Disney shares slump after earnings disappoint and Fox merger dings profits

Key Points
  • Disney stock sinks after the company missed expectations for the top and bottom line in its earnings.
  • Disney blames the disappointing results on the integration of Fox, increased streaming costs and weak theme parks attendance.
Disney CEO Bob Iger: The results out of Fox studio were disappointing to us

Shares of Disney plunged more than 5% Wednesday, a day after its disappointing fiscal third-quarter earnings report.

Disney fell short of analysts' expectations on the top and bottom line, blaming the earnings miss on the integration of Fox's entertainment assets, weak theme parks attendance and streaming investments.

The company reported earnings per share of $1.35 on $20.25 billion in revenue, compared with Wall Street's expectations of $1.75 per share and $21.47 billion in revenue. Disney's direct-to-consumer segment saw revenue of $3.86 billion during the quarter, while operating losses increased to $553 million from $168 million, largely as a result of increased investments in the ESPN+ and Disney+ streaming services.

On the company's earnings call, Disney warned that the Fox deal would continue to weigh on its profits in the fourth quarter. However, CEO Bob Iger said he remains optimistic about the acquisition's benefit to Disney's future business.

Disney announced Tuesday that it will offer U.S. consumers a bundle of Disney+, ESPN+ and an ad-supported Hulu subscription for $12.99 per month, or the same cost as Netflix's standard subscription plan. The bundle will launch alongside Disney+ on Nov. 12.

Despite the disappointing earnings report, analysts largely remained optimistic about the stock, noting that the Fox integration and increased streaming costs were temporary headwinds.

"In our view, the investment thesis is the same and if we liked the stock before earnings, we love it on any weakness," J.P. Morgan analyst Alexia Quadrani said. "With so many moving pieces between the newly acquired Fox and Disney+ launch, there are bound to be some hits and misses each quarter."

Credit Suisse analysts said the earnings miss isn't likely to discourage "investors who are excited about the company's transition to streaming" with the Disney+ launch.

Disney+'s starting cost of $6.99 should help it lure customers away from rival Netflix, Needham analysts said. Netflix's service begins at $8.99 a month. Additionally, Disney+ will feature most Pixar, Star Wars, Marvel and Disney princess films when it launches, they added.