Disney’s streaming business has hit a major milestone, with the direct-to-consumer portion turning a profit for the first time in the fiscal second quarter. However, the company warned of weaker results in the current quarter, causing its stock to drop nearly 10% on Tuesday.
The success of Disney’s streaming services, including Disney+ and Hulu, has been a key focus for CEO Bob Iger as the company navigates the decline of its linear TV business. The recent turnaround plan implemented by Iger has boosted investor confidence in the stock, despite the challenges in achieving sustained profitability in the streaming segment.
In the second quarter, the direct-to-consumer portion of Disney’s entertainment segment reported operating income of $47 million, a significant improvement from the $587 million loss in the prior-year period. However, the company expects losses in the third quarter, driven by its Indian brand Disney+ Hotstar.
While not all streaming services were profitable in Q2, Disney anticipates full streaming profitability by the fourth quarter of this year. The company reported adjusted earnings of $1.21 per share, beating analyst expectations, and revenue of $22.1 billion, in line with consensus estimates.
Disney also raised its guidance for full-year adjusted earnings growth to 25%, up from the previous 20%. However, the company faced a setback after merging its Star India business with Reliance Industries, resulting in an impairment charge of over $2 billion.
Despite the challenges ahead, analysts remain optimistic about Disney’s long-term prospects. KeyBanc analyst Brandon Nispel noted that while the soft guidance for entertainment streaming next quarter may dampen enthusiasm, the overall turnaround at Disney is gaining momentum. Investors will be closely watching the performance of Disney’s Experiences business, which includes theme parks, as the company navigates post-COVID travel trends and rising costs.
