Business

Disney reports strong profits but warns of upcoming fluctuations

Disney reported strong earnings on Tuesday, driven in part by a surprise gain from its flagship streaming service, a first. But investors were nervous about the impending downturn at Disney theme parks, which have been the company’s key growth engine of late.

Disney shares fell nearly 9 percent to about $106 in early trading.

Revenue at Disney Experiences, a division that includes theme parks and cruise ships, was $8.4 billion, up 10 percent from a year earlier. Operating income was $2.3 billion, up 12 percent. However, Wall Street had hoped for stronger profit margins. Additionally, Disney said higher wages, expenses related to the arrival of two new cruise ships and, crucially, an overall slowdown in travel would negatively impact the coming quarter.

“We are seeing some evidence of a global slowdown from the peak of post-Covid travel,” Disney Chief Financial Officer Hugh Johnston said in a conference call with analysts.

Disney+ was expected to lose more than $100 million in its most recent quarter, extending losses since its launch in 2019 to around $12 billion. Instead, the company made a profit of $47 million, in part by adding 6.3 million subscriptions worldwide (excluding India), bringing the total to 117.6 million. Average revenue per paying subscriber increased 6 percent to $7.28.

However, investors didn’t like what Mr. Johnston had to say about streaming in the coming quarter – namely that Disney+ was unlikely to gain new subscribers and that the company would lose money again, reflecting programming spending on Disney+ Hotstar, a low price- Streaming service in India.

Subscriptions for Hulu, which includes Disney, were largely flat (50 million), while the company’s sports-focused streaming service, ESPN+, lost a few hundred thousand subscriptions, ending the quarter at 24.8 million. Combined, Disney’s three streaming services lost $18 million, an improvement from $659 million last year.

Mr. Johnston said Disney’s streaming portfolio was on track to turn a profit overall by September.

By the end of the year, Disney said, limited ESPN programming will be available on Disney+ for the first time. Disney called the addition of an ESPN “tile” a step toward bringing the sports giant’s full power to the service in the future.

Disney’s earnings per share rose 30 percent in the most recent quarter compared to the previous year. Sales rose 1 percent to $22.1 billion. (Mr. Johnston said adjusted earnings per share for the year would rise 25 percent, up from a previous forecast of 20 percent.)

Disney beat analysts’ earnings per share expectations by 10 percent. The company met sales expectations.

Traditional television, with fewer people paying for cable, continued its downward trend. Revenue at Disney’s entertainment networks, which include ABC, FX and National Geographic, fell 8 percent, while operating income fell 22 percent. Advertising growth at ESPN contributed to a 2 percent increase in revenue and helped limit the decline in operating income to 2 percent.

Disney last reported earnings in February, amid strong results and a flurry of announcements about future entertainment offerings. A “Moana” sequel. A partnership with Epic Games, the maker of Fortnite. A timeline for the launch of a flagship streaming service from ESPN that integrates sports programming with ESPN and ESPN Bet’s fantasy platforms.

Several activist investors were active at the time, including Nelson Peltz, ran proxy campaigns for board seats. While the activists had completely different views on how Disney should be managed – one wanted “Netflix-like margins” of up to 20 percent on streaming, another disagreed separate the company – they expressed the same basic motivation: Disney’s stock price wasn’t high enough.

Disney shares were trading at about $117, up from $85 six months ago. But three years ago the share price was around $197.

Ultimately Robert A. Iger, CEO of Disney defeated her. But Mr. Peltz told CNBC that he would “watch and wait” to see whether Disney delivers on its growth and succession promises. If not, he said, “You will see me again.”

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