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By Dawn Chmielewski and Lisa Richwine

(Reuters) –     Walt Disney Co said on Tuesday its marquee streaming service, Disney+, gained more subscribers than Wall Street had expected, but investment costs dragged quarterly earnings below analysts’ targets.

Shares in Disney fell 5% in after-market trading.

The entertainment co*pany is spending billions to co*pete with Netflix Inc and others for streaming television customers as traditional TV declines in popularity. Disney+ reported 164.2 million subscribers in the fiscal fourth quarter, surpassing Factset estimates of 161 million.

The cost to build Disney’s streaming business led to a $1.5 billion loss in the direct-to-consumer unit, which hurt quarterly earnings.

Net inco*e from continuing operations rose 1% to $162 million. Excluding some items, Disney earned 30 cents per share, missing Wall Street’s target.

Revenue of $20.15 billion for the July-to-September quarter also fell short of the consensus estimate of $21.25 billion.

Disney has amassed a total of 235 million subscriptions across Disney+, Hulu and ESPN+ streaming services, a gain of 14.6 million from the previous quarter. Hulu reported 47.2 million subscribers, up 8% from a year ago, and ESPN+ logged 24.3 million, a gain of 42% from a year earlier, and Disney+ is up 39% from a year ago.   

The co*pany repeated co*ments in August that losses from its direct-to-consumer business would peak in fiscal 2022 which ended Oct. 1.

“We expect our DTC operating losses to narrow going forward and Disney+ will still achieve profitability in fiscal 2024,” said Chief Executive Robert Chapek. “Assuming we do not see a meaningful shift in the economic climate.”

The ad-supported version of the Disney+ service will launch in the United States on Dec. 8, bringing a new source of revenue to underwrite the billions the co*pany spends creating original movies and series for the services. Macquarie Research analyst Tim Nollen estimated the ad tier could bring an additional $800 million in ad sales next year.

Disney theme parks posted robust growth despite COVID-19 related travel restrictions in China and Hurricane Ian forcing the temporary closure of Walt Disney World in Florida in September.

Disney’s parks, experiences and products group reported revenue of $7.4 billion in the quarter, beating analysts’ forecasts. Operating inco*e reached $1.5 billion, more than double a year ago.

Nollen wrote that higher prices, and the technology Disney uses to distribute demand, have resulted in a 40% increase in spending per person since 2019.

For the fiscal year, Disney reported per-share earnings of $3.53, excluding certain items, on revenues of $82.7 billion.

In the fiscal second quarter, Disney said it recognized $1 billion in lost revenue in the second quarter from terminating a film and television contract early so it could use content on its own streaming services.

(This story has been corrected to fix hurricane name in paragraph 11 and timing of $1 billion charge in paragraph 15)

(Reporting by Dawn Chmielewski and Lisa Richwine in Los Angeles; Editing by Richard Chang)