Disney raises earnings outlook as streaming unit hits first profit

Los Angeles — Walt Disney’s streaming entertainment unit posted its first profit on Tuesday, two quarters ahead of schedule, and the media company raised its annual earnings per share outlook as it said turnaround efforts were yielding results.

For January to March, the direct-to-consumer entertainment division, which includes the Disney and Hulu streaming services, reported operating income of $47m, compared with a loss of $587m a year earlier.

But the combined streaming business with ESPN+ lost $18m. The division lost $659m in the previous year.

Shares of the company were down 1.7% in premarket trading.

Disney now expects adjusted earnings per share to rise 25% this fiscal year, the company said, up from the 20% it previously forecast. It attributed the change to strong results at theme parks and improvements in the streaming business.

Disney had promised Wall Street that the streaming operation would become profitable by September. The division had been losing money since Disney debuted in 2019 in the company’s major push to compete with Netflix.

“Our strong performance this past quarter demonstrates we have turned the corner and entered a new era for our company,” CEO Bob Iger, who defeated board challenges from activist investors last month, said.

“The steps we are taking lend themselves to solidifying Disney’s place as the preeminent creator of global content,” Iger added.

Like other media companies, Disney has been trying to adapt to consumer migration from cable television to streaming entertainment.

Iger, who came out of retirement to revamp Disney in November 2022, instituted cost cuts that are expected to reach at least $7.5bn by end-September. He also unveiled a 10-year, $60bn investment in theme parks and announced plans for a stand-alone ESPN streaming app.

Lower-priced plan

The earlier-than-expected profit from streaming entertainment was driven by aggressive cost management, CFO Hugh Johnston said. A year ago, the streaming unit lost $587m.

Disney added more than 6-million customers during the quarter, and average revenue per user rose 44c, outside India. Disney offers a lower-priced plan in India that it counts separately.

Because of costs to stream cricket, streaming entertainment is likely to report a loss for the current quarter but swing back to a profit the next period, Johnston said.

The combined streaming unit should generate a fiscal fourth-quarter profit and become a “meaningful future growth driver for the company, with further improvements in profitability for fiscal 2025”, Disney said in its earnings statement.

During the second quarter, the Mouse House posted diluted earnings per share, excluding certain items, of $1.21, ahead of analysts’ consensus estimate of $1.10, according to LSEG data. Quarterly revenue rose to $22.1bn, in line with analyst forecasts.

The company’s experiences division, which includes the Disney theme parks worldwide, reported operating income of $2.3bn, a 12% increase from a year earlier.

At Disney’s entertainment segment, the home of the traditional TV business, streaming and film, operating income rose 72% from a year earlier to $781m.

Operating income in the sports unit, which includes ESPN, fell 2% to $778m, which it attributed to the timing of college football playoff games.

Reuters