date, the company has added less than 7 million of these higher RPU subs.”
MoffettNathanson reiterated its Disney+ 2024 revenue estimate of $13.6 billion, a figure it recently cut by more than $1 billion.
RELATED: Disney+ subscriber growth slowdown coming in Q3: CEO
During Disney’s earnings call, CFO Christine McCarthy said the price value relationship for Disney+ Hotstar in India will increase over time thanks to live sports like IPL and more general entertainment content.
“We have all of our Disney content over there from all the different labels that we have, Disney, Pixar, Marvel, Star Wars and so on. But they also have over 18,000 hours of original local programming that is produced every year,” she said, according to a Motley Fool transcript. “So once again, I think the upside potential is when all things are working, all cylinders are working, and we'll be able to take price up as the market allows.”
MoffettNathanson said that Disney+ has generated “best-in-class awareness scores” in the U.S. but will need to expand its general entertainment content to keep reaching new households both domestically and internationally.
“…[Disney+] has failed to penetrate older demographics of [households] 50+. Those homes might not necessarily have young kids attracted to Disney’s content or be super fans of Marvel, Pixar or Star Wars content,” wrote Nathanson. “As such, the path for deeper [household] penetration has to be through the development of off-brand, general entertainment content that has the feel of Netflix, or say…Hulu.”