Disney (NYSE:DIS) reported its fiscal third-quarter earnings on Wednesday, showcasing a mix of positive and negative results that reflect the company’s current strategic priorities and challenges. Notably, Disney’s streaming division posted its first-ever profit, marking a significant milestone for the company’s direct-to-consumer business. However, the success in streaming was tempered by underperformance in Disney’s parks and experiences division, which continues to face headwinds from a moderation in consumer demand.
Streaming Division Turns First Profit
One of the most significant highlights of the Disney earnings report was the profitability of its streaming division, which includes Disney+, Hulu, and ESPN+. The division posted an operating income of $47 million, a substantial turnaround from the $512 million loss reported in the same quarter last year. This marks a major milestone for Disney, which had been targeting streaming profitability by this quarter.
The overall strength of Disney’s streaming business was further underscored by its revenue, which came in at $23.2 billion, exceeding analyst expectations of $23.1 billion. This performance also marked a notable improvement from the $22.3 billion reported in the same period last year. The success of Disney’s streaming services, despite competitive pressures and market saturation, is a positive sign for the company’s long-term growth strategy.
Challenges in the Parks Division
While the streaming division shone, the Disney earnings report also highlighted ongoing challenges in the company’s parks and experiences division. Domestic operating income from the parks dropped by 6% year-over-year to $1.35 billion. This decline was attributed to a “moderation of consumer demand,” a trend that Disney warned could persist over the next few quarters.
The company’s CFO, Hugh Johnston, acknowledged the slowdown during the earnings call, indicating that while there was a slight drop in demand, it wasn’t a significant shift. However, Disney expects operating income in its Experiences segment to decline by mid-single digits in the next quarter, reflecting these underlying dynamics.
Price Hikes and Subscriber Growth
Looking ahead, Disney remains optimistic about the future of its streaming services. The company announced that it would implement new price hikes for its Disney+ and Hulu plans in October. Additionally, Disney plans to introduce new features, such as access to ABC Live and curated content for young children, to boost subscriber engagement.
During the third quarter, Disney+ saw a slight increase in its subscriber base, growing to 118.3 million from 117.6 million in the same period last year. However, average revenue per user for
domestic Disney+ users fell by 3% to $7.74. This decline was attributed to increased bundling and a shift towards the ad-supported tier, which Disney has been aggressively promoting.
Linear Networks and Content Sales
The Disney earnings report also shed light on the performance of its linear networks, which continued to struggle in the face of cord-cutting trends. Domestic linear network revenue fell by 7%, primarily due to a decline in advertising revenue and lower affiliate revenue. Operating income within this segment dropped by 1%, reflecting the broader challenges facing traditional TV networks.
On a brighter note, Disney’s theatrical releases and content sales showed signs of recovery. The company’s content sales and licensing income surged to $245 million in Q3, a significant improvement from the $112 million loss reported in the same quarter last year. Hits like “Inside Out 2” and “Deadpool & Wolverine” contributed to this resurgence, and Disney is expected to lead the box office in the latter half of the year with highly anticipated releases like “Moana 2” and “Mufasa: The Lion King.”
Future Outlook
Despite the mixed results, Disney raised its full-year adjusted earnings growth guidance to 30%, up from the prior 25%. This adjustment reflects the company’s confidence in its streaming business, even as it faces challenges in other areas.
Looking forward, Disney remains focused on expanding its streaming offerings and addressing the challenges in its parks and experiences division. The company’s strategy to boost streaming engagement through price increases and new features, coupled with its commitment to managing costs in the parks segment, will be key to sustaining its growth.
Featured Image: Pixabay© WolreChris
