Disney Stock Rises After Q1 Earnings Beat as Streaming Losses Narrow

Disney stock (NYSE: DIS) is trading sharply higher in US premarket price action today after the company beat earnings estimates for the first quarter of its fiscal year 2024 and also reported narrow losses in its streaming business.

Disney reported revenues of $23.55 billion in the quarter which were similar to the corresponding quarter last year but slightly below the $23.64 billion that analysts expected. Meanwhile, Disney’s EPS of $1.22 was well ahead of the 99 cents that analysts expected.

Disney stock rises after earnings beat

In its earnings release, Disney said, “Our first quarter earnings results reflect the progress we’ve made in our strategic transformation, as we continue to build from a position of strength.”

Notably in late 2022, Disney appointed Bob Iger as the CEO replacing Bob Chapek amid widening streaming losses and sagging stock price. Iger, who was Disney’s CEO before Chapek embarked on a turnaround strategy which is now showing results.

During the fiscal first quarter, it realized savings of $500 million in selling, general, administrative, and other operating expenses and said that it is on track to deliver annualized savings of $7.5 billion.

Iger sounded upbeat after the earnings and said, “Our strong performance this past quarter demonstrates we have turned the corner and entered a new era for our company, focused on fortifying ESPN for the future, building streaming into a profitable growth business, reinvigorating our film studios, and turbocharging growth in our parks and experiences.”

Streaming losses narrowed in Q1

It was the second quarter where Disney reported its earnings under the new reporting structure. Its Entertainment business which includes Linear Networks, Direct-to-Consumer, and Content Sales segments reported revenues of $9.98 billion which were 7% lower than the corresponding quarter last year.

Diving deeper into the segment’s performance, while revenues of Linear Networks and Content sales fell 12% and 38% YoY respectively, DTC revenues rose 15% to $5.54 billion in the quarter.

Importantly, the segment’s operating loss narrowed to a mere $138 million, and even after adding the losses at ESPN+, Disney’s streaming business lost only about $216 million which is less than a quarter of $1.05 billion in the corresponding quarter last year. The segment posted a record operating loss of $1.42 billion in the fourth quarter of the fiscal year 2022 and since then the losses have gradually narrowed.

Disney said, “We continue to expect to reach profitability at our combined streaming businesses in the fourth quarter of fiscal 2024.” It added, “We believe this business will ultimately be a key earnings growth driver for the company.”

Notably, ever since Iger took over as the CEO, Disney has been focusing on streaming profitability rather than chasing subscriber growth and even withdrew its long-term subscriber guidance.

The company however reiterated its commitment to the ESPN streaming platform and said, “In the fall of 2025, we’ll be offering ESPN as a stand-alone streaming option with innovative digital features, creating a one-stop sports destination unlike anything available in the marketplace today.”

Disney reported a fall in streaming subscribers

Disney reported a fall in its streaming subscribers for the second quarter in a row. The fall in subscribers came at a time when Netflix shattered subscriber growth expectations in these quarters and added over 13 million subscribers in the December quarter which was a new fourth-quarter record for the company.

Commenting on the fall in subscribers, Disney said it was “in line with prior guidance driven by the expected temporary uptick in churn given the recent domestic price increases as well as the end of the global summer promotion. Those impacts were partially offset by strong ad tier net adds due to domestic growth as well as the launch in certain international markets in the first quarter.”

Meanwhile, the company expects to add between 5.5 million to 6 million subscribers in the current quarter. “While subscriber growth will vary from quarter-to-quarter, we are confident in our prospects for ongoing sub growth over the longer term driven by the continued global strength of our content slate, advancing our paid sharing efforts, technology advances that are intended to improve our content promotion and discovery capabilities, drive up engagement and lower churn, said Disney’s CFO Hugh Johnston.

Disney announces share buyback

Amid improvement in earnings and cash flows, Disney increased its semi-annual dividend by 50% and announced a $3 billion share buyback for the current fiscal year, which is its first since the fiscal year 2018.

Disney announced a $1.5 billion investment in Epic Games

Disney also announced a $1.5 billion investment in Epic Games which makes the popular video game Fortnite. “This represents probably our biggest foray into the game space ever, which I think is not only timely but an important step when you look at the demographic trends and you look at where Gen Alpha and Gen Z and even Millennials are spending their time in media. it’s pretty dramatic in terms of the amount of time spent in games,” said Iger speaking with CNBC.

How did analysts react to DIS’s earnings?

Disney’s earnings were received well by Wall Street and Morgan Stanley analyst Benjamin Swinburne reiterated his overweight rating on the stock saying, “Disney continues to benefit from a global diversified portfolio.”

He added, “Disney laid out a clear plan to drive longer-term streaming revenue growth, both with subscribers and ARPU. It must execute, but the strategy is in place.”

Goldman Sachs’ Brett Feldman said, “Our key takeaway from the report and call is the same as last quarter, which is that DIS is making progress against management’s lengthy to-do list.”

Proxy battle with Nelson Peltz

Disney has been in a proxy battle with activist investor Nelson Peltz who is looking for board seats to drive changes at the company. Paul Verna, a principal analyst at Insider Intelligence said that strong fiscal Q1 earnings would help Iger better handle the pressure.

Verna said that while “there are still big battles ahead for Disney this year and beyond,” the strong earnings report “will no doubt bring a sigh of relief to the company’s leaders and shareholders.”

Meanwhile, markets are giving a thumbs up to Disney’s earnings report and the stock is up almost 8% in pre-markets today.