Disney turns losses into profits in the third quarter: streaming business is profitable for the first time, but theme parks become a "new trouble" | Financial Report Insights

Disney's third-quarter revenue and profit both exceeded market expectations, and the full-year profit guidance was raised. The company's streaming media business achieved profitability for the first time, but the theme park segment remains weak, casting a shadow over this theme park giant.

On Wednesday local time, Disney released its financial report for the third quarter of the 2024 fiscal year (three months ending on June 29).

1) Key Financial Data

Revenue: The third-quarter revenue reached $23.2 billion, surpassing the market's expectation of $23.1 billion, a 3.7% increase from the $22.3 billion in the same period last year.

Profit: Disney turned a profit in the third quarter, with a profit of $2.62 billion compared to a loss of $460 million in the same period last year (the company underwent a large-scale restructuring and impairment at that time), exceeding the market's expectation of $1.94 billion.

Shareholder Returns: Adjusted earnings per share (EPS) were $1.39, exceeding analysts' expectation of $1.19, a 35.0% increase from $1.03 in the same period last year.

2) Key Business Performance

In the third quarter, the streaming media business achieved revenue of $6.38 billion, with an operating profit of $47 million, marking a historic turnaround from a loss of $512 million in the same period last year.

3) Performance Outlook

Disney has raised its full-year adjusted EPS growth expectation from 25% to 30% and stated that the profitability of the streaming media segment in the fourth quarter will continue to improve. Both DTC Entertainment (a loss of $19 million in the third quarter) and ESPN+ are expected to be profitable.

Disney stated in its announcement: "We remain optimistic about the company's development trajectory, and profit margins will rise in the coming years based on multiple factors."

However, due to the poor performance of the theme park business, Disney's stock fell more than 3% on Wednesday.

Theme Park Business Shrinks, Traditional Cable TV Struggles

The theme park business is Disney's most disappointing segment, with domestic (U.S. and Canada) revenue declining by 6% year-on-year to $1.35 billion in the third quarter, while overseas revenue grew slowly.

Disney warned that the slowdown in demand may continue in the coming quarters. The company stated in its announcement:

While we are actively monitoring attendance and guest spending and managing our cost base proactively, we expect the operating profit of the Parks segment in the fourth quarter to decline by a single digit compared to the same period last year (a decrease of around 5%), reflecting these potential dynamicsThe company added that due to the impact of the Olympics, demand at Disneyland Paris will slow down, but the cruise business continues to see "strong" demand.

Meanwhile, traditional cable television is still struggling, with third-quarter revenue down 7% year-on-year to $2.66 billion, mainly due to a decrease in advertising revenue and a significant decline in associated fees as more households cancel cable TV.

Streaming business achieves profitability for the first time, cinema business back on track

Although the profit from the streaming business is small, turning losses into profits is of great symbolic significance.

Since launching the online streaming platform Disney+ in November 2019, Disney has lost over $11 billion in the streaming war, with intense competition and rising content costs leading the company to spend more on producing and licensing TV shows, sports events, and movies than the revenue from subscriptions, and this has been the case every quarter.

In the past few years, Disney has raised streaming service prices multiple times, stating that this will help drive subscription revenue growth. On Tuesday, Disney announced a new round of price increases for almost all streaming packages, effective in October.

The financial report also shows that in the third quarter, Disney+ core subscription numbers increased slightly from 117.6 million in the same period last year to 118.3 million, with analysts previously expecting the number of subscribers to remain relatively stable.

However, despite Disney raising subscription fees and cracking down on password sharing, the average revenue per user (ARPU) for domestic Disney+ users dropped by 3% to $7.74.

Disney's sports streaming service ESPN+ has defied the odds, with domestic operating profit in the third quarter increasing by 1% due to growth in advertising and subscription revenue.

In February of this year, Disney increased its investment in sports streaming, announcing a joint venture with Fox and Warner Bros. Discovery Channel. In addition, Disney is also developing a separate sports streaming platform for ESPN, expected to launch in the fall of 2025.

Disney's cinema business also seems to be back on track, with a significant increase in operating profit from content sales and licensing in the third quarter reaching $245 million, compared to a loss of $112 million in the same period last year.

Movies released in the past few months such as "The Incredibles 2" and "Deadpool and Wolverine" have performed strongly at the box office, while "Finding Dory 2" and "The Lion King: Mufasa" are set to be released in the second half of the year, expected to lead the box office