Disney Reaches Profitability In Entertainment Streaming

On Monday, The Walt Disney Company DIS surpassed analyst estimates with its fiscal second quarter earnings and provided good news from its streaming arena. Although it is still behind Netflix Inc NFLX on the streaming front, when excluding ESPN, Disney+ and Hulu reported a combined profit for the very first time. However, shares tanked 10% upon the report as overall revenue failed to impress for the fourth straight quarter and Disney guided for a softer third quarter for the experiences segment.

Second Fiscal Quarter Highlights

For the March quarter, Disney posted revenue grew 1% YoY to  $22.08 billion, coming short of LSEG’s estimate of $22.11 billion.

Theme parks continued to do well with U.S. parks and experiences revenue increasing 7% to $5.96 billion. With increased attendance and higher prices at the Hong Kong Disneyland resort, international sales jumped as much as 29% to $1.52 billion. But California resort posted lower profits due to higher labor expenses. 

Restructuring and impairment charges pushed Disney to a loss of $20 million, or 1 cent per share, down from last year’s comparable quarter profit of $1.27 billion, or 69 cents per share. But adjusted profit of $1.21 per share topped LSEG’s expectations of $1.10 cents.

Disney is making progress in catching up to Netflix when it comes to streaming profitability. Streaming business brought in revenue of $6.19 billion. The direct-to-consumer business that includes Disney+ and Hulu went from a loss of $587 million during last year’s comparable quarter to an operating income of $47 million. Streaming revenue rose 13% to $5.64 billion. Disney+ core subscribers also grew by 6 million, with the Netflix rival now having 117.6 million global customers. However, when adding ESPN+ into the equation, the streaming businesses lost $18 million, but it improved significantly from last year’s comparable quarter when the loss amounted to $659 million.

On a less bright note, Content sales, licensing and other revenue that includes box office, tanked 40% to $1.39 billion.

Outlook

Disney warned that current quarter’s results for the parks and experiences business will be weighed down by higher expenses and attendance normalization following a post-pandemic demand surge. 

Also for the current quarter, Disney guided for softness in the overall streaming business due to its platform in India, Disney+Hotstar.

Still, Disney expects its combined streaming segment to reach profitability in the fourth quarter and become a significant growth driver, with further improvements in profitability in fiscal 2025.

The streaming milestone came none too soon as the traditional TV networks business continues to fade into history. Iger’s turnaround and growth initiatives that were set in motion last year to revive the world’s biggest entertainment company are bringing positive results. With entertainment streaming finally reaching quarterly profitability, Disney is on track to achieve profitability in its combined streaming businesses in the fourth quarter as it continues its efforts to catch up to Netflix. 

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