Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Disney shares tumbled 9.5 per cent on Tuesday even as it reported the first profit in its core streaming business since it leapt into a battle with Netflix five years ago.
The Disney+ and Hulu streaming unit earned an operating profit of $47mn in the quarter to the end of March, compared with a $587mn loss a year earlier. Disney achieved the milestone months earlier than expected thanks to cost-cutting and the popularity of Hulu programmes including Shogun and The Bear.
But investors appeared to be more focused on a potential slowdown in the company’s theme parks, which have rebounded strongly since the pandemic restrictions began to lift.
Bob Iger, chief executive, highlighted the quarterly improvement in streaming and its experiences division, where theme parks outside the US, including Shanghai Disney, performed well. “We are turbocharging growth in our experiences business with a number of near- and long-term strategic investments,” he said.
In a call with investors, Hugh Johnston, Disney’s chief financial officer, said higher expenses from the launch of two new cruise ships would limit growth in the current quarter. He also said the post-pandemic travel boom could be running out of steam.
“While consumers continue to travel in record numbers and we are still seeing healthy demand, we are seeing some evidence of a global moderation from peak post-Covid travel,” he said.
Rich Greenfield, an analyst at LightShed Partners, said that message was jarring to investors who have been “counting on the post-Covid normalising of demand” at the theme parks to continue.
“The parks have been so strong and so solid quarter after quarter,” he said. “Now they have introduced concerns about that growth slowing.”
The improvement in the streaming business came as Disney reported a net loss of $20mn — owing largely to goodwill impairments — on $22.1bn in revenue in the quarter to the end of March.
Excluding those impairments, Disney’s adjusted earnings of $1.21 a share were up 30 per cent from a year ago and topped the $1.10 Wall Street had expected. The company also raised its adjusted earnings target for the full year.
The group’s total direct to consumer streaming business, which includes sports service ESPN+, narrowed its operating loss to $18mn in the quarter.
The streaming business has lost more than $11bn since its launch, but Disney has cut costs and raised prices in an aggressive push to achieve profitability.
“Crossing the profitability threshold early is something that we can feel very good about,” Johnston told the Financial Times.
Forrester analyst Mike Proulx said: “It’s extremely rare in streaming to hear the word ‘profitable’ but Disney finally achieved it, kind of. This is a big turning point for Disney and for the streaming market in general.”
Disney+ would lose money in the current quarter because of Disney+ Hotstar in India, though the combined streaming business was expected to be profitable in the fourth quarter, the company said, as it forecast further improvements in streaming profitability next year.
The earnings report was the first since Iger fended off a proxy challenge from Trian Partners’ Nelson Peltz, who was seeking two seats on the board. Iger said the latest results were proof that the “turnaround and growth initiatives we set in position last year have continued to yield positive results”.
Iger’s plan to reinvigorate the company’s film studios will be put to the test with upcoming releases including Kingdom of the Planet of the Apes this month, Pixar’s Inside Out 2 in June and Marvel’s Deadpool & Wolverine in July.
On a call with analysts, Iger said he was “working hard” to restore Disney’s creative output after a string of box office disappointments.
“I’ve been working hard with the studio to reduce output and focus more on quality. That’s particularly true with Marvel,” he said. “We’re going to about two TV series a year, down from four, and reducing our film output from four a year to two, or the maximum [would be] three.”
