Disney Tumbles on Streaming Subscriber Miss, Weak Profit Outlook

07/05/2024

The Disney store in the Times Square neighborhood of New York.

(Bloomberg) — Walt Disney Co. shares tumbled after the world’s biggest entertainment company reported subscribers for its Disney+ streaming service were lower than analysts expected and a profit outlook for the year also came up short. The stock slid 6% in early trading.

Disney raised its guidance for full-year earnings growth to 25% from 20%, though analysts were looking for an increase of 25.5%. Disney+ subscribers totaled 153.6 million in the three months ended March 30, less than the 155.66 Wall Street was looking for.

The misses overshadowed what was otherwise a strong second-quarter report.

Earnings rose to $1.21 a share, excluding some items, in the period ended March 30, surpassing the $1.12 average of analysts’ estimates. Revenue in the first three months of the year increased 1.2% to $22.08 billion, compared with analysts’ forecast for $22.1 billion.

While the shares tanked on the report, the profit results marked the fourth straight quarter that Disney has beaten expectations in a sign that a turnaround is gaining momentum under Chief Executive Officer Bob Iger. Those gains helped Iger vanquish activist investor Nelson Peltz, who unsuccessfully campaigned for a board seat at Disney’s annual meeting in April.

The Disney store in the Times Square neighborhood of New York.

Chief Financial Officer Hugh Johnston described the quarter as “a strong one for us,” in an interview on Bloomberg TV, pointing to strong gains in the company’s experiences division. Profit climbed 12% at the Disney division that includes parks, while losses from streaming shrank to $18 million from $659 million a year earlier.

While so-called value consumers are still struggling to decide where to spend their money, Johnston said “we’re not seeing that in our portfolio of products.” He noted that Disney hasn’t seen much of an impact after raising streaming prices earlier this year.

Disney shares were up 29% this year through Monday, with Iger unveiling initiatives such as a $1.5 billion investment in Fortnite developer Epic Games, steep cost cuts and the restoration of dividend payments.

The entertainment part of the company’s direct-to-consumer unit, which includes Disney+ and Hulu but not ESPN+, reported a profit of $47 million, as sales growth outpaced higher costs for programming and marketing.

“We got profitable earlier than we expected as the costs came in better than expected,” Johnston said in a telephone interview.

Streaming results in the fiscal third quarter will be weaker due to the timing of cricket-related costs in India, Johnston said, but the company still expects its entire streaming business to be profitable in the fiscal fourth quarter.

“Soft guidance for entertainment streaming next quarter might tamp enthusiasm,” on the stock, said Steve Severinghaus, an analyst at Emarketer, in a note to investors. “In all, though, today’s news strengthens Iger’s argument that Disney is in the middle of a long-awaited turnaround.”

Profit in theme parks is forecast to be flat in the third quarter due to expenses such as a new cruise ship before resuming growth later in the year, Johnston said.

Earnings in Disney’s theme-park division rose to $2.29 billion in the second quarter, driven by sharply higher results internationally, especially Hong Kong. Domestically the company’s cruise line and Disney World resort in Florida registered income growth, while California’s Disneyland saw weaker performance due to higher costs.

Disney had no new theatrical releases in the quarter, partly due to the twin strikes by writers and actors last year. Iger is seeking to reinvigorate that business by delaying some films to focus on quality. The unit that includes the movie studio reported a loss of $18 million in the quarter on a 40% decline in sales.

Traditional TV networks, once a growth engine for the company, reported weaker results. Sales fell 8% to $2.77 billion in the unit that includes ABC, the Disney Channel and other TV networks. Profit fell 22% to $752 million due to lower ad sales and fewer cable subscribers.

In the sports segment, home to ESPN and related networks, sales rose 2% to $4.31 billion while profit fell 2% to $778 million, due in part to higher domestic rights fees.

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