Disney+ Soars to Profitability, Outpacing Netflix in Streaming Race

Disney's Q2 financial results showed a loss due to restructuring, but adjusted profit exceeded expectations. Its streaming segment turned a profit, with Disney+ subscribers increasing. Theme parks performed well, and Disney raised its annual earnings outlook. Despite higher park costs, guests spent more due to increased ticket prices. Streaming will be a key growth driver, with profitability expected in Q4 and further improvements in 2025. Investors may have expected more, but the company emphasizes its core business model. Analysts see progress in streaming profitability, which is ahead of schedule. Disney faced increased content sales and licensing revenue due to fewer movie releases compared to the previous year. Shares dropped before market open, but Disney has made cost reductions and reached a settlement with Florida over Walt Disney World's development.

The Walt Disney Co. swung to a loss in its second quarter because of restructuring and impairment charges, but its adjusted profit topped expectations and its streaming business turned a profit. Theme parks also continued to do well and the company boosted its outlook for the year. While Disney said on Tuesday that it foresees its overall streaming business softening in the current quarter due to its platform in India, Disney+Hotstar, it expects its combined streaming businesses to be profitable in the fourth quarter and to be a meaningful future growth driver for the company, with further improvements in profitability in fiscal 2025. The direct-to-consumer business, which includes Disney+ and Hulu, posted quarterly operating income of USD 47 million compared with a loss of USD 587 million a year earlier. Revenue rose 13 per cent to USD 5.64 billion. Disney+ core subscribers climbed by more than 6 per cent in the second quarter.

"Looking at our company as a whole, it's clear that the turnaround and growth initiatives we set in motion last year have continued to yield positive results," CEO Bob Iger said in a prepared statement.

It's the first financial report since shareholders rebuffed efforts by activist investor Nelson Peltz to claim seats on the company board last month, standing firmly behind Iger as he tries to energise the company after a rough stretch. Thomas Monteiro, senior analyst at Investing.com, said that some Disney investors may have been expecting more from the quarterly report, but that "the company has tilted its operation back to its core business model, which is more conservative by nature." Monteiro was focused on the company's efforts to turn its streaming division profitable. "The big surprise of the day came on the streaming front, which finally managed to bring profits - way ahead of predictions - amid Hollywood's massive strike period," Monteiro said. ''This indicates that perhaps the more global, low-production-cost Netflix-like model is probably the way to go in an operation that needs to rethink its growth expectations as a whole." Revenue at Disney's domestic theme parks rose 7 per cent, while its theme parks overseas reported a 29 per cent increase.

But Disney acknowledged wrestling with higher costs at its theme parks during the quarter due to inflation.

The company said that there was increased spending by guests at Walt Disney World due to higher ticket prices, while Disneyland guests boosted their spending due to an increase in ticket prices and hotel room rates. Overseas, Hong Kong Disneyland benefited from the opening of World of Frozen, a section of the park that includes rides based on the popular "Frozen" movies, in November. For the period ended March 30, Disney lost USD 20 million, or a penny per share. That compares with a profit of USD 1.27 billion, or 69 cents per share, a year ago.

Restructuring and impairment charges surged to USD 2.05 billion from USD 152 million in the prior-year period.

Adjusted earnings, which stripped out the charges and other items, were USD 1.21 per share, easily beating the USD 1.12 per share that analysts polled by Zacks Investment Research predicted. Disney said that due to its second-quarter performance, it now has a full-year adjusted earnings per share growth target of 25 per cent. It previously predicted growth of at least 20 per cent. The Burbank, California, company's revenue rose to USD 22.08 billion from USD 21.82 billion a year earlier, but was slightly lower than Wall Street estimates of USD 22.13 billion.

Content sales and licensing revenue tumbled 40 per cent because Disney didn't release any significant movie titles during the second quarter as compared with the prior-year period, which included the release of "Ant-Man and the Wasp: Quantumania." The year-ago results were also helped by the ongoing performance of ''Avatar: The Way of Water,'' which was released in December 2022. Shares dropped 5 per cent before the market open. In February The Walt Disney Co. said that it was making "significant cost reductions" and reduced its selling, general and other operations expenses by USD 500 million in its first quarter. The company cut thousands of jobs in 2023.

In March allies of Governor Ron DeSantis and Disney reached a settlement agreement in a state court fight over how Walt Disney World is developed in the future following the takeover of the theme park resort's government by the Florida governor.

Last month character performers at Disneyland in California and the union organising them, Actors' Equity Association, said they had filed a petition for union recognition.

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