Disney narrowed streaming losses by 97%

Disney's DTC business turned an operating profit of $47 million, marking an improvement from the $587 million loss reported in the same quarter last year. However, its shares value fell over 8% following executive warnings of anticipated softness in the third quarter.

7 MAY 2024

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The Walt Disney Company announced earnings for its second quarter. Among them, the company reported significant progress in its streaming endeavors, narrowing its direct-to-consumer (DTC) operating losses by a staggering 97% to $18 million during the second quarter of 2024. However, despite this milestone, shares of the company plummeted over 8% following executive warnings of anticipated softness in the third quarter.

Disney's net loss for the quarter amounted to $20 million, in contrast to a profit of $1.2 billion a year ago. Earnings per share (EPS) experienced a decline, reporting a loss of 1 cent per share compared to earnings per share of 69 cents in the prior-year quarter. Excluding certain items, EPS stood at $1.21, slightly surpassing the $1.11 expected by analysts.

Revenue figures met expectations, with Disney reporting $22.1 billion in revenue, in line with the projections of analysts surveyed by Zacks Investment Research.

Disney's entertainment DTC business, excluding ESPN+, turned an operating profit of $47 million, marking a remarkable turnaround from the $587 million loss reported in the same quarter last year. CEO Bob Iger acknowledged the non-linear path to profitability, stating, "While we’re anticipating a softer third quarter, due in large part to the seasonality of our Indian sports offerings, we fully expect streaming to be a growth driver for the company in the future and we have prioritized the steps necessary to achieve this."

The division witnessed a 12% year-over-year revenue growth to $6.19 billion. Excluding ESPN+, the DTC entertainment business posted a 13% revenue increase to $5.64 billion. According to data from Parrot Analytics, Disney remained firmly in first place at the corporate demand share category, which assesses the long-term viability of the top media companies as they look to consolidate their original content’s availability exclusively onto their own platforms, and can effectively help value a conglomerate’s legacy and library content in aggregate.

In terms of subscriber growth, Disney+ added 6.3 million core subscribers during the quarter, bringing its total subscriber count to 153.6 million globally. Additionally, Hulu reported a modest increase in subscribers, reaching a total of 50.2 million.

Parrot Analytics explained that, in the upcoming merge of these apps, the service would theoretically become more appealing to both consumers and advertisers, given Hulu series typically draw an older and more female audience, while Disney+ Originals (Star Wars and Marvel) cater towards younger male audiences. A Disney+ and Hulu combination would also be more balanced out between demand for series and demand for movies. Nearly two-thirds of the demand for Disney+ content is for movies, while almost 70% of the demand for content on Hulu is for series, as a go-to streaming home of next day linear shows. Netflix (18.8%) has a sizable lead over the field, but a full combination of Disney+ and Hulu (25.3%), would overtake Netflix as the top streamer for all content demand with U.S. audiences.

However, challenges were evident in other segments. Revenue in the linear networks segment fell by 8%, while the content sales licensing and other segments experienced a 20% decline in revenue, attributing to lower theatrical distribution results.

Looking forward, Disney remains optimistic about its full-year performance, expecting a 25% growth in adjusted earnings per share and aiming to generate $14 billion in cash provided by operations and $8 billion in free cash flow in fiscal year 2024. Despite recent market fluctuations, Disney's shares have demonstrated strong performance over various time frames, reflecting investors' confidence in the company's long-term strategy.