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Disney earnings: 'Path to profitability' thanks to ads but likely won't hit 2024 target, says analyst

·Senior Reporter
·4-min read

Disney (DIS) shares continued to climb into the green on Thursday — up about 6% in midday trading — after the company posted quarterly earnings on Wednesday that crushed expectations with Disney+ subscribers jumping 14.4 million.

Despite the beat, Disney did lower its 2024 subscriber guidance. The media giant now sees 215 million to 245 million subscribers by 2024 — down from the prior 230 million to 260 million. The company anticipates 135 million to 165 million "core" Disney+ subs with its Indian brand Disney+ Hotstar's subscriber forecast set at 80 million.

"We're really thrilled that they changed guidance," Bank of America (BofA) analyst Jessica Reif Ehrlich, told Yahoo Finance Live, adding that the bank sees "a path to profitability" for the media company.

Still, the analyst cautioned that profitability may not hit Disney's intended 2024 target after Disney+, Hulu and ESPN+ lost a combined $1.1 billion in the third quarter.

She explained that the bank increased expectations for the company's direct-to-consumer losses with estimates now set at $4 billion this year, followed by a $2.5 billion loss in 2023. BofA expects the streaming business to break even by fiscal 2024.

One factor that could help Disney reach profitability includes new price hikes across its various streaming services.

The company revealed that it will be raising the price of its current Disney+ ad-free streaming plan by 38% to $10.99 a month (a $3 increase from the current $7.99 a month.)

Meanwhile, the company's upcoming ad-supported tier is expected to launch in the U.S. on December 8 and will cost, well, the same as Disney+'s current ad-free plan ($7.99 a month.)

The price of Hulu's ad-free service will rise by $2 a month to $14.99 beginning October 10th. Hulu with ads will go up by $1 to $7.99 a month.

Ad-supported offerings "are a way for the traditional media companies [to] clawback some of the money that's been lost to some of the digital companies," Ehrlich explained, adding that advertising is "the bread and butter business" for most of these legacy media companies.

"They've been in advertising forever," she reiterated, adding that ads "will help fund a lot of the content and a lot of the affordability for consumers."

'Disney is the king of content'

(Courtesy: Disney / Marvel)
(Courtesy: Disney / Marvel)

As the company looks to become number one in the streaming wars, content will remain a main driver with Marvel's "Black Panther" set for a November debut, in addition to a slew of other movies and TV shows set to launch throughout the second half of the year.

Ivan Feinseth, Tigress Financial Partners chief investment officer, told Yahoo Finance Live that "content is king and Disney is the king of content." He explained that Disney's content "drives everything," including its ultra-successful theme park business.

"Disney has the ability to produce incredible content, and they dominate the highest grossing genre in movies and television — action adventure movies," the analyst continued, emphasizing that Disney "is just head and shoulders above everybody."

Although Disney CFO Christine McCarthy noted that higher production costs will be a headwind in the quarters to come, Feinseth argued that advertising will "drive revenue growth" in addition to "driving subscriptions because of the lower price point."

Bank of America's Ehrlich added that Disney's production studio allows the company to accelerate its content push, in addition to providing Disney+ access to the media giant's extensive library and deep intellectual property.

"There are multiple advantages that traditional media companies have, but that are only now are becoming apparent," she continued, citing how legacy studios have "an advantage" over FAANG streamers like Apple TV+ (AAPL), Amazon Prime Video (AMZN), and Netflix (NFLX).

Overall, despite lingering questions such as the future of ESPN+ and Hulu (Comcast still owns 33% of the platform), analysts are largely optimistic about the quarters to come.

"There is certainly momentum heading into next quarter where management expects an acceleration on the back of over 50 market launches in June," RBC Media Analyst Kutgun Maral said.

"The content slate just looks incredibly attractive when you move forward, and I think that'll continue to propel the subscriber growth ahead and increase conviction in the revised 2024 subscriber targets," he concluded.

Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com

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