• Disney's earnings report on Tuesday shows that Wall Street cares about one thing: streaming growth.

• The company's stock fell as much as 11% despite a report that looked mostly strong.

• Investors elected to focus on lighter-than-expected streaming-subscriber additions.

Disney seemed to do nearly everything right Tuesday when it reported its earnings for its fiscal second quarter.

The company announced better-than-expected profits and only a slight revenue miss, raised its full-year earnings-growth guidance to 25% from 20%, and communicated to investors that its streaming division would be profitable by its fiscal fourth quarter.

But that wasn't enough for Wall Street, with the stock diving as much as 11% following the earnings report, its worst daily decline in 18 months. Investors' main focus ended up being Disney's light forecast for streaming growth.

While Disney+ added 6.3 million new subscribers in the quarter, its total number of streaming subscribers, 153.6 million, was below Wall Street estimates by about 2 million. Additionally, the company's chief financial officer said in the earnings call that the current quarter was pacing toward flat growth.

The sharp move lower highlights the high standard Wall Street has set for Disney's streaming portfolio, which includes Disney+, Hulu, ESPN, and India's Hotstar.

Disney investors would like the media giant to obtain a Netflix-like valuation multiple given its growing streaming business. But for that to happen, Disney would have to deliver incredible Netflix-like execution that's capable of shaking off investor fears about its shrinking legacy TV business.

So far, that doesn't appear to be happening, at least not at a quick enough pace for Wall Street.

And while Disney's streaming business is moving in the right direction overall, it will likely still be a bumpy ride ahead for the unit to deliver consistent profits.

"We are pleased with the progress we're making in streaming, although, as we said before, the path to long-term profitability is not a linear one," Disney CFO Hugh Johnston said on the company's earnings call.

Those comments came right before Disney disclosed that it expected further streaming losses in its fiscal third quarter due to a seasonal slowdown in Disney+ subscriber additions and added expenses related to its cricket rights in India.

Despite the sour day for Disney, many Wall Street analysts defended the company and said the bullish thesis on its transition to a streaming-focused company simply needed more time.

"With Disney's streaming segment turning profitable for the very first time in its history, the stage is set for an earnings inflection," Geetha Ranganathan and Kevin Near, two Bloomberg Intelligence analysts, said in a Tuesday note.

Correction: May 7, 2024 — An earlier version of this story misspelled the last name of Geetha Ranganathan.

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