The Walt Disney Company (NYSE:DIS) announced on Wednesday that its streaming division, which includes Disney+, Hulu, and ESPN+, achieved profitability for the first time, although weaknesses in its parks division tempered an otherwise positive earnings report. The company noted a “moderation of consumer demand” toward the end of the fiscal third quarter.
Disney’s direct-to-consumer (DTC) streaming business posted operating income of $47 million in Q3, a turnaround from a loss of $512 million in the same period last year. This result aligns with Disney’s previous expectations for achieving total streaming profitability in the current quarter.
For the fiscal third quarter, Disney reported adjusted earnings of $1.39 per share, exceeding the $1.19 anticipated by analysts polled by Bloomberg and higher than the $1.03 reported in the previous year. Revenue reached $23.2 billion, surpassing the consensus estimate of $23.1 billion and the $22.3 billion from the prior year.
Disney has also increased its full-year adjusted earnings growth forecast to 30%, up from the previous estimate of 25%. Despite this, Disney’s stock initially rose in premarket trading but then fell approximately 3% shortly after the market opened. Year-to-date, Disney shares have been relatively flat.
Looking ahead, Disney remains optimistic about improved streaming profitability in the fourth quarter. Both DTC entertainment, which posted a loss of $19 million in Q3, and ESPN+ are expected to become profitable. Disney plans to increase prices for Disney+ and Hulu starting in October and introduce new features, including ABC Live access and a curated content playlist for young children. Disney CEO Bob Iger mentioned that previous price hikes resulted in only modest churn, and the aim is to boost platform engagement through new features and bundling opportunities.
Disney+ saw a slight increase in core subscribers to 118.3 million from 117.6 million a year ago, although average revenue per user (ARPU) decreased by 3% to $7.74 for domestic users. CFO Hugh Johnston attributed the ARPU decline to increased bundling and shifts to the ad-supported tier.
The parks division was the main disappointment, with domestic operating income dropping 6% year-over-year to $1.35 billion. Disney warned that demand moderation might persist in the coming quarters. Johnston indicated that while there was a slight moderation in demand, it was not significant, and the company expects “flat-ish” revenue from parks in the current quarter. Disneyland Paris is expected to face reduced consumer demand due to the Olympics, while some cyclical softness in China is also anticipated. However, Disney continues to see strong demand for its cruises.
Disney’s linear business faced challenges, with domestic linear network revenue falling 7% due to declines in advertising revenue and lower affiliate revenue as cord-cutting continues. Operating income for this segment dropped 1%. ESPN bucked the trend with a 1% increase in domestic operating income, driven by growth in advertising and subscription revenue.
In February, Disney unveiled a joint venture partnership with Fox and Warner Bros. Discovery to bolster sports streaming and is developing a separate sports streaming platform for ESPN, set to launch in the fall of 2025. Disney’s theatrical releases, including “Inside Out 2” and “Deadpool & Wolverine,” are performing strongly, and upcoming films like “Moana 2” and “Mufasa: The Lion King” are expected to lead the box office in the latter half of the year. Content sales and licensing income surged to $245 million in Q3, a significant turnaround from the $112 million loss in the prior year.
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