Disney’s fiscal second-quarter earnings report presented a tale of two halves, with its streaming segment shining while traditional businesses faced challenges. Despite exceeding analyst expectations with adjusted earnings per share of $1.21, compared to the anticipated $1.10, Disney’s revenue of $22.08 billion fell slightly short of the expected $22.11 billion, marking the fourth consecutive quarter of revenue misses. Consequently, Disney’s shares plummeted by 10% as investors reacted to the soft guidance for the third quarter, particularly in the experiences segment.
The standout performance of the quarter came from Disney’s streaming businesses, which achieved a significant milestone as Disney+ and Hulu turned profitable for the first time. Operating income for the entertainment streaming segment surged to $47 million from a loss of $587 million a year prior, with streaming revenue excluding ESPN+ rising by 13% to $5.64 billion. This success was attributed to the increased number of Disney+ subscribers, which exceeded 117.6 million globally, along with higher average revenue per user.
However, Disney’s traditional businesses faced challenges, particularly in the TV segment. ESPN’s revenue rose by 3% to $4.21 billion, but operating income dropped by 9% to $799 million due to a decline in cable subscribers and higher programming costs. Similarly, linear network revenue across Disney’s portfolio, excluding ESPN, fell by 8% to $2.77 billion, with operating income slumping by 22% to $752 million, attributed to fewer subscribers and decreased international affiliate fees.
In the experiences segment, Disney’s U.S. parks and experiences revenue rose by 7% to $5.96 billion, while international sales soared by 29% to $1.52 billion. However, Disneyland Resort in California reported lower profits due to cost inflation, including higher labor expenses, which impacted overall profitability in the segment. Furthermore, third-quarter results are expected to be weighed down by higher expenses and attendance normalization following a post-pandemic surge in demand.
Looking ahead, Disney anticipates returning to subscriber growth in the fourth quarter despite expecting no growth in the third quarter for Disney+ core subscribers. The recent deal with Charter Communications, which provided some cable packages with subscriptions to Disney+’s ad tier, is expected to drive growth in the segment, albeit partially diluting average revenue per user. While the company projects streaming profitability for the fourth quarter, it forecasts a loss in its entertainment direct-to-consumer unit for the fiscal third quarter. Despite the challenges ahead, Disney remains committed to navigating the evolving media landscape and leveraging its diverse portfolio to drive long-term growth and value for shareholders.
