Disney Earnings Beat, Stock Jumps On Disney+ Price Hike
Disney, the entertainment giant, announced mixed results for its fiscal Q3 as it grapples with slowed streaming growth and high content costs. While adjusted earnings declined by 6% to $1.03 per share, revenue rose by 4% to $22.33 billion. The decline in earnings was less than what analysts had expected, and as a result, Disney‘s stock rallied in after-hours trade.
Streaming Subscription Decline
One major area of concern for Disney was the decline in streaming subscriptions. Disney+ reported 146.1 million paid subscribers for the quarter, down from 157.8 million in Q2 and 152.1 million last year. This decline was largely attributed to the loss of rights to the India Premier League cricket league, which resulted in a 24% drop in subscribers for the Disney+ Hotstar streaming service in India. The total number of subscribers across Disney+, ESPN+, and Hulu also fell short of forecasts, coming in at 219.6 million for the quarter, below the expected 230.24 million.
Price Hikes and Cost Cutting
Despite the decline in subscriptions, Disney announced its second round of major price increases in less than a year. The cost of the ad-free versions of Disney+ and Hulu were raised by more than 20%. Additionally, Disney recorded $2.44 billion in direct-to-consumer-related costs for the quarter, due to removing content from its platforms and terminating third-party license agreements. However, the operating loss from its direct-to-consumer channels decreased to $0.5 billion from $1.1 billion last year.
CEO Bob Iger expressed optimism about the company’s cost-saving measures, stating that Disney is “on track to exceed our initial goal of $5.5 billion in cost savings as well as improve our direct-to-consumer operating income by roughly $1 billion in just three quarters.”
ESPN Enters Sports Betting
In a surprising move, ESPN, a subsidiary of Disney, partnered with gambling company Penn Entertainment to launch a gambling sportsbook called ESPN Bet. Under the agreement, Penn will pay ESPN $1.5 billion in cash over 10 years, along with $500 million in warrants to buy PENN stock. Penn Entertainment will rebrand its Barstool Sportsbook as ESPN Bet, which is set to launch this fall in states where gambling is legalized and Penn is licensed. This deal marks a reversal for Bob Iger, who previously stated in 2019 that he did not envision Disney getting involved in the gambling business.
Cutting Costs and Needham’s Acquisition Speculation
Disney‘s ongoing transformation plan includes cost-cutting measures such as layoffs and a reduction in content production, particularly in the Marvel and Star Wars franchises. CEO Bob Iger also expressed openness to selling an equity stake in ESPN and seeking a strategic partner for distribution and content assistance. Needham, a financial research firm, speculated in a research note that Disney may be acquired within the next three years. The report highlighted Disney‘s valuable assets and lack of a controlling shareholder as factors that could make it an attractive target for acquisition.
Florida Feud
Disney is facing a dispute with Florida Governor Ron DeSantis over legislation banning discussions about gender identity and sexual orientation in classrooms. The Central Florida Tourism Oversight District (CFTOD), which oversees the area around Walt Disney World, recently abolished all diversity, equity, and inclusion programs. The CFTOD also plans to dissolve its DEI committee and eliminate related job duties. While these changes only affect the government, not the companies operating inside the district, it reflects the ongoing tension between Disney and the state of Florida.
Stock Performance
Following the earnings announcement, Disney‘s stock rose by 4% in after-hours trading. However, the stock has faced challenges in recent months and is currently down by almost 2% for the month of August. Throughout the year, Disney‘s stock has experienced a decline, and it is currently trading close to a three-year low.
Overall, Disney‘s earnings report paints a mixed picture. While there are challenges in the streaming sector, the company’s cost-cutting measures and foray into sports betting show a commitment to adapting and finding new revenue streams. It remains to be seen how Disney will navigate these challenges and whether it will be able to regain momentum in the streaming market.
In the meantime, investors will be closely watching Disney‘s performance and decisions regarding cost-saving measures, partnerships, and potential acquisitions.
<< photo by Clay Banks >>
The image is for illustrative purposes only and does not depict the actual situation.
