The Walt Disney Co. turned a profit in its streaming business a quarter earlier than anticipated, and beat Wall Street expectations as its entertainment business soared in the company’s fiscal Q3.
Disney reported revenue of $23.2 billion, income of $3.1 billion, and earnings per share of $1.43, all beating Wall Street estimates.
That was led by the entertainment division, which saw its profits soar thanks to improvements in direct-to-consumer and the success of Inside Out 2. Entertainment revenues were $10.6 billion, up 4 percent from last year, but income was $1.2 billion, up more than 100 percent from a year ago.
The DTC streaming business specifically (which includes Disney+, Hulu and ESPN+) had revenue of $6.4 billion, and income of $47 million, compared to a year ago when it had losses of over half a billion. The company turned a profit in streaming earlier than it originally targeted, and encouragingly says that it expects the margins to improve even further in fiscal Q4.
“What we’ve been seeing with streaming is significant success driven largely by the success of our creativity,” CEO Bob Iger said on the earnings call, citing increased consumption of offerings on the platform. Management also highlighted the initial rollout of the password-sharing crackdown, which is expected to drive growth in future quarters, as well as a healthy advertising market for its streaming service.
That being said, not everything is going as planned, with the company’s experiences division reporting a “softer” third quarter, per a statement from Iger. The division, which includes Disney’s theme parks and cruise line, had $8.4 billion in revenue, up 2 percent from a year ago, but operating income of $2.2 billion, down 3 percent from a year ago.
Disney warns that the slowdown will likely continue over the next few quarters, with the Paris Olympics having a negative impact on Disneyland Paris attendance. On the earnings call, CFO Hugh Johnston said he would characterize it as “a bit of a slowdown, that’s being more than offset by the entertainment business,” adding that lower-income consumers were “feeling a little bit of stress,” while higher-income consumers were traveling more internationally. Johnston said he expects international parks growth in particular to strengthen after the Olympics.
“Our performance in Q3 demonstrates the progress we’ve made against our four strategic priorities across our creative studios, streaming, sports, and Experiences businesses,” said Iger in a statement. “This was a strong quarter for Disney, driven by excellent results in our Entertainment segment both at the box office and in DTC, as we achieved profitability across our combined streaming businesses for the first time and a quarter ahead of our previous guidance. Despite softer third quarter performance in our Experiences segment, adjusted EPS for the company was up 35%, and with our complementary and balanced portfolio of businesses, we are confident in our ability to continue driving earnings growth through our collection of unique and powerful assets.”
Elsewhere on the streaming front, Disney+ core subscribers (which does not include Hotstar) rose to 118.3 million, while Hulu subscribers rose by 2 percent to 46.7 million. Disney+ domestic ARPU declined slightly, while international (excluding Hotstar) rose slightly. Hulu ARPU rose by 8 percent thanks to higher advertising revenue.
And at the sports division, which is mostly ESPN, revenues were $4.56 billion, up 5 percent from a year ago, with operating income of $802 million, down 6 percent from a year ago. An increase in production costs and fewer pay TV subscribers were among the reasons for the decline in operating income, offset by a better advertising environment and higher fees.
On the earnings call, Iger added that Disney continues to look for strategic partners for an ESPN direct-to-consumer service, saying that he could not yet outline a specific partner but conversations are still ongoing.
“Believe it or not, we’re still having conversations about it. We thought, and continue to believe, there may be opportunities to partner with others, particularly on the content side,” Iger said.
