Disney Postmortem: Disney+ Kool-Aid Washes Away Bitter Q4 Aftertaste

Disney Postmortem: Disney+ Kool-Aid Washes Away
Cheyne Gateley/VIP

No profit, no problem. 

That’s essentially what investors said after Disney reported fiscal fourth-quarter financial results after market close Thursday. Shares of the media giant surged 6% shortly after the company announced it had a jaw-dropping 73.7 million paid Disney+ subscribers.

As expected, the Disney earnings narrative was all about COVID and streaming during the quarter. And even as the media giant’s legacy businesses continued to get hammered as a result of the ongoing pandemic, it seems as though investors firmly believe that the negative headwinds are merely temporary. After all, if you’re invested in Disney, you’re in it for the long haul, right?

Overall revenue declined 23% in Q4 to $14.7 billion and Disney reported an adjusted loss of 20 cents per share compared to adjusted earnings of $1.07 last year. Both the top and bottom lines were better than analysts’ expectations but a far cry from where the company was a year ago.

Parks, Experiences and Products revenue tanked 61%, Studio Entertainment revenue plunged 52%, while Media Networks revenue rose 11% and Direct-to-Consumer & International jumped 41%. 

Sure, those numbers are pretty brutal, but as many already know, financials of the quarter that passed are hardly as important as where the company is headed in the futureAnd the company is headed toward streaming heaven thanks to Disney+. 

First and foremost, happy one-year anniversary to Disney+. What a year it has been for Disney’s streaming service and biggest bet in recent memory. As CEO Bob Chapek described it on the earnings call Thursday afternoon, “We are more committed than ever in investing in our businesses. In particular, our DTC strategy, which we see as the key driver of significant long-term value for our company.”

Significant long-term value — music to investors’ ears. But what wasn’t music to investors’ ears was the announcement that the company would be forgoing its semi-annual dividend payment in January as a result of “limited visibility” due to COVID and its decision to prioritize investment in DTC initiatives.

Disney stock shed more than 2% of its after-hours gains shortly after CFO Christine McCarthy announced the dividend decision on the call. The company is all in on direct-to-consumer, but it’ll come at a cost, for now. 

As redundant as it is to continue cheering Disney+’s accomplishments, that’s the main growth story for the company at this point in time. Management repeatedly stated that it would be investing heavily in its DTC strategy and would be shifting away from linear into streaming. So, what more is there even to discuss?

But like we’ve seen with Disney rival Netflix, streaming is only as relevant as its growth. The biggest challenge facing Disney will be Disney+’s growth momentum, and once the rapid pace plateaus, the stock may not be as resilient as it has been over the past year. Especially as Disney+ promotions end and film and TV production remain limited.

Since Disney+’s launch on Nov. 12, 2019, Disney stock is up about 1% including the after-hours gains Thursday. May not seem like much, but impressive when you think about the COVID-induced volatility this year. And even more impressive, shares of the media company have surged 63% since the March lows, outpacing the broader market’s 58% gain during the same time period.