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Shares for The Walt Disney Company (DIS) are falling after it reported disappointing earnings for the fourth quarter of 2021. Disney posted revenue of $18.53 billion versus analyst expectations of $18.79 billion. The company’s adjusted earnings per share (EPS) during this period came in at 37 cents versus analyst expectations of 51 cents.
Shares of the entertainment giant fell 4% during after-hours trading on the evening of Wednesday, Nov. 10. Investor reaction has been even more pronounced after trading opened on Nov. 11, 2021. The stock is currently changing hands at $160.95, down 7.74% from the start of trading.
Most of the gains in Disney's shares during the pandemic shutdown, and after reopening, have occurred due to its streaming division Disney Plus. With restrictions on outside dining and entertainment, investors have substituted the streaming service’s subscriber numbers as proxy for the House of Mouse’s future growth prospects. Disney CEO Bob Chapek had bad news for them.
The company reported an addition of just 2.1 million new subscribers to the service versus analyst expectations for 9 million new members. That slow growth brought the current total figure for Disney Plus subscriber numbers to 118.1 million, a good way off from the 125 million that analysts expected the company to report. The average monthly revenue per user from the streaming service fell by 9% to $4.12 from year-ago figures.
Average revenue per user (ARPU) is a non-GAAP measure that allows investors to refine their analysis of a company’s revenue generation capability and growth at the per-user level. It is usually calculated as total revenue divided by the number of users or subscribers.
To be sure, Chapek had already set the stage for yesterday’s figures a month earlier, when he told audiences at a conference that the company was expecting growth numbers in the “low single-digit millions.” Several factors contributed to the decline in Disney Plus, from a delay in the Indian Premiere League (IPL) to distribution issues in Latin America to the absence of new popular shows.
The company maintains that the long-term goal for Disney Plus—that of reaching between 230 million to 260 million subscribers by September 2024—remains intact. Chapek said that the company plans to double the number of countries of availability for Disney Plus to 120 in the next year. "I want to reiterate that we remain focused on managing our [direct-to-consumer] business for the long-term, not quarter to quarter, and we're confident we are on the right trajectory to achieve the guidance that we provided at last year's investors day," the CEO said. 
Disney recently unveiled a two-year anniversary promotion that offers viewers a one-month membership to the service for $1.99 (instead of $7.99). Chapek also told analysts that the company was planning to increase its spending on its streaming content from the earlier budget by between $8 billion to $9 billion by fiscal year 2024. He said that the primary driver for the increase was more local and regional content in the service's markets. Disney will release premium original content from its popular franchises like Marvel and Star Wars in the fourth quarter of 2022 on Disney Plus, according to chief financial officer Christine McCarthy. That is also when the company expects a significant jump in subscriber numbers.

Even as Disney Plus slowed down, other streaming services within the Disney umbrella picked up the slack. Hulu added 2 million new subscribers, while ESPN+, the direct-to-consumer avatar of the popular sports network, added 2.2 million new subscribers to bring its total figure to 17.1 million.

While the pandemic shutdown helped garner subscribers for Disney Plus, a reopening of the economy and mass vaccination drives have brought audiences and customers back to Disney's other businesses. Three out of the year's top four biggest openings belong to the company's studios. Customers are also finding their way back to Disney theme parks at home and abroad.

In fact, the Disney Parks, Experiences, and Products segment reported a 99% increase in revenues to $5.5 billion during the quarter from the same period a year ago. But that revenue jump was offset by higher operating costs. The company reported $640 million in operating income for that segment, missing analyst figures of $890 million.

Again, CEO Chapek emphasized the big picture story for the segment in the next year and said that Disney was expecting "great demand" for the Parks segment next year. "[The demand is] not only internationally but especially domestically, but particularly, again, because of our guest experience improvements at numbers that are very, very strong and very, very healthy," he said, referring to the company's recent apps and technology enhancements to better manage operations at crowded parks.
During its earnings call, Disney also teased the idea of a Disney metaverse. Speaking about the company's blurring of physical and digital boundaries between its segments through the introduction of technology products, such as Disney Genie in its parks and Disney Plus at home, Chapek said its efforts "are merely a prologue to a time when we'll be able to connect the physical and digital worlds even more closely, allowing for storytelling without boundaries in our own Disney metaverse."

On CNBC, Chapek told an interviewer that Disney Plus would become a platform for the metaverse and would amalgamate the company's offerings across parks, movies, and books. "I think those come together without boundaries, without borders," he said.

Fool. "Disney Q4 2021 Earnings Transcript."
Business Insider. "What is Disney Plus Day?"
CNBC. "Disney Earnings Miss Across the Board."
CNBC. "Disney Earnings Miss Across the Board."
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