Disney (DIS) said Tuesday that a significant portion of its streaming business turned a profit for the first time, but that it expected weaker results in that segment for the current quarter, sending its title by almost 10% at the start of the session.
The forecast highlights Disney’s challenges in achieving sustainable profitability in streaming, a key priority as its linear TV business declines. Overall, CEO Bob Iger’s recent turnaround plan has made investors more bullish on the stock in recent months. The company also just scored a victory in a high-profile proxy fight against activist investor Nelson Peltz.
During Disney’s fiscal second quarter, the direct-to-consumer (DTC) portion of its entertainment segment, which includes Disney+ and Hulu, reported an operating profit of $47 million, compared to a loss of $587 million for the period of the previous year.
The company said it expects DTC results in the entertainment segment to be negative in the third quarter, driven by losses at its Indian brand Disney+ Hotstar.
Additionally, not all of Disney’s streaming services were profitable in the second quarter. Including ESPN+, total direct-to-consumer losses were $18 million, compared to $659 million reported in the prior-year period. Disney expects full profitability from streaming by the fourth quarter of this year.
The company reported second-quarter adjusted earnings of $1.21 per share – a pace higher than the $1.10 expected by analysts surveyed by Bloomberg and higher than the $0.93 Disney reported for the second quarter of 2023.
Revenue came in at $22.1 billion, meeting consensus expectations and higher than the $21.82 billion the company reported a year ago.
Disney also raised its full-year adjusted profit growth forecast to 25%, up from 20% previously. However, Disney took a hit after its Star India business merged with Reliance Industries, reporting an impairment charge of over $2 billion.
KeyBanc analyst Brandon Nispel said in a note following the second-quarter results that “soft guidance for entertainment streaming next quarter could dampen enthusiasm. Overall, however, the news from today reinforce Iger’s argument that Disney is in the midst of a long-awaited turnaround.”
Nispel also noted that investors might view Disney’s tepid outlook for its Experiences business, which includes theme parks, as a “negative” for the stock. The company said the segment’s third-quarter operating profit is expected to be “roughly comparable to the prior year.”
During the earnings call, Disney Chief Financial Officer Hugh Johnston said the company saw “evidence of a global moderation from the post-COVID travel peak” at its theme parks. He also noted that rising costs and inflation would likely affect profits.
Second Quarter Highlights: Streaming and In-Park Activity
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