After a rough first half of 2022, Disney (NYSE:DIS) stock is moving higher to the tune of 3% today ahead the company’s fiscal third-quarter results. Disney will release earnings after market close today. Above all, its streaming business will almost surely dominate the disclosure, providing important insights into the viability of the sector. So far, investors are signaling optimism for DIS stock, which is up more than 15% over the trailing month.
Heading into the Q3 report, analysts expect earnings per share (EPS) to hit $1.19. That would represent a huge jump for Disney’s bottom line. For revenue, the consensus also calls for sales of more than $20 billion, with the company benefitting from “accelerating theme park attendance.” Earlier this year, Disney brought back parades and castle shows at Disney World. This move prompted speculation about increased attendance.
The main highlight for Q3 will almost definitely be Disney’s streaming business, however. During Q2, management said it would “spend $900 million more on content” for the quarter compared to last year. Naturally, market observers will want to see a significant return on investment.
On average, analysts expect Disney to have added about 10 million Disney+ subscribers in Q3. That would push its total sub count to approximately 147 million, according to CNBC. Where the actual number comes in will likely determine the future trajectory of DIS stock.
DIS Stock: Pinning Hopes on Disney+
Why are analysts clamoring over the streaming unit’s subscriber count? Well, it’s actually Disney’s own doing. In February, CEO Bob Chapek claimed the streaming business will have between 230 million to 260 million subscribers by the end of 2024. Now, this expectation is pressuring DIS stock as the timeline narrows. CNBC explains:
“[The forward guidance] gives the company 11 more quarters, including the one reported Wednesday, to reach its goal. Disney will need to add an average of about 8.5 million subscribers a quarter to reach the low end of the range.”
CNBC reasons that coming in below the 10 million consensus target would be problematic for DIS stock. What’s more, slipping beneath 8.5 million could be downright “disastrous.”
To be fair, management is pulling out all the stops to ensure growth for Disney+. Mainly, the company plans to launch a “cheaper advertising-supported tier” by the end of 2022. And while Disney did raise the price of ESPN+ to $9.99 a month, it’s keeping its bundled offering of ESPN+, Disney+ and Hulu at a penny under $14.
Theoretically, this pricing dynamic should incentivize customers to make the upgrade, boosting Disney+ subs in the process. Still, Disney has to consistently maintain robust momentum quarter over quarter, putting pressure on DIS stock.
Why It Matters
With streaming king Netflix (NASDAQ:NFLX) tumbling 59% year-to-date (YTD) amid disappointing subscriber losses, DIS stock faces a credibility headwind. The “revenge travel” phenomenon isn’t helping matters either as people move away from indoor activities as pandemic restrictions relax.
Disney’s upcoming Q3 report isn’t just a critical development for its own business. Rather, it speaks to the viability of the streaming industry at large amid a sudden pivot in consumer behaviors.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
