UPDATE—May 7, 2024: This article has been updated to reflect additional information about Disney’s outlook and direct-to-consumer entertainment segment, as well as more recent share price values.
Key Takeaways
- Disney shares fell Tuesday amid concerns about weakness in its outlook for the fiscal third quarter after the entertainment giant reported a net loss for its second quarter despite returning a surprise profit in its direct-to-consumer entertainment segment.
- Tuesday’s report is Disney’s first since CEO Bob Iger was backed by shareholders, fending off activist investor Nelson Peltz at the company’s annual meeting last month.
- Analysts and Iger had put emphasis on the performance of Disney’s streaming division ahead of the report as the division works to become profitable.
Shares of entertainment and media conglomerate The Walt Disney Company (DIS) fell Tuesday amid concerns about weakness in its outlook for the fiscal third quarter after the entertainment giant reported a net loss for its second quarter despite returning a surprise profit in its direct-to-consumer entertainment segment.
Disney reported $22.08 billion in total revenue, up from last year’s mark of $21.82 billion and in line with estimates compiled by Visible Alpha. However, due to a number of goodwill impairment charges, Disney reported a net loss of $20 million, or 1 cent per share, compared to expectations of $1.96 billion in profit, or $1.09 per share.
After adjusting for one-time charges, Disney reported an adjusted earnings per share (EPS) of $1.21, above estimates of $1.10 per share.
Surprise Direct-to-Consumer Entertainment Segment Operating Profit
Disney reported an operating profit of $47 million in its direct-to-consumer entertainment segment which encompasses Disney+ and Hulu, compared to the $119.8 million loss analysts expected the division to post and the $587 million it lost last year. It posted an overall streaming loss of $18 million, as ESPN+ continues to weigh on the segment, though its loss was much smaller than last year’s $659 million.
“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,” Disney Chief Executive Officer (CEO) Bob Iger said. “We have a number of highly anticipated theatrical releases arriving over the next few months; our television shows are resonating with audiences and critics alike; ESPN continues to break ratings records as we further its evolution into the preeminent digital sports platform; and we are turbocharging growth in our Experiences business with a number of near- and long-term strategic investments.”
Weakness in Q3 Outlook Raises Concerns
However, the company said on its earnings call that it doesn’t anticipate core Disney+ subscriber growth in the current quarter and suggested its path to streaming profitability could by impacted by expenses for cricket rights in India, raising concerns.
The company also said that operating income for its experiences segment, which helped drive revenue growth in the second quarter, would be little changed in the third quarter compared to a year earlier.
First Quarterly Report Since Resolving Proxy Battle
Tuesday’s earnings report is the first since Disney resolved its latest proxy battle with activist investor Nelson Peltz last month, with shareholders backing Iger and re-electing Disney’s current 12 board members at the company’s annual meeting.
Ahead of Tuesday’s report, analysts were optimistic about the outlook of Disney’s various streaming platforms, including its bundle of Hulu, Disney+, and ESPN+, as Iger has said the streaming segment is working its way toward profitability by the end of 2024.
One way Disney plans to get to profitability is following Netflix’s (NFLX) lead into cracking down on password sharing, which the company is set to start enforcing in June, Iger has said.
Disney shares finished 9.5% lower at $105.39 Tuesday, but have still gained over 16% since the start of the year.