Disney+ Subscribers Dwindle — But Streaming Unit Beats Estimates

Topline

Disney’s streaming unit beat expectations even as it shed 12 million Disney+ subscribers, according its latest quarterly earnings report released Wednesday afternoon, as the entertainment giant contends with turbulence while struggling to return profits to prior glory.

CEO Bob Iger has dealt with an extended slump for Disney’s market value.

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Key Facts

Disney’s $22.33 billion of revenue and $1.03 earnings per share largely tracked consensus analyst estimates of $22.5 billion and $0.96, respectively, as tracked by FactSet.

The conglomerate’s park and linear television units continued to beef up the bottom line, as the units’ $1.1 billion and $1.9 billion in quarterly operating profit were in line with expectations, respectively, while Disney bled $512 million in its flashier direct-to-consumer media business including Disney+, ESPN+ and Hulu, far below projections of a $758 million loss.

The company reported a staggering 12 million decrease in Disney+ subscribers, though its subscriber loss in the U.S. and Canada was a milder 1%.

Disney incurred $2.7 billion in restructuring costs during the quarter in which the company concluded its round of roughly 7,000 layoffs globally.

Shares of Disney registered a roughly 1% in after hours trading as investors digested the mixed-bag report.

Key Background

Disney’s earnings release comes amid a turbulent stretch for the company’s stock, which is down 20% over the last five years, far underperforming the S&P 500’s roughly 60% return over the timeframe. The slump comes after a brief surge in Disney’s share price as investors heralded the November return of the company’s long-time CEO Bob Iger. But Disney’s stock is down 4% since Iger’s reclamation of the throne, well below the S&P’s 13% gain during the period, as investors grew impatient with a lack of results in Iger’s cost-cutting vision to grow profits as streaming losses mounted.

Tangent

Much of Disney’s bottom-line issues come as the legacy media sector grapples with a decline in the popularity of linear television: Its $1.1 billion in operating profit for its media and entertainment unit during the first three months of 2023 was down from $1.9 billion the year prior and nearly $3 billion five years ago. Overall, Disney’s operating profit during the most recent quarter was roughly a fifth less robust than it was during the same period five years ago ($4.2 billion).

What To Watch For

How Disney’s $1.5 billion agreement with sports gambling operator PENN Entertainment announced Tuesday – and subsequent launch of an ESPN-branded sportsbook – will drive sales at Disney’s sports segment. Iger said last month the company is open to offloading an equity stake in ESPN.

Crucial Quote

Even amid entertainment companies’ challenges as consumer preferences shift, Disney “should survive and thrive in this environment due to its diversification, multiplatform media offerings, large vault of content, and pricing premium,” Daiwa analyst Jonathan Kees proclaimed in a Tuesday note previewing earnings.