Disney Reports Surprise Profit in Streaming

Walt Disney's ( DIS ) streaming entertainment unit posted its first profit on Tuesday, two quarters ahead of schedule, and the company raised its annual earnings per share outlook as it said turnaround efforts were yielding results. Shares of the company were down 1.4% in premarket trading. Disney ( DIS ) now expects adjusted earnings per share to rise by 25% this fiscal year, up from the 20% it previously forecast. The company attributed the change to strong results at theme parks and improvements in the streaming business.

The direct-to-consumer entertainment division, which includes the Disney+ and Hulu streaming services, reported operating income of $47 million from January through March. Disney ( DIS ) had promised Wall Street that the streaming operation would become profitable by September. The division had been losing money since Disney+ debuted in 2019 in the company's major push to compete with Netflix.

Chair Executive Bob Iger, who defeated board challenges from activist investors last month, said in a statement that "our strong performance this past quarter demonstrates we have turned the corner and entered a new era for our company." The steps Disney is taking today lend themselves to solidifying Disney's place as the preeminent creator of global content.

Like other media companies, Disney ( DIS ) has been trying to adapt to consumer migration from cable television to streaming entertainment. Iger, who came out of retirement to revamp Disney in November 2022, instituted cost cuts that are expected to reach at least $7.5 billion by the end of September. He also unveiled a 10-year, $60 billion investment in theme parks and announced plans for a stand-alone ESPN streaming app, among other efforts.

The earlier-than-expected profit from streaming entertainment was driven by aggressive cost management, according to Chief Financial Officer Hugh Johnston. A year ago, the streaming unit lost $587 million. Disney+ added more than 6 million customers during the quarter, and average revenue per user rose 44 cents, outside of India. Disney ( DIS ) offers a lower-priced plan in India that it counts separately.

Disney ( DIS ) also reports results for a combined streaming unit, including ESPN+, which should generate a fiscal fourth-quarter profit and become a "meaningful future growth driver for the company, with further improvements in profitability for fiscal 2025."

For January through March, the combined streaming business with ESPN+ lost $18 million. During that time, the Mouse House posted diluted earnings per share, excluding certain items, of $1.21, ahead of analysts' consensus estimate of $1.10, according to LSEG data. Quarterly revenue rose to $22.1 billion, in line with analyst forecasts.

In the second fiscal quarter of 2024, Disney ( DIS ) achieved strong double-digit percentage growth in adjusted EPS(1) and met or exceeded financial guidance for the quarter. As a result of outperformance in the second quarter, the company's new full-year adjusted EPS(1) growth target is now 25%. The company remains on track to generate approximately $14 billion of cash provided by operations and over $8 billion of free cash flow this fiscal year.