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Disney’s streaming business turns profit in first financial report since Iger challenge
Walt Disney Co. swung to a loss in the second quarter due to restructuring and impairment charges, but its adjusted profit beat expectations and its streaming business turned a profit. Theme parks also continued to perform well and the company improved its outlook for the year.
While Disney said on Tuesday it expects its overall streaming business to slow in the current quarter due to its India platform, Disney+ Hotstar, it expects its combined streaming business to be profitable in the fourth quarter and be a driver of significant future growth for the company, with further improvements in profitability in fiscal 2025.
The direct-to-consumer business, which includes Disney+ and Hulu, posted a quarterly operating profit of $47 million, compared with a loss of $587 million a year earlier. Revenue increased 13% to $5.64 billion.
For the combined streaming business, which includes Disney+, Hulu and ESPN+, second-quarter operating loss narrowed to $18 million from $659 million, while revenue improved to $6.19 billion from $5. .51 billion.
Disney+ core subscribers increased more than 6% in the second quarter.
However, Disney’s improved streaming image comes as its cable business declines. This segment saw revenue fall 8% in the most recent quarter.
“Looking at our company as a whole, it is clear that the recovery and growth initiatives we began last year have continued to produce positive results,” CEO Bob Iger said in a prepared statement.
Speaking during Disney’s conference call, Iger said the company plans to add an ESPN tab to Disney+ by the end of the year, a move it has done previously with Hulu. This will give US subscribers access to some live sports and studio programming on the Disney+ app.
ESPN, Fox and Warner Bros. Discovery announced plans in February to launch a fall sports streaming platform that will include offerings from at least 15 networks and all four major professional sports leagues.
Iger also said that next month the company will begin cracking down password sharing for its streaming service in some markets and will expand this crackdown globally in September.
While Disney has quality streaming content, Iger said the company must now focus on developing its technology, similar to what rivals like Netflix have done. These actions, including the password crackdown, are expected to increase profits.
It is the first financial report since shareholders rejected the efforts of activist investor Nelson Peltz to claim seats on the company’s board last month, firmly supporting Iger as he tries to energize the company after a difficult period.
Thomas Monteiro, senior analyst at Investing.com, said some Disney investors may expect more from the quarterly report, but that “the company has tilted its operation back to its core business model, which is more conservative in nature.”
Monteiro was focused on the company’s efforts to make its streaming division profitable.
“The big surprise of the day came in the streaming sector, which finally managed to generate profits – well above forecasts – amidst the period of massive strike in Hollywood,” said Monteiro. “This indicates that perhaps the more global, low-cost production model, similar to Netflix, is probably the way forward in an operation that needs to rethink its growth expectations as a whole.”
Disney’s domestic theme park revenue increased 7%, while overseas theme parks reported a 29% increase.
But Disney acknowledged it faced higher costs at its theme parks during the quarter due to inflation.
The company said there has been an increase in spending by Walt Disney World guests due to rising ticket prices, while Disneyland guests have increased their spending due to rising ticket prices and hotel room rates.
Overseas, Hong Kong Disneyland benefited from the opening of World of Frozen, a section of the park that includes attractions based on the popular “Frozen” films, in November.
As with many tourist destinations, Disney continues to adjust to post-pandemic travel.
“While consumers continue to travel in record numbers and we are still seeing healthy demand, we are seeing some evidence of a global moderation since the post-Covid travel peak,” Chief Financial Officer Hugh Johnston said during the conference call.
In the period ending March 30, Disney lost $20 million, or a penny per share. That compares with a profit of $1.27 billion, or 69 cents per share, a year ago.
Restructuring and impairment charges increased to $2.05 billion from $152 million in the same period last year.
Adjusted earnings, excluding charges and other items, were $1.21 per share, easily beating the $1.12 per share forecast by analysts surveyed by Zacks Investment Research.
Disney said that because of its second-quarter performance, it now has a full-year adjusted EPS growth target of 25%. Previously, it predicted growth of at least 20%.
The Burbank, Calif., company’s revenue rose to $22.08 billion from $21.82 billion a year earlier, but was slightly below Wall Street estimates of $22.13 billion.
Content sales and licensing revenue fell 40% as Disney did not release any significant film titles during the second quarter compared to the same period a year ago, which included the release of “Ant-Man and the Wasp: Quantumania.” ”. The prior year’s results were also helped by the continued performance of “Avatar: The Way of Water,” which was released in December 2022.
Shares fell more than 10% on Tuesday.
In February, Walt Disney Co. said it was making “significant cost reductions” and reduced its selling, general and other operating expenses by $500 million in the first quarter. The company cut thousands of jobs in 2023.
In March, allies of Governor Ron DeSantis and Disney reached a town settlement in a state court dispute over how Walt Disney World will be developed in the future following the Florida governor’s takeover of the theme park.
Last month, performers at Disneyland in California and the union that organizes them, the Actors’ Equity Association, said they filed a petition for union recognition.