- Disney shares fell about 2% after hours, although the company added 7.9 million Disney+ subscribers in the quarter.
- Streaming adds alone may not be enough for Disney, especially if second-half growth doesn't wow investors.
- Disney's chief financial officer warned that the rate of growth in the latter part of this year may not be as strong as hoped.
Disney may have a storytelling problem.
Although the company added a better-than-expected 7.9 million Disney+ subscribers in the quarter, Disney shares slid after hours Wednesday when Chief Financial Officer Christine McCarthy acknowledged the second half of the year may not be quite as strong relative to the first half.
"At Disney+, while we still expect higher net adds in the second half of the year than in the first half, it's worth mentioning that we did have a stronger than expected first half of the year," McCarthy said. "The delta we had initially anticipated may not be as large."
Disney added about 20 million Disney+ subscribers in its first two fiscal quarters — meaning, new Disney+ subscribers in the next two quarters will still be higher than 20 million, but maybe not by a lot. The company reiterated Disney+ subscribers should still end up between 230 million and 260 million by the end of 2024 and it will achieve profitability at that time.
Superficially, those statistics seem pretty good. For the time being, Disney is losing money on streaming — which never used to be a problem. Disney reported an operating loss of $887 million related to its streaming services in the quarter — up from a loss of $290 million a year ago. For the first six months of Disney's fiscal year, it has lost about $1.5 billion.
McCarthy revealed on Disney's earnings call that direct-to-consumer programming and production costs will increase more than $900 million in the third quarter year-over-year, "reflecting higher original content expense at Disney+ and Hulu, increased sports rights costs, and higher programming fees at Hulu Live."
It used to be that investors didn't really care if a company was losing money streaming, or increasing spending, because companies were in "land grab" mode, according to GAMCO Investors portfolio manager Chris Marangi.
"We're no longer in the land grab phrase," said Marangi. "Now it's about consolidation and rationalization."
Netflix's revelation that it expects to lose 2 million subscribers this coming quarter led to a freefall in its shares and its peers' — including Disney, which has been the worst performer in the Dow this year. Disney shares hit a new 52-week low Wednesday, as well.
That might cause media executives to rethink their investor story. If massive streaming growth isn't coming, what is there? LightShed analyst Rich Greenfield told CNBC he thinks Disney should make a play to acquire Netflix or Roblox.
That would be a new story it can tell.
WATCH: Disney should consider selling Hulu for Netflix Robolox.