Disney achieves profitability in entertainment streaming

The Walt Disney Company (NYSE: DIS) beat analyst estimates with its second-quarter financial results on Monday and delivered some good news in the streaming space. Although still behind Netflix Inc (NASDAQ: NFLX) on the streaming front, excluding ESPN, Disney+ and Hulu reported combined profit for the first time ever. However, shares fell 10% after the report was released as overall revenue failed to impress for the fourth straight quarter and Disney looked toward a softer third quarter for the experiences segment.

Fiscal Second Quarter Highlights

For the March quarter, Disney reported growth of 1% year over year to $22.08 billion, below the LSEG estimate of $22.11 billion.

Theme parks continued to do well in the United States, with revenue increasing 7% to $5.96 billion. With increased attendance and higher prices at the Hong Kong Disneyland resort, international sales jumped 29% to $1.52 billion. But California resorts reported lower profits due to higher labor expenses.

Restructuring and impairment charges pushed Disney to a loss of $20 million, or 1 cent per share, down from last year's comparable quarter profit of $1.27 billion, or 69 cents per share. But adjusted earnings of $1.21 per share beat LSEG's expectations of $1.10.

Disney is making progress to catch up with Netflix in streaming profitability. The streaming business generated revenue of $6.19 billion. The direct-to-consumer business that includes Disney+ and Hulu went from a loss of $587 million in the comparable quarter last year to an operating profit of $47 million. Streaming revenue increased 13% to $5.64 billion. Disney+'s core subscriber count also increased by 6 million, with rival Netflix now counting 117.6 million customers worldwide. However, adding ESPN+ to the equation resulted in the streaming business losing $18 million, but that was significantly improved from last year's comparable quarter, where the loss was $659 million. .

On a less positive note, content sales, licensing and other revenue, including box office, fell 40% to $1.39 billion.

Outlook

Disney warned that current quarter results for the parks and experiences sector would be weighed down by higher spending and a normalization of attendance following a post-pandemic surge in demand.

Also for the current quarter, Disney has shifted towards softness in the overall streaming business due to its platform in India, Disney+Hotstar.

Nonetheless, Disney expects its combined streaming segment to reach profitability in the fourth quarter and become a significant growth driver, with further improvements in profitability in fiscal 2025.

The story continues

The streaming milestone has come none too soon as the traditional television network industry continues to fade into history. Iger's turnaround and growth initiatives launched last year to revive the world's largest entertainment company are yielding positive results. With entertainment streaming finally reaching quarterly profitability, Disney is on track to achieve profitability for its combined streaming businesses in the fourth quarter, while continuing its efforts to catch up with Netflix.

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