Disney (DIS) stock drops 7% on major FQ4 earnings miss

• Disney missed EPS forecasts by about 90%.
• Revenue for the fiscal Q4 also missed by about 5%.
• 7% slide puts Disney stock near attractive demand zone.

The Walt Disney Company (DIS) stock slid 6.8% after hours to $93.09, its lowest level in about a month as the market was confounded by an explosion in streaming costs. Shares sold off as much as 9% when Disney posted results for the fiscal fourth quarter with adjusted EPS of $0.30, about 90% off Wall Street estimates for $0.56, and revenue of $20.15 billion which was $1.3 billion off the mark.

Disney earnings news

The serious miss was partially explained by hyper-growth in its streaming costs. Now that Disney+ has become one of the biggest streaming platforms in the world, Disney executives are doubling down on investments in order to keep their competitive advantage intact. Disney is spending on the order of $30 billion or more annually to retain users by creating original content.

The strategy has seemed to help as Disney+ beat the estimate for 161 million Disney+ subscribers by posting 164.2 million to end the quarter.

“Our fourth quarter saw strong subscription growth with the addition of 14.6 million total subscriptions, including 12.1 million Disney+ subscribers," said CEO Bob Chapek. "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."

Chapek noted that the service would not achieve profitability until fiscal 2024 but that profitability would be greatly helped by a new Disney+ ad-supported tier that the company plans to unveil in December. In total Disney+ lost $1.5 billion during the quarter on $4.9 billion in revenues. Macquarie Research put out a note recently saying they expect Disney to do $800 million in ad sales alone next year for the new ad-supported tier. Chapek said the company had already secured 100 major advertisers for the service.

The company's theme park segment did $7.4 billion in sales during the quarter and doubled operating income compared with the same quarter a year ago. However, analysts were less pleased by the segment's margins, which have begun to tighten.

"The company’s operating income guidance for next year is much weaker than present expectations and management tone appeared more cautious due to macro risks as well as potential impact from factors such as higher churn in streaming due to price increases," wrote Barclays analyst Kannan Venkateshwar.

Disney stock forecast

The sell-off means that Disney stock is back near the demand zone that provided support during June and July. This zone, colored light blue in the daily chart below, stretches from just above $90 to just above $92. It also held strong on October 13 during that month's swing low. Any move below $90 would signify a stronger drop to the covid pandemic low of March 2020 at $79. We are not sure that level is in the cards, however. Disney remains an elite large-cap stock, and appears to be winning the streaming wars. It now has 235 million subscribers across its many platforms, including ESPN+ and Hulu.

The Moving Average Convergence Divergence (MACD) indicator looks ready to turn over for the worse, but the 9-day moving average is still well above the 21-day average. Traders' best bet is scooping up shares once they fall below $92.

Disney daily stock chart