When Disney reported robust earnings in February, activist investors surrounding the company essentially called it a gimmick: a temporary, battle-hardened effort to fend them off and not, as Robert A. Iger argued, evidence that a struggling Disney had finally “turned the corner”.
The Disney boss’s argument just got a lot stronger.
Disney beat Wall Street expectations for the second straight quarter on Tuesday, in part because its flagship streaming service made money — a first. Disney+ was expected to lose more than $100 million in its latest quarter, widening losses since its arrival in 2019 to about $12 billion. Instead, it achieved a profit of $47 million.
“Two quarters ahead of schedule,” Hugh Johnston, Disney’s chief financial officer, noted by phone. The company had previously predicted that Disney+ would become profitable in September; some investors and analysts were skeptical about this, putting downward pressure on Disney shares.
Disney’s earnings per share for the latest quarter were up 30% from a year ago. Revenue rose 1% to $22.1 billion.
Disney beat analysts’ expectations for earnings per share by 10%. The company met expectations in terms of revenue.
In the quarter, Disney+ added 6.3 million subscriptions worldwide (excluding India), bringing its total to 117.6 million. Average revenue per paying subscriber rose 6% to $7.28.
Subscriptions to Hulu, also owned by Disney, remained largely stable (50 million), while the company’s sports-oriented streaming service, ESPN+, lost a few hundred thousand subscriptions to end the quarter with 24, 8 million. Together, Disney’s three streaming services lost $18 million, an improvement from $659 million in the same period a year ago.
Johnston said Disney’s streaming portfolio is on track to turn an overall profit by September. In the next quarter, Disney will face some losses related to Disney+ Hotstar, a low-priced streaming service in India.
Disney Experiences, the division that includes theme parks and cruise ships, helped fuel the company’s quarterly growth. The unit’s revenue was $8.4 billion, up 10% year over year, and operating profit was $2.3 billion, up 12%. Higher ticket prices at Disney World in Florida contributed to these results. Hong Kong Disneyland also had a strong quarter. (Disneyland in California faltered a bit, partly due to higher operating costs.)
Traditional television, with fewer people paying for cable connections, continued its downward trajectory. Revenue at Disney’s entertainment networks, which include ABC, FX and National Geographic, fell 8%, while operating profit plunged 22%. Advertising growth at ESPN contributed to a 2% increase in revenue and helped limit the decline in operating income to 2%.
Disney’s latest earnings were reported in February, pairing strong results with a blizzard of announcements about future entertainment offerings. A sequel to “Moana”. A partnership with Epic Games, the creator of Fortnite. A timeline for the launch of a flagship ESPN streaming service that integrates sports programming with ESPN and ESPN Bet’s fantasy platforms.
At the time, numerous activist investors, including the formidable Nelson Peltz, were running proxy campaigns for board seats. Although the activists had sharply different opinions on how Disney should be run – one wanted “Netflix-like margins” of up to 20% in streaming, another suggested a split of the company – they expressed the same basic rationale: the stock price Disney wasn’t tall enough.
Disney shares traded at around $117, up from $85 six months ago. But three years ago the stock was priced at around $197.
Mr. Iger ultimately defeated them. But Mr. Peltz told CNBC that he would “watch and wait” to see whether Disney delivers on its promises of growth and succession. If not, he said, “You will see me again.”