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Disney says key part of streaming business was profitable for the first time

In Business
May 07, 2024

Disney (DIS) said Tuesday that an important part of its streaming business turned a profit for the first time as the media giant reported fiscal second quarter earnings per share that beat analyst estimates.

The company’s direct-to-consumer (DTC) portion of its entertainment segment, which includes Disney+ and Hulu, posted operating income of $47 million, compared to a loss of $587 million in the prior year period.

That doesn’t mean all of Disney’s streaming services were profitable. Including ESPN+, total direct-to-consumer losses amounted to $18 million versus the $659 million loss reported in the year-earlier period. Disney expects full streaming profitability by the fourth quarter of this year.

Shares moved lower in pre-market trading as investors digested the release.

Over the past year, Disney has been grappling with challenges that include a declining linear TV business, slower growth in its parks business, and profitability hurdles in streaming. But a recent turnaround plan from CEO Bob Iger has investors more bullish in recent months. The company is fresh off a win in a high-profile proxy fight against activist investor Nelson Peltz.

The company reported Q2 adjusted earnings of $1.21 a share — a beat compared with the $1.10 analysts polled by Bloomberg had expected and higher than the $0.93 Disney reported in Q2 2023.

It also raised its guidance for full-year adjusted earnings growth to 25%, up from the prior 20%. However, Disney did take a hit after merging its Star India business with Reliance Industries, reporting an impairment charge of more than $2 billion.

Revenue came in at $22.1 billion, meeting consensus expectations and ahead of the $21.82 billion the company reported in the year-ago period.

The company did warn DTC results in the entertainment segment will be “softer” in the third quarter, driven by losses from its Indian brand Disney+ Hotstar.

In the second quarter, the media giant reported an increase in Disney+ subscriber additions as Charter cable subscribers begin to receive complimentary subscriptions as part of their packages.

Disney added more than 6 million core Disney+ subscribers in the second quarter, ahead of its own guidance and easily beating Bloomberg consensus estimates of 4.7 million.

The company also saw continued positive momentum in average revenue per user, or ARPU, amid recent price hikes and a crackdown on password sharing. ARPU increased sequentially by $0.44 to $7.28.

Meanwhile, the parks business delivered another strong quarter of results with domestic operating income surging to $1.61 billion compared to $1.52 billion in the prior year period.

The company cited the increase to higher results at Walt Disney World Resort and Disney Cruise Line, partially offset by lower results at Disneyland Resort.

One segment that underperformed in the quarter? Sports.

Domestic operating income at ESPN fell 9% year over year to $780 million, dragged down by lower affiliate revenue and fewer subscribers as more consumers cut the cord. The company also blamed the results on an increase in production costs due to College Football Playoff (CFP) programming.

It was a similar story for domestic linear network revenue within the entertainment division, which fell 11% year over year in the quarter. Operating income within the segment dropped 18%. This was also blamed on lower affiliate revenue, along with a decline in advertising revenue.

In February, Disney doubled down on sports streaming with the reveal of an upcoming joint venture partnership with Fox and Warner Bros. Discovery. The company is also working on a separate sports streaming platform for ESPN, set to debut in fall 2025.

Related to sports, Disney has reportedly agreed to increase its media rights deal with the NBA to $2.6 billion, up from the previous $1.5 billion. The NBA’s current rights deal expires at the end of next season.

Disney CEO Bob Iger recently guided the company through a proxy battle with activist investor Nelson Peltz. (Photo by VCG/VCG via Getty Images)

Disney CEO Bob Iger recently guided the company through a proxy battle with activist investor Nelson Peltz. (VCG/VCG via Getty Images) (VCG via Getty Images)

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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