Disney (DIS) CEO warns of slowdown in subscriber growth


Bob Chapek, CEO of the Walt Disney Company (DIS), had two bad news for investors in the entertainment giant at the Goldman Sachs Communacopia conference yesterday. Disney Plus, its streaming service, will miss analysts’ subscriber growth estimates this quarter. The platform’s phenomenal growth has caused much of the surge in Disney stock price during the pandemic.

The central theses

  • Disney CEO Bob Chapek said the company’s streaming service will grow more slowly this quarter due to production delays, schedule postponements and difficulties finding partners for new markets.
  • Disney stock fell in response to his comments but is still on the way to recovery.
  • Disney also plans to reintroduce dividend distributions and share buybacks “in the distant future”, according to Chapek.

Disney’s CEO also announced that the company has no plans to use its cash flow anytime soon on share buybacks and dividends that it suspended at the start of the pandemic. Instead, it will reinvest the money to reinvent its business and reduce debt. Dividend payments and share buybacks will be “in the distant future,” said Chapek.

Unsurprisingly, Disney’s shares fell 4.2% after Chapek’s comments. However, the stock is on a recovery path after analysts reiterated their positive assessments of the stock, calling the market’s reaction a “knee-jerk reaction” and “over the top”. As of this writing, Disney stock is changing hands at $ 173.94, up about 2% from the previous day.

A streaming slowdown

Despite the closings of cinemas and its theme parks, Disney’s stock price rose during most of the pandemic shutdown as investors looked to subscriber growth for Disney Plus, its streaming service. Launched in 2019, the service is actually an umbrella of streaming channels that Disney has launched or acquired in various parts of the world over the past few years. It raced past the 100 million subscriber mark in about 1.5 years and currently has more than 116 million subscribers around the world.

CEO Chapek told the audience at the Goldman Sachs conference that the platform and other streaming offerings in the company’s stable would see “low single-digit million growth” this quarter. That estimate is below the analyst consensus of an increase of 17 million subscribers this quarter, according to FactSet.

While the company has forecast Disney Plus will have between 230 million and 260 million subscribers by 2024, Chapek warned that reaching that number won’t be a “straight-line quarter-to-quarter relationship.” The CEO stated, “As you’ve seen from the past few quarters, we’ve found that these numbers are typically much louder than a straight line.”

He cited three reasons for the current slowdown in streaming growth: production delays due to the advent of the new COVID delta variant; Postponement of Indian Premiere League (IPL) in India which may have resulted in subscriber loss on Hotstar, its South Asiatic streaming service; and difficulty finding partners to advance Disney’s recently launched Star + streaming service in Latin America.

Chapek added that the company remained “very optimistic and confident” about subscriber growth for its streaming services over the long term.

A distant Disney dividend

During Disney’s recent conference call, Chapek had said it would reinstate dividends in a “normalized operating environment” and if it had “leverage” consistent with its only A rating.

Yesterday he stated that their priority in the current operating environment is to use their cash flow to fund new growth businesses – a reference to Disney Plus. Deleveraging is another priority for the company’s board of directors, he said. Only then would the company reinstate dividends and buy back shares. “It’s a distant future, and we won’t look at it until we get to that A (rating) level,” he said.

For long-term investors, the company’s move away from dividend distributions is nothing new. Disney froze its dividend payout in early 2020 before news of the pandemic broke in order to use its cash flow to pay off debt for the acquisition of 21st Century Fox and the growth for its new streaming service. Before the 2020 freeze, the company had announced dividend increases for nine straight years. For the last five years of that period, Disney doubled its dividend payout.

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