Disney (DIS) said Tuesday that a key part of its streaming business turned a profit for the first time, but the company expects weaker results in that segment in the current quarter, sending shares down as much as 8%. would lead pre-market.
The forecast highlights Disney’s challenges in achieving sustained profitability in streaming, a key priority given the decline in its linear TV business. Overall, a recent turnaround plan from CEO Bob Iger has led investors to become more bullish on the stock in recent months. The company also just scored a victory in a high-profile proxy fight against activist investor Nelson Peltz.
In Disney’s second fiscal quarter, its direct-to-consumer (DTC) entertainment segment, which includes Disney+ and Hulu, posted an operating profit of $47 million, compared to a loss of $587 million in the year-ago period.
The company said it expects DTC results in the entertainment segment to be in the red in the third quarter, driven by losses from its India brand Disney+ Hotstar.
Additionally, not all of Disney’s streaming services were profitable in the second quarter. 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.
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.
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.
Disney 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.
KeyBanc analyst Brandon Nispel said in a note following second-quarter results that “soft guidance for entertainment streaming next quarter could dampen enthusiasm. Overall, however, today’s news reinforces Iger’s argument that Disney is in the midst of a long-awaited turnaround.”
Nispel also noted that investors may view Disney’s weak outlook for its experiences business, which includes theme parks, as a “negative” for the stock. The company said the segment’s operating income in the third quarter should be “approximately comparable to last year.”
In the earnings call, Disney CFO Hugh Johnston said the company had seen “some evidence of a global slowdown due to the post-coronavirus peak travel season” at its theme parks. He also noted that rising costs and inflation will likely take a hit on profits.
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.
“I think prices on the streaming service will steadily increase over time, primarily because the content we have is worth paying for,” Johnston told Yahoo Finance Editor-in-Chief Brian Sozzi on Tuesday .
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 profits at Walt Disney World Resort and Disney Cruise Line, partially offset by lower results at Disneyland Resort.
Meanwhile, ESPN’s domestic operating revenue 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.
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and send her an email at [email protected].
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