Why Disney Stock Dropped Today

The Motley Fool
The Motley Fool

What happened

Shares of Walt Disney (NYSE: DIS) fell by 6.9% on Friday following the release of Netflix 's (NASDAQ: NFLX) fourth-quarter results.

So what

Netflix warned of slowing subscriber growth for its popular streaming service. The digital entertainment leader expects to add just 2.5 million subscribers in the first quarter. That's down from the 4 million net subscribers it added in the first quarter of 2021.

Netflix's Q1 forecast also fell well short of Wall Street's projections. The consensus analyst estimate had anticipated net subscriber gains of 5.8 million.

Moreover, Netflix noted that competition in the streaming industry was intensifying and negatively impacting its growth. Investors took all of this as a warning that the streaming industry's period of unfettered expansion may be coming to end.

Image source: Getty Images.

Now what

The fast-growing Disney+ streaming service is one of Netflix's biggest competitors, so it's possible that Disney is wrestling away some market share from its rival. However, Disney's net subscriber additions have also fallen short of analysts' estimates in recent quarters, so investors are understandably concerned that these trends point to an industrywide growth slowdown.

That would be problematic for Disney. The entertainment titan has come to rely on Disney+ to fuel its revenue growth, particularly with the pandemic still weighing on its parks and resorts business.

Investors can expect to hear more about the current state of the streaming market when Disney reports its fiscal first-quarter 2022 financial results on Feb. 9. The company's leadership team is slated to hold a webcast on its investor relations website starting at 4:30 p.m. ET that day.

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Joe Tenebruso owns Walt Disney. The Motley Fool owns and recommends Netflix and Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy .

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