Disney Earnings Preview: Will Streaming and Parks Fuel Growth?
The Walt Disney Company is set to report its second-quarter earnings before the bell on Wednesday, and investors will be closely watching for signs of progress in the company’s ongoing turnaround efforts. After a challenging period for the entertainment giant, Bob Iger returned as CEO in 2022 and has been working to revitalize Disney’s core businesses, including its streaming services and theme parks.
Key Takeaways:
- Streaming’s Progress: After Disney+ and Hulu turned a profit for the first time in the previous quarter, investors will be looking for continued growth in subscribers and revenue for the streaming segment, especially as Disney aims for profitability across its streaming services by the end of the year.
- Theme Parks Performance: As a key source of revenue and profit for Disney, the performance of the company’s theme parks will be a critical factor in the earnings report. Investors will be particularly interested in the state of Disney’s U.S. parks, given the company’s ambitious $60 billion investment plan for the next decade to enhance its theme park experiences.
- Challenges Remain: Despite the positive momentum in streaming and theme parks, Disney still faces challenges. ESPN+ continues to weigh down the streaming segment with losses, and the traditional TV business remains under pressure as more viewers cut the cord.
Streaming Under Scrutiny
Disney’s streaming unit, which includes Disney+, Hulu, and ESPN+, has been a focal point for the company’s turnaround efforts. Last quarter marked a significant milestone for Disney+ and Hulu, as the services achieved profitability for the first time. Disney+ Core subscribers, excluding Disney+ Hotstar, grew by over 6 million, bringing the total global customer base to 117.6 million. Hulu subscribers also saw a slight increase, while ESPN+ subscribers experienced a decline.
Despite this progress, Wall Street remains cautious about the streaming unit’s long-term outlook. Paul Verna of eMarketer points out that persistent losses in ESPN+ and soft guidance for the current quarter suggest that Disney’s streaming path to profitability may be bumpy.
During the previous earnings call, Disney executives warned of limited subscriber growth in the third quarter, but they anticipate returning to growth in the fourth quarter. The future of ESPN+ remains a major concern, as its continued losses are dragging down the overall streaming performance.
Theme Parks: A Bright Spot
While Disney’s traditional TV business continues to face headwinds as viewers embrace streaming, its theme parks division has emerged as a strong performer. Last quarter, the U.S. parks and experiences division revenue increased by 7%, with international sales soaring 29% due to higher attendance and prices at Hong Kong Disneyland Resort.
Disney has committed $60 billion in investments over the next decade to enhance its theme parks, demonstrating the company’s belief in the long-term potential of this business. However, Disneyland Resort in California experienced lower profits due to cost inflation and high labor expenses.
Competition Heats Up
Disney’s theme parks face growing competition from other entertainment options, including cruises and international tourism. Comcast’s Universal theme parks, a key competitor, also reported lower earnings last quarter, attributing the decline to increased competition.
Despite the challenges, Comcast executives remain optimistic about the future of its theme parks business, particularly with the opening of a new theme park in 2025.
What to Watch For
Disney’s second-quarter earnings report will provide crucial insights into the company’s progress in its turnaround efforts. Investors will be looking for the following key details:
- Streaming subscriber growth: Investors will closely scrutinize the subscriber numbers for Disney+, Hulu, and ESPN+ to assess the health of the streaming business.
- Streaming profitability: Disney has set a goal to achieve profitability for its streaming services by the end of the year. Investors will be eager to see how close the company is to reaching this target.
- Theme park performance: The performance of Disney’s U.S. theme parks will be particularly important, given the company’s significant investment plans for the future.
- Cost containment: With inflation still a concern, investors will be interested in how Disney is managing its expenses to maintain profitability.
Beyond the financial metrics, investors will also be looking for any updates on Disney’s strategic priorities, including its content pipeline, pricing strategies, and plans to increase shareholder value. Disney’s earnings report is likely to be a closely watched event, as it will provide a snapshot of the company’s current performance and a glimpse into its future direction.
