Revenue in the January-to-March period was about flat year over year at $22.08 billion, a bit short of analyst estimates. Adjusted earnings per share in the quarter jumped 30% to $1.21, beating expectations. Disney’s Parks business is seen as having immense pricing power, and management is focused on cutting costs and expanding profit margins. Competitors in the market include Comcast, Netflix, Warner Bros Discovery, and Paramount Global. Despite the mixed results, management at Disney remains on the right track, with cost-reduction efforts progressing well and a positive outlook for the direct-to-consumer streaming business.
In the second quarter, the combined business of Disney+ Hotstar, Hulu, and ESPN+ saw losses of $18 million, a significant improvement from the year-ago period. While there are expected to be steeper losses in the current quarter, a rebound is anticipated in the July-to-September period. Management is also raising their full-year earnings outlook and has plans to repurchase $3 billion worth of stock by the end of fiscal 2024. The recent stock decline, while significant, is seen as an opportunity for buyers, with a potential rebound expected as investors recognize Disney’s strength in the streaming market.
Although there was some weakness in the current quarter, Disney’s combined DTC business is still on track to achieve profitability by the end of fiscal 2024. The Experiences division, which includes theme parks and consumer products, is expected to see profits rebound significantly in the fourth quarter. Management remains focused on cost reductions and free cash flow generation, with an updated guidance indicating a 25% year-over-year earnings growth. Despite falling slightly short of Wall Street expectations, Disney’s outlook remains positive as they work towards sustained profitability.
The Entertainment segment at Disney saw mixed results in the second quarter, with the direct-to-consumer part performing better than expected. Sales and profitability in Disney+ and Hulu exceeded projections, driven by subscriber growth, increased pricing, and lower distribution costs. Hulu Live TV and increased engagement through bundling are seen as profit levers that will help the company reach its profitability goals. While the sports streaming service ESPN+ has yet to achieve profitability, ESPN’s strong start in the current quarter indicates a positive outlook in the sports sector.
On the Experiences front, Disney reported better-than-expected revenue but fell short on operating income estimates, indicating margin pressure. Strength at Walt Disney World Resort and Disney Cruise Line domestically was somewhat offset by lower results at Disneyland Resort in California. Internationally, Hong Kong Disneyland Resort saw strong performance thanks to higher ticket prices and increased spending. The overall picture for Disney remains positive, with a focus on cost reductions, profit growth, and maintaining a strong position in the competitive streaming market.
In conclusion, despite the recent pullback in Disney shares, the company’s underlying strengths and positive outlook suggest that the sell-off may be a buying opportunity for investors. Management remains focused on cost reductions, profit growth, and achieving profitability in the DTC business. While there have been some challenges in the current quarter, the overall trajectory for Disney appears to be on track for sustained profitability and growth. With an improved earnings outlook and potential for a rebound in the streaming market, Disney’s stock is poised for long-term success.
