Disney Disappoints, Meta Cuts 11,000 Jobs

Good news is hard to come by right now. Disney reported earnings overnight, and missed the mark. Meta is cutting 13% of their workforce. Tough decisions are being made as the excesses of the pandemic and low rate era continue to be corrected.

Disney’s earnings: Markets seemed to focus on the negatives, sending the share price down by over 10% in post-market trade. Disney shares have since pared some of those losses to trade at roughly -7.5% in pre-market:

The good news. Streaming user growth. Disney+ reported 164.2 million subscribers in the fiscal fourth quarter, beating Factset estimates of 161 million.

Between Disney+, Hulu & ESPN+, the company added 14.6 million subscribers in the quarter. Disney now boasts 235 million DTC subscribers in total.

The bad news: Disney’s streaming unit lost $1.5 billion during the quarter.

In the post GFC, low rate regime, all businesses had to do was grow users and the market would generally reward them with a higher share price. Now, profitability is far more important. A sign of the times.

Disney Chief Executive Robert Chapek was looking on the bright side, with one very important caveat.

"We expect our DTC operating losses to narrow going forward and Disney+ will still achieve profitability in fiscal 2024… Assuming we do not see a meaningful shift in the economic climate."

The Disney Parks, Experiences and Products revenue segment beat expectations however, raking in $7.4 billion. The ‘yield management’ approach (covered here) looks to be working well.

The overall drag on profits by the streaming segment is notable however. The ad-supported tier might help, but profitability in fiscal 2024 (assuming no meaningful shift in economic climate) is a high bar…

The inevitable Meta layoffs

Something had to give after Meta’s horrific results. The company confirmed today that they’ll be cutting 11,000 staff, approximately 13% of their 87,000 workers.

Chief executive Zuckerberg explained:

“We’re making all these changes for two reasons: our revenue outlook is lower than we expected at the beginning of this year, and we want to make sure we’re operating efficiently across both Family of Apps and Reality Labs,"

“I got this wrong and I take responsibility for that.”

The decision has been well-received with Meta trading +4% in pre-market.

Some caution may be prudent though. Meta has completely pivoted the focus of their business model. Partly due to factors outside of their control (such as Apple’s privacy changes), but also the desire to be at the forefront of the next innovation.

Zuckerberg reassured the remaining employees that there’s more to come from the fallen giant:

“I believe we are deeply underestimated as a company today. Billions of people use our services to connect, and our communities keep growing. Our core business is among the most profitable ever built with huge potential ahead. And we’re leading in developing the technology to define the future of social connection and the next computing platform. We do historically important work. I’m confident that if we work efficiently, we’ll come out of this downturn stronger and more resilient than ever."

Will the metaverse gamble pay off?