According to Disney, an Important Part of the Streaming Business Was Profitable for the First Time

Disney (DIS) said Tuesday that a key 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 analysts’ estimates.

The direct-to-consumer (DTC) arm of the company’s entertainment segment, which includes Disney+ and Hulu, posted an operating profit of $47 million, compared with a loss of $587 million in the year-ago period.

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

Shares fell in premarket trading as investors digested the release.

Over the past year, Disney has struggled with challenges that included 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 made investors more optimistic in recent months. The company won a high-profile proxy fight against activist Nelson Peltz.

The company reported second-quarter adjusted earnings of $1.21 per share, better than analysts polled by Bloomberg expected $1.10 and better than the $0.93 Disney reported in the quarter reported in the second quarter of 2023.

It also raised its full-year adjusted earnings growth forecast to 25% from 20%. However, Disney suffered a setback after merging its Star India business with Reliance Industries and reported an impairment charge of more than $2 billion.

Revenue came in at $22.1 billion, in line with consensus expectations and surpassing the $21.82 billion the company reported in the year-ago period.

The company warned that DTC results in the entertainment segment will be “weaker” in the third quarter due to losses from its India brand Disney+ Hotstar.

Standouts in the second quarter: streaming, parking business

In the second quarter, the media giant reported a surge in Disney+ subscriber additions as charter cable subscribers begin receiving free subscriptions as part of their packages.

Disney added more than 6 million Disney+ repeat subscribers in the second quarter, beating its own forecast and well above the Bloomberg consensus estimate of 4.7 million.

The company also saw continued positive momentum in average revenue per user (ARPU) amid recent price increases and the crackdown on password sharing. ARPU rose $0.44 sequentially to $7.28.

Meanwhile, the parking business posted another strong quarter, with domestic operating profit increasing to $1.61 billion compared to $1.52 billion in the year-ago period.

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

A segment that underperformed in the quarter? Sports.

ESPN’s domestic operating income fell 9% year-over-year to $780 million, driven by lower affiliate revenue and fewer subscribers as more consumers canceled cable. The company also attributed the results to 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. The segment’s operating income fell 18%. This was also attributed to lower affiliate revenue as well as a decline in advertising revenue.

In February, Disney doubled down on sports streaming by announcing an upcoming joint venture partnership with Fox and Warner Bros. Discovery. The company is also working on a separate sports streaming platform for ESPN, scheduled to launch in fall 2025.

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