Investors are assessing Walt Disney (NYSE: DIS) latest results, which were mixed and most of the limelight went to the boost that came due to Toy Story 5. But one analyst is seeing trouble beneath the numbers.
During a segment on CNBC’s Fast Money, Tom Rogers, CNBC cofounder and contributor, raised concerns about weak engagement and subscriber growth at Disney’s streaming business.
Disney’s fiscal third quarter revenue rose 7% year over year and adjusted earnings per share grew 28%.
Why Rogers Is Worried
Rogers said Disney passed two big tests this quarter. Parks held steady despite worries about the consumer and gas prices, and the new CEO showed a streaming growth strategy is in place. On the surface, streaming looked strong, with entertainment streaming revenue up 11%.
His issue is with what Disney isn’t showing. The company no longer breaks out subscriber counts or engagement numbers. The one metric it did share was advertising, and entertainment streaming ad revenue grew just 2.5%.
“They have sports rights to leverage. They have the linear business, which is still getting rates at 60% CPMs higher than streaming CPMs to leverage, and 70% of their new subs presumably are taking the ad-supported service, and they’re doing 2.5% ad growth,” Rogers said. “That tells me something is really off in engagement or sub growth or both. And that’s going to have to be fixed. The fact that they didn’t really address it at all tells me that the growth strategy of putting more TikTok verticals in there and talking about maybe a fast channel, that’s interesting, but it’s not going to solve a core issue that must be underlying that.”
Warner Bros. Discovery’s Quarter
Warner Bros (WBD) reported the following day. Revenue fell about 11% year over year and missed estimates, while adjusted EBITDA slipped 6%.
Streaming was the highlight. Streaming revenue crossed a milestone, growing 10%, with distribution revenue up 11% and adjusted EBITDA margin near 17%. Subscriber-related revenue growth accelerated 200 basis points sequentially to 10%.
Everything else was weaker. Studio revenue dropped 39% on soft theatrical results, and advertising revenue fell 22%, largely from the loss of NBA rights, which alone cut 20 points off ad growth. Content revenue fell 26%.
The Bull Case for WBD
Streaming is now the company’s clear growth engine, with subscriber revenue accelerating and margins expanding toward the mid-teens. Management laid out a heavy content pipeline for next year, including a decade-long Harry Potter series, and reiterated confidence in its long-term studio profitability target even after this quarter’s stumble. Licensing demand stayed healthy with strong margins.
Better-than-feared second quarter profit is what kept the stock afloat, even with a revenue miss. Positive developments around the pending merger with Paramount Skydance are also underpinning shares.
The Bear Case for WBD
The underlying numbers are still rough. Revenue fell across nearly every segment besides streaming, and the NBA rights loss hit advertising hard. The studio business remains volatile quarter to quarter. On the advertising side, international linear conditions worsened in Q2, and management said visibility into the rest of the year is limited.
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