Disney Earnings Hurt by Costs at Disney+

• Disney fell short of expectations for profit and key revenue segments during the fiscal fourth quarter Tuesday.
• The company warned strong streaming growth for its Disney+ platform may taper going forward.
• Both its parks and media divisions underperformed estimates during the period.

Walt Disney Co. said it plans to make cuts to marketing and content budgets after the company reported weaker-than-expected fourth-quarter earnings Tuesday, the result of wider losses in the streaming business that offset the strong performance of the company’s theme parks.

“We are actively evaluating our cost base currently,” Christine McCarthy, Disney’s chief financial officer, said on a conference call with analysts. Some cost adjustments will provide near-term savings, others are long-term and structural, she said.

In the three months ended Oct. 1, the company’s flagship streaming service Disney+ added 12.1 million net new accounts, beating analysts’ predictions and bringing its global total to 164.2 million subscribers.

But those new subscribers came with a hefty cost. Disney’s streaming business lost $1.47 billion in the fourth quarter, more than twice the year-earlier loss and 38% wider than what analysts polled by FactSet had predicted. Since Disney+ launched three years ago, Disney’s streaming business has lost more than $8 billion.

On Tuesday, Disney said the company had recorded “peak losses” in streaming and expects those losses to start to narrow in the current quarter. Chief Executive Bob Chapek has indicated that Disney+ is entering a new phase that gives priority to income over rapid growth, but so far the company has struggled to translate subscriber additions into profits.

“The rapid growth of Disney+ in just three years since launch is a direct result of our strategic decision to invest heavily in creating incredible content and rolling out the service internationally,” and the company expects to pare losses in the division going forward, Mr. Chapek said. “Disney+ will still achieve profitability in fiscal 2024, assuming we do not see a meaningful shift in the economic climate.”

Bob Chapek

Since the spring, shares of media companies that rely on streaming have tumbled across the board, as investors have grown more pessimistic about the prospects of near-term profitability for streaming. Disney’s shares closed Tuesday at $99.90, down 36% since the start of the year. The company’s stock fell more than 7% in after-hours trading.

“The halcyon days of total growth and number of subscribers, those days are over,” said Chris Legg, senior managing director at investment bank Progress Partners, which advises companies in the media and advertising technology space. “Disney is still in the mind-set of go-and-grab more subscribers, whether it’s locally or internationally. They probably have a few quarters to keep playing that game, but Wall Street is definitely getting less patient with this spend-for-subs model.”

Chapek said Tuesday his outlook for the streaming service remains rosy, chiefly because of price increases to some Disney+ packages and a new ad-supported subscription tier for Disney+ that are both set to take effect Dec. 8.

The company’s theme parks division set a record for revenue with $7.42 billion for the quarter, up 36% from a year earlier. Disney said the full-year results from the theme parks division set all-time records for the company in both revenue and operating income.