Wall Street Turns Its Back on Disney’s Streaming Profit Milestone | Analysis

With the lingering impacts of the Hollywood strikes still weighing on its studios, Disney turned a quarterly profit of $47 million with Disney+ and Hulu — the first time those two entertainment streamers ended a quarter in the black, the company said Tuesday.

Yet despite hitting the milestone two quarters ahead of schedule — and trimming its overall streaming losses by 97% — Wall Street punished Disney’s stock, sending shares down more than 9%.

What was going on? Disney could only declare a streaming profit without including ESPN+, which continues to struggle, losing $65 million in the quarter. And Disney said its overall streaming business would still be unprofitable in its next quarter and not truly turn the corner until the fourth quarter or more likely next year.

Some analysts also pointed to a new reality setting in for Disney: The once high-flying company, which was a hit machine in the heyday of Marvel superhero fever, may be settling into a sustained period of slower, but steady, growth.

“We’ve said all along our path to profitability will not be linear,” Disney CEO Bob Iger told analysts on Tuesday. “While we’re anticipating a softer third quarter, due in large part to the seasonality of our Indian sports offerings, we fully expect streaming to be a growth driver for the company in the future and we have prioritized the steps necessary to achieve this.”

Overall, Disney swung to a quarterly loss of $20 million, down from a profit of $1.27 billion in last year’s fiscal second quarter. That was in large part due to restructuring charges of $2.05 billion related to its struggling Star India subsidiary and entertainment linear networks.

Iger has been trying to prove he has the right streaming strategy in place. But Disney, like its rivals, is cranking up the dream factory again after losing half a year to the Hollywood strikes. The studio released no significant film titles during the quarter and only one Marvel movie, “Deadpool and Wolverine,” will hit theaters this summer.

Disney has the added pressure of being in the middle of a much-needed shift in its film strategy from an endless superhero multiverse to one focused on quality over quantity. That means fewer new movies — and less fresh content to feed its streamers.

Still, Iger is preaching patience — aggressively cutting costs and improving margins, while tweaking the content machine — which could position it for better long-term growth, analysts said.

“While some Disney investors expected more fireworks, particularly on the future guidance front, I think this report indicates that the company has tilted its operation back to its core business model, which is more conservative by nature,” said Thomas Monteiro, a senior analyst at Investing.com.

The company said Tuesday that it plans to prioritize other parts of its empire that are more consistently driving growth.

Disney’s Experiences segment — the theme parks and cruises business which represent 38% of overall revenues — had a solid quarter, with revenues up 10% and operating income up 12%. The company touted a healthy expansion of margins as it squeezes more out of each customer through higher average ticket prices. Disney said it expects “robust operating income growth at Experiences for the full year.”

In particular, CFO Hugh Johnston noted, Disney’s cruise business “is one that has an enormous number of opportunities for us over time, and that is why we are leaning more heavily into that business.”

Iger, who in April beat back a challenge from activist investors clamoring for more share growth, “has finally managed to strike a healthy balance between the different pressures coming from Disney’s Board while still respecting the company’s long-term DNA,” Monteiro said.

But streaming is the future and now represents 28% of Disney’s overall revenues. Though thus far, none of the profits.

Weighing down Disney’s overall streaming business is its sports app, ESPN+, which continues to disappoint.

Disney plans to launch a fully direct-to-consumer version of ESPN in fall 2025, and a joint sports streaming venture with Warner Bros. Discovery and Fox this fall. And it plans to launch an ESPN tile on Disney+ by the end of the calendar year following its integration of Hulu.

Star India continues to hurt its overall sports business. This quarter, the subsidiary lost less money — $27 million versus $99 million in the year-ago period, a 73% improvement — but it’s still a money loser. (Disney said its performance is tied to the costs of broadcast cricket matches in India.)

Star India’s impairment charge was a result of Disney entering into a $8.5 billion deal with Reliance Industries to merge the Indian property with Viacom18 in a joint venture. The deal, which is expected to close by early 2025, will give Reliance and its affiliates a 63% ownership stake in the venture, with Disney retaining 37%.

And there is no escaping that Disney’s linear TV networks continue to be an irreversible drag on earnings. The networks, which include ABC, FX and National Geographic, saw operating income plummet another 22% to $752 million on sales of $2.77 billion — or 12.5% of the company’s total quarterly revenues.

Iger said that “Shogun” is a global hit on both linear and streaming and is tracking as FX’s most-watched show ever on streaming platforms. The limited series is driving the second-largest number of signups to its streaming services since 2022, behind “Black Panther: Wakanda Forever.”

There were positive signs coming from some of the TV studios, to be sure.

Yet even as Iger has survived a recent activist shareholder revolt, investors on Tuesday were looking for more clarity on a long-delayed succession plan for Iger, whose contract runs through the end of 2026. It got little. A board-appointed succession planning committee is “meeting on a regular basis,” Iger said. “I am confident they will choose the right person at the right time.”

Lucas Manfredi contributed to this article.

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