Walt Disney’s (NYSE:DIS) stock has seen huge increases over the past month, rising 32% since July 15 as investors praised the company’s most recent financial performance. But not everything in the Magic Kingdom is glistening. The company may be preparing to lose millions of users in its biggest market.
Here’s why the current surge in Disney stock might not continue past this quarter.
Disney Is Adjusting Subscriber Goals
Disney released financial numbers that were better than anticipated on August 10. While initial projections called for 147 million subscribers, the number of Disney+ subscribers increased to 152.1 million during the third quarter of 2022. In addition, the company’s revenue increased by 26%, and since Disney released its Q3 report, optimistic investors have driven the stock up 10%. While Disney had a stellar third quarter of 2022, investors should be cautious that potential subscriber losses in its largest market could impact its fourth-quarter profitability.
Disney predicted in December 2020 that by 2024, Disney+ would have 230 million to 260 million paying customers. The business stated that with its estimated 70 million to 100 million subscription target, Disney+ Hotstar’s platform in India would account for 30% to 40% of all users. However, Disney CFO Christine McCarthy reduced the company’s Hotstar predictions to 80 million members by the end of 2024 during an earnings call on August 11.
Along with updating its Hotstar figures, Disney also dropped its prediction for Disney+ as a whole by 15 million subscribers, estimating that the platform will have 215 million to 245 million subscribers by 2024. The significance of the Indian streaming business is demonstrated by the latest numbers, which reduced subscription expectations by 6.5%.
Negotiating a Key Market
The deal that keeps giving is Disney’s 2019 purchase of 21st Century Fox. In addition to creating a valuable content collection, it also made the firm the owner of Hotstar, formerly Disney+ Hotstar, the largest streaming service in India. As all of Hotstar’s customers were practically integrated into Disney’s flagship platform in 2020, the streaming service offered Disney+ a big boost. India continues to be Disney’s largest streaming market; as a result, accounting for 38% of all Disney+ subscribers. Given how important India is to Disney’s streaming growth, its lower subscriber predictions might significantly impact the business’s profits and performance.
The revenue from Disney+ Hotstar increased by 54% year over year in Disney’s third quarter of 2022, which was the most significant rise of any region. The domestic Disney+ revenue, excluding Hotstar, decreased by 5% in the United States and Canada but increased by 14% abroad. Despite being the most seasoned version of Disney+, Disney+ Hotstar continues to develop rapidly and dominate all other territories.
McCarthy discussed Disney’s decision not to renew the streaming rights for India Premier League (IPL) cricket matches, by far the most popular sport in the nation, during the same earnings call. She said that as the IPL finished its 15th season in the quarter, Disney+ Hotstar subscribers climbed by over 8 million. Although Disney will continue to have the rights for traditional TV programming of the IPL, Viacom18 currently owns the streaming rights.
Disney+ Hotstar is expected to lose a sizeable portion of its Indian subscriber base as soon as the IPL is dropped. Even though Q4 2022 earnings aren’t due for a time, it’s essential to be informed of any significant changes in the market’s subscriber base.
Is Disney a Good Investment?
As investors renewed their confidence in the firm following encouraging Q3 results, Disney stock has risen over the previous month, experiencing considerable gains. The stock price may increase further in the months leading up to the debut of Disney+, the company’s ad-supported streaming service, in December, as well as a price increase that will affect all of the company’s streaming services. The price rise will improve Disney’s average revenue per user, which should increase earnings.
However, due to the loss of Indian subscribers, the company’s price may decline in November. Given its crucial role in the company’s streaming growth, Disney+ Hotstar news is something that streaming investors should keep an eye on. Disney continues to be a safe streaming stock because of its significant market share, so it would be wise to hold if a slump does occur. In addition, if anticipated price increases are successful, a decline in subscribers could not harm revenue because the company can make up its losses in other regions.
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