Disney shares slipped as the company reported an earnings miss Wednesday, with results coming in weaker than expected. The media and entertainment giant did however see positive streaming numbers, adding 7.9 million Disney+ subscribers in the quarter as other streamers fall behind. Patrick Healey, Founder & President at Caliber Financial Partners, joined Cheddar's Opening Bell to discuss.



Opening Bell

Disney+ Adds 7.9M Subscribers in Q2 As Other Streamers Fall Behind

here to break it all down is Patrick Healy founder and president of caliber financial partners. Patrick, how do you categorize Disney's kind of earnings this last quarter? Good morning Alicia, look, it was, it was a decent report this morning. It was a bit of a miss on earnings and a slight miss on revenue. But as you pointed out a moment ago, the subscriber growth was came in a little bit higher than expected and I think that's, that's something to, to cling to if you're Disney. Um, but you know, you're seeing the stock had taken down today and I really think it's somewhat regardless of how well those numbers came in were just in a very risk off bearish environment. So I think the subscriber growth number that came in is, is serving to prop up the results. Um, and keeping the stock price from, uh, probably selling off a lot more than it would have otherwise? Yeah, that subscriber growth number certainly was a bright spot in the report, but when you dig into that subscriber growth number, there were still some headwinds that were mentioned as it relates to that right. The Cfl warned that they were sort of rough roads ahead for streaming as the company kind of loses money on the streaming business while it's trying to continue to have that growth, what do you make of this? And do you think kind of the broader concerns around streaming are weighing on, what was that one bright spot that the report had? Yeah, great question. So look, anytime you're trying to aggressively grow your subscriber base, you're going to have a ramp up and acquisition costs, so to speak. And it's a very competitive landscape. I think Disney's gains this quarter where netflix losses in terms of subscriber adds. Um, and that's something to keep a close eye on in future quarters. How expensive it is for the company to continue to acquire and grow its subscriber base and their ability to manage around that will likely dictate how well the stock trades in the coming quarters. Do you think investors will still have the question of if it costs so much, much to acquire and it's so easy to lose these subscribers. I mean, just look at netflix kind of case in point, is it worth the continuous kind of growth? Um, an investment there amend this kind of time where streaming is really seeing challenges and maybe it's better kind of putting money to work, let's say in the parks where there is kind of a reopening play happening. Yeah, great question. So, I actually view the digital content development as, as a replacement for some of the, I say historical movie theater revenues. Right? I think people are absorbing and consuming content much more in their homes than they would in the past. And so I think that's a replacement for maybe some of the spend on, you know, big box office, uh, you know, development, um, in terms of the theme parks, I think that is likely going to be pressed pretty significantly by the inflation pressures in our country. Um, not just around, um, you know, um, labor costs, but also fuel costs. Um, airlines are, are charging higher prices. So it's, it's more expensive for families to get to the park to attend and at some point they have to make a decision on what's more important. Do you feed your family? Uh, do you fill your gas tank or do you do something that would be considered a more discretionary items? Let's talk the parks because that's, that's also a bit of an area that was a bit of a bright spot, so to speak. In terms of kind of getting back to pre pandemic levels for Disney, that revenue came in at $6.7 billion. I think pre pandemic, that revenue was $7.6 billion. What's your outlook for for Disney Parks segment, do you think there is going to continuously be kind of this robust area? Certainly getting back to pre pandemic levels and hopefully right, getting past those pre pandemic levels. Yeah, I, I actually think that, you know, we're getting a relief trade, so to speak, in terms of coming off of covid, people are, it's easier to travel again and people are sort of bottled up demand and wanting to get out and enjoy experiences with their families, but at some point, there is an elasticity of demand and the higher the prices and the higher the cost is too, you know, to take a vacation down to one of the parks or to go on a cruise that Disney supports. Um, you know, it becomes a difficult decision or people get priced out of the market. So I think the park revenue is going to be under pressure in the quarters to follow as long as inflation continues to be a big factor. I'm glad you mentioned that because that was literally going to be our next question. In terms of how does inflation play on that potential kind of reopening play that, that some are excited about because inflation here obviously high, but even abroad, it's pretty, it's, it's notably even higher. And you look at Disney's kind of international guest numbers that can account for up to 20% of its raw. new here in the US and it's not seeing that. And as long as we see inflation kind of pressure's elevated, I think that's also a pain point potentially for the company there. Speaking of parks, So we gotta talk Disney world, I think a lot of investors were hoping that Disney would say something about what's happening, you know, between the florida governor and Disney Disney world in terms of its special privileges kind of status there. Were you disappointed or how do you think investors are kind of reading Disney not really talking about that much. It was a benefit surprise, but I actually, I think they're scrambling to determine what's the best course of action going forward. I think, um, you know, it's dangerous when private companies dipped their toe in the political arena, and in, in Disney's case, they really kind of jumped in with both feet. Um, and I don't think they were anticipating the reaction from Governor de Santis. Uh, look, we're living in a very politicized environment. And I think when private companies venture into the political arena, um, they run the risk of really alienating half their customer base. And so I don't think they were expecting the reaction that they got out of the governor. I think in some respect, they're probably scrambling to determine what's the best course of action, either to get themselves out of this or to have an artful transition. And right now, I don't think they're prepared to discuss it in terms of assessing what the actual and potential impacts would be, as opposed to kind of the big headlines around it? What are the actual impacts? Are there any gauge in terms of what this could cost Disney to its bottom line, so to speak here, if this, in fact, you know, holds through and and they get their status removed? Yeah. So, I, I actually think the bigger impact is on a change in consumer demand, right? So, you know, you're talking about a, a family oriented, uh, you know, service offering, Disney is a longstanding company that develops content and provides experiences for family and Children. And I think it's a hot bud, emotional issue for a lot of people. And I think they would, if you, if you pull them behind closed doors, they probably wish they maybe did something a little bit less impactful or visible. Um, and, and so, you know, that could provide an overhang on the company's earnings in several quarters in the future. And I think the market will be looking for them to kind of clarify their position or maybe backtrack a little bit. And I think that's the right thing to do from a private company standpoint whether they choose to do so we're gonna see. But right now, I don't think they're prepared to address it in their public comments Fair enough. And right now we're looking at a chart year to date Disney down 35.41%. 1 of the many companies kind of feeling the broader pullback that we're seeing in the markets. Patrick really appreciate your time and your insight. Patrick Healy, founder and president at Caliber Financial Partners.