Disney Returns to Profit with Boost from Streaming Services and Box Office Hits

Disney has rebounded to profitability in the third quarter, with its combined streaming businesses turning a profit for the first time, bolstered by an impressive theatrical performance of “Inside Out 2.” The entertainment segment, which includes the movie studio and parts of its television wing, saw operating income nearly triple to $1.2 billion. Disney’s box office success continues with “Deadpool & Wolverine,” securing the company the top two films of the year.

On Wednesday, The Walt Disney Co. reported a significant reduction in its direct-to-consumer business losses, which includes Disney+ and Hulu. The quarterly operating loss was $19 million, a vast improvement from the $505 million loss a year earlier. Revenue climbed 15% to $5.81 billion.

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This announcement came a day after Disney revealed upcoming price increases for Disney+, Hulu, and ESPN+ starting October 17. Disney+ and Hulu, each with ads, will now cost $9.99 monthly, reflecting a $2 increase. The ad-free version of Disney+ will be $15.99 per month, also up by $2, while Hulu’s ad-free version will rise to $18.99 monthly, a $1 increase. ESPN+, available only with ads, will see a $1 hike to $11.99 per month.

For the period ending June 29, Disney earned $2.62 billion, or $1.43 per share, a stark contrast to the loss of $460 million, or 25 cents per share, a year earlier. Excluding one-time gains, earnings were $1.39 per share, surpassing the $1.20 anticipated by analysts polled by Zacks Investment Research. Revenue rose 4% to $23.16 billion, exceeding Wall Street’s estimate of $22.91 billion.

Despite the positive financials, Disney’s stock faced pressure in early trading due to weaknesses in its domestic parks, which are part of its Experiences division encompassing six global theme parks, a cruise line, merchandise, and video game licensing. The company warned that diminished demand at U.S. parks might persist for the next few quarters. It forecasts a mid-single-digit decline in operating income for the fourth quarter, attributed to weaker domestic park performance, cyclical softening in China, and reduced attendance at Disneyland Paris due to the impact of the Olympics on consumer travel.

During a conference call, Johnston noted that lower-income consumers, experiencing more financial stress, have impacted park attendance, while higher-end consumers are engaging in more international travel. Domestic parks and Experiences operating income fell 6%, although international parks and experiences saw a 2% rise in operating income. Revenue for domestic parks climbed 3% in the third quarter, while international parks revenue rose by 5%.

The decline in domestic parks’ operating revenue was driven by increased costs from inflation, technology spending, and new guest offerings. However, the company generated $254 million in operating income from content sales and licensing, supported by the blockbuster performance of “Inside Out 2,” now the highest-grossing animated film of all time with over $1.5 billion in global revenue.

Disney indicated that the original “Inside Out” from 2015 contributed to more than 1.3 million Disney+ sign-ups and over 100 million views worldwide since the release of the first “Inside Out 2” teaser trailer. The combined streaming businesses, encompassing Disney+, Hulu, and ESPN+, turned profitable for the first time, driven by a robust quarter for ESPN+ and a stronger-than-expected performance from the direct-to-consumer unit.

CEO Bob Iger and Senior Executive Vice President and Chief Financial Officer Hugh Johnston highlighted that ESPN enjoyed its most-watched third quarter in a decade among adults aged 18-49, thanks to strong viewership in several categories, including the NBA finals, WNBA draft, NHL playoffs, and Stanley Cup finals.

Back in May, Disney anticipated a softer third-quarter performance for its overall streaming business, accrediting it to its Indian platform, Disney+ Hotstar. However, they also predicted profitability in the fourth quarter, making this quarter’s profitability a welcome surprise. Disney now expects full-year adjusted earnings per share growth of 30%.

In April, shareholders rebuffed activist investor Nelson Peltz’s attempts to gain board seats, expressing strong support for Iger, who is working to revitalize the company after facing challenges. In June, Disney requested a federal appellate court to dismiss its lawsuit against Florida Governor Ron DeSantis following an agreement on a development deal for Walt Disney World, ending their long-standing conflict. The 15-year agreement includes Disney investing $17 billion into Disney World over the next two decades, with the district committing to infrastructure improvements on the resort’s property.

Nevertheless, shares dipped more than 2% in early trading.