Disney trims streaming losses, but broader business challenges persist
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Disney said Wednesday its cost-cutting measures are beginning to pay off, resulting in fewer losses in its streaming division. But the company continues to face challenges related to its legacy television networks, which Disney CEO Bob Iger has said he's considering spinning off.
Why it matters: Investors are eager to see how Disney will manage the headwinds facing its legacy television business while trying to make its streaming efforts profitable.
Be smart: Disney saw huge market gains during the pandemic, as investors rewarded it for rapid subscriber growth. But most of those gains have since been wiped out, and now Disney's streaming subscriber base is shrinking.
- Disney+'s overall subscriber base fell by 1% last quarter compared to the prior quarter, thanks to a 24% decline in subscribers to its Disney+Hotstar service in India.
- Subscriber growth at ESPN+ and Hulu was also relatively flat compared to the previous quarter.
Yes, but: Disney+Hostar subscriber losses, which can be attributed to Disney losing the rights to stream Indian Premiere League cricket games, are less painful for the company, because subscribers to Disney+Hotstar tend to drive less revenue than regular Disney+ subscribers.
- What will continue to be a challenge for Disney is managing those losses while also dealing with subscriber losses from its cable networks, as more consumers cut the cord.
- Revenue from Disney's domestic TV networks decreased 4% last quarter, thanks to a slowdown in the ad market. ESPN, however, showed more resiliency than its sister networks in news and entertainment. Overall, ESPN's domestic TV ad revenue was up 10% for the quarter.
The big picture: Overall, Disney's revenue grew 3.8% year-over-year last quarter, due mostly to the continued strength of its parks and experiences division, but its top line numbers came in shy of investor expectations, causing a slight dip in its stock price in after-hours trading.
- The company did, however, beat Wall Street estimates on earnings, thanks to cost-cutting measures implemented over the past few months, including laying off 7,000 employees.
- In a shareholder letter, Iger took credit for the improved profitability margins since his return as CEO, and said the company is on track to exceed its initial goal of cutting its costs by $5.5 billion.
- Disney also managed to narrow its streaming division losses significantly to last quarter to $512 million from $1.06 billion during the same quarter the year prior.
- That progress should give investors hope that Disney is on track to meet its stated goal of making its streaming business profitable by 2024.
By the numbers via CNBC and Disney:
- EPS: $1.03 per share adjusted, versus 95 cents per share expected, according to a Refinitiv consensus survey.
- Revenue: $22.33 billion, versus $22.5 billion expected, according to Refinitiv.
- Disney+ total subscriptions: 146.1 million, versus 151.1 million expected, according to StreetAccount.
- ESPN+ total subscriptions: 25.2 million
- Total Hulu subscriptions: 48.3 million
- Hulu SVOD only subscriptions: 44 million
- Hulu Live TV + SVOD subscriptions: 4.3 million
Zoom out: Shares in Disney have dipped 19% over the past year, in response to a slew of challenges facing the broader media industry.
- Movie studios, including Disney's, are starting to consider pushing their top films amid the writers and actors strikes shutting down Hollywood.
- The strikes are also impacting streamers, like Disney+ and Hulu, that rely on original content to lure subscribers.
- A slowdown in the ad market has made traditional cable and broadcast networks less profitable.
What to watch: Disney is currently weighing several strategic deals as it evaluates whether its traditional television networks fit into its long-term streaming strategy.
- On Tuesday, ESPN announced a betting joint venture with casino operator PENN Entertainment to create a sports betting app called ESPN Bet. The deal will give ESPN $1.5 billion in cash payments over 10 years, as well as $500 million of warrants to purchase shares in PENN Entertainment that vest over the same decade-long period.
- Disney is also weighing whether to buy out the remainder of Hulu. Beginning next year, Comcast can force Disney to buy its 33% stake in Hulu for a minimum of $27.5 billion or Disney can tell Comcast to sell it.
- The company is also exploring options for its Star India business.
Go deeper: Disney earnings from the past year:
