Source: Beast Finance Author: Beast Finance
Summary:
(1) Disney is losing subscribers
(2) The company faces profitability headwinds in its direct-to-consumer business due to slowing subscriber growth, with Disney+ losing 4 million subscribers in the last quarter alone.
(3) Following the loss of 2.4 million users in the first quarter, Disney+ users continued to lose in the second quarter.
(4) Disney's valuation has fallen significantly compared to rival Netflix, and Beast Finance believes that unless Disney reverses its subscription momentum, its stock price will continue to fall.
Subscriber churn weighs heavily on Disney's DTC profitability
Last year, Boldbeast was bullish on Disney (DIS), in large part because of the company's strong growth in its direct-to-consumer (DTC) business. All of the company's core streaming services (including Disney+, ESPN+, and Hulu) will see strong subscriber growth in 2022, with ESPN seeing the strongest subscriber growth. However, this year, Disney's user growth has slowed sharply for two consecutive quarters, which has forced us to re-evaluate our views on Disney.
In the second quarter of 2023, Disney has lost subscribers for the second consecutive quarter, due to a sharp decline in subscribers for Disney+ Hotstar, the company's streaming platform for Southeast Asian and Indian markets. In the second quarter, Disney+ Hotstar lost 4.6 million subscribers, and Disney+ lost a total of 4 million subscribers in the second quarter as it added 600,000 subscribers in other markets. In the first quarter, Disney+ Hotstar subscribers fell by 3.8 million, while Disney+ subscribers fell by 2.4 million to 161.8 million.
Beast Finance believes that the main reason for Disney’s large loss of users in Southeast Asia and India is still related to Disney’s failure to win the streaming rights of the Indian Premier League in 2022, which makes its content less attractive to users in these markets. .
For Disney, a key issue related to churn is that the company has yet to turn a profit in its direct-to-consumer business, which accounts for about 39% of Disney's total revenue. However, the direct-to-consumer business is not Disney's largest business, the largest business in terms of revenue contribution is Disney's network business, with a revenue share of 46%.
Although Disney+ still has 157.8 million subscribers at the end of the second quarter, the direct-to-consumer business is still losing money. Adding ESPN+ and Hulu subscribers, the total number of subscribers for all of Disney's streaming media services as of the end of the second quarter of 2023 At 231.3 million, it was slightly lower than Netflix (NFLX)'s 232.5 million.
Although the loss of Disney's DTC business (direct-to-consumer business) has dropped by US$200 million year-on-year, Beast Finance believes that with the loss of users, Disney still faces an uphill battle in terms of profitability. Despite the company's $5.5 billion cost-cutting goal, which includes 7,000 layoffs, it could take years for the streaming company to turn a profit in this segment...especially as it continues on the movie distribution front In the event of losses of hundreds of millions of dollars.
Disney's revenue and valuation are down relative to rival Netflix.
Disney's stock price has fallen into a new downtrend as subscriber churn emerges and the company's former CEO leaves. As a result, starting in the fourth quarter of 2022, Disney significantly adjusted its revenue forecasts for fiscal 2023 and 2024, indicating that the market continues to expect headwinds for Disney's international subscriber numbers. Disney currently expects its revenue growth to be 8% in fiscal 2023 and 6% in fiscal 2024. In comparison, Netflix expects revenue growth of 7% in fiscal 2023 and 13% in fiscal 2024.
Beast Finance believes that the main beneficiary of Disney's problem (mass loss of users) may be its biggest competitor, Netflix, which had 232.5 million users by the end of the first quarter.
Disney's current forward revenue is 1.7 times, while Netflix's price-to-revenue ratio is 4.9 times... This shows that Disney still has great growth potential in terms of international expansion in the future.
The risks to Disney The
risks to Disney certainly increased after the company reported subscriber losses for the second straight quarter. The main risks facing Disney are that Disney's direct-to-consumer business (including different streaming services) is still losing money, and major box office mistakes, such as "Oddworld", have made Disney lose money $200 million and raised investor questions about the company's content strategy. Whether or not our view on Disney will change depends on the company's ability to stem continued subscriber loss and drive profitability in its direct-to-consumer business.
in conclusion
Disney has to grapple with a new problem: subscriber churn, especially in Southeast Asia/India, which has been a growth driver for Disney in recent years. Based on this alone, we see growing headwinds to the profitability of Disney's direct-to-consumer business. While Disney has managed to narrow losses in the business and announced a $5.5 billion cost-cutting plan, the continued loss of current subscribers suggests a delay in profitability for Disney's direct-to-consumer business... This is expected to lead to further declines in Disney's stock price.