Why Discovery Stock fell 12% this week
Shares of Discovery (NASDAQ: DISCA)(NASDAQ: DISC) are down around 12% from where they closed trading last Friday, according to data from S&P Global Market Intelligencereversing a rally that began in December as investors begin to pull away from the early winners of the pandemic.
Like netflixit is (NASDAQ:NFLX) the just released fourth quarter earnings report shows (and waltz disneyit’s before), it’s increasingly difficult to attract subscribers to streaming services now that the containment phase of the pandemic is well past the rearview mirror and out-of-home activities are fully available again.
The streaming service leader saw 8.3 million net new subscribers in the fourth quarter, down from the 8.5 million subscribers it had been aiming for, marking Netflix’s slowest annual growth in six year.
Discovery launched its own streaming service, Discovery+, a year ago, helping to boost stocks, then it got caught up in the stock trading frenzy even as its shares were heavily shorted. The stock hit $66 per share as short sellers unwound their positions, but fell sharply thereafter and has been trending lower ever since.
The media company’s boost in November came as a result of adding 3 million more subscribers to its streaming service, though earnings missed analysts’ projections, and it rebounded again in December at over $30 a stub after European Union approval for its acquisition of AT&Tit is Warner Media Company and a favorable IRS ruling on the deal, meaning it will be a tax-free transaction.
Still, fears of slowing subscriber growth have clouded Discovery’s stock this week, and news from Netflix has dragged it down. The streaming giant predicts it will add just 2.5 million new subscribers in the first quarter, less than half of what Wall Street expected.
Since Disney had only added 2.1 million subscribers when it released its results in November, it doesn’t bode well for Discovery when it releases its own earnings report next month.
Although the realm of streaming is crowded, it is likely to shrink in the future. As its acquisition of WarnerMedia indicates, some current players will exit the space and others will simply disappear, as many pundits have long expected the market to only support so many. .
Consumers only have a limited amount of disposable income to allocate to streaming, so only a handful will become the go-to choice. Netflix and Disney seem like obvious choices, with Amazon‘s Prime Video, because it’s included in the loyalty program, which means there are only a few slots open to others streaming service stocks.
Discovery is actually well positioned now with the WarnerMedia deal as it will get the popular HBO Max service included.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Rich Duprey owns AT&T. The Motley Fool owns and recommends Amazon, Netflix and Walt Disney. The Motley Fool recommends Discovery (C-shares) and recommends the following options: $1,920 January 2022 long calls on Amazon, $145 January 2024 long calls on Walt Disney, $1,940 January 2022 short calls on Amazon and $155 short calls from January 2024 on Walt Disney. The Motley Fool has a disclosure policy.
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