Disney (DIS) on Wednesday reported that its total streaming division turned a profit for the first time, though weakness in its parks division dented an otherwise positive report, with the company noting a "moderation of consumer demand" toward the end of the quarter.
In Disney's fiscal third quarter, its direct-to-consumer (DTC) streaming business, which includes Disney+, Hulu, and ESPN+, posted operating income of $47 million, compared to a loss of $512 million in the prior-year period. The company had previously expected to achieve total streaming profitability by the current quarter.
Overall, the company reported Q3 adjusted earnings of $1.39 per share, above the $1.19 analysts polled by Bloomberg had expected and higher than the $1.03 Disney reported in the prior year period.
Revenue came in at $23.2 billion, exceeding consensus expectations for $23.1 billion and higher than the $22.3 billion reported in the year-ago period.
Disney also raised its guidance for full-year adjusted earnings growth to 30%, up from the prior 25%.
Disney's stock finished the session down 4.46%. Coming into the report, Disney stock was roughly unchanged this year.
Looking ahead, Disney said it remains on track for streaming profitability to improve in the fourth quarter, with both DTC entertainment, which posted a loss of $19 million in Q3, and ESPN+ expected to be profitable.
"We continue to feel optimistic about our trajectory, with multiple building blocks for improving margins over the coming years," the company said in the release.
One of those building blocks will be new price hikes for these services. On Tuesday, the company announced it would again raise prices across its Disney+ and Hulu plans, with these changes set to take effect in October. The company also plans to add new features like access to ABC Live and a playlist of content catered toward young children.
"Every time we've taken a price increase, we've had only modest churn from that," Disney CEO Bob Iger said on the call. "Nothing that we would consider significant." He added the goal for streaming is "to grow engagement on the platform," hence the new features and bundling opportunities.
In the third quarter, the media giant noted a slight increase in core Disney+ subscribers, to 118.3 million from 117.6 million a year ago. Analysts had expected subscribers to remain roughly flat.
Average revenue per user, or ARPU, fell 3% to $7.74 for domestic Disney+ users despite recent price hikes and a crackdown on password sharing. On the earnings call, Disney CFO Hugh Johnston said increased bundling and shifts to the ad tier have impacted the metric.
Parks, linear business under pressure
The parks business was Disney's main disappointment in the quarter, with domestic operating income dropping 6% from the prior year to $1.35 billion. The company warned demand moderation could continue over "the next few quarters."
"We certainly see consumers behaving in a way — I wouldn't call it recessionary necessarily — they're watching their pennies a little bit more," Johnston told Brian Sozzi on Yahoo Finance's Morning Brief.
On the earnings call, Johnston offered some optimism though, saying, "While we saw a slight moderation in demand, I certainly wouldn't call it a significant change." He added the company expects to see a "flat-ish" revenue number from parks in the current quarter.
The company added that Disneyland Paris will be impacted by a reduction in normal consumer demand trends due to the Olympics, along with some cyclical softening in China. The company said it continues to see "strong" demand for its cruises.
Meanwhile, linear struggles continued, with domestic linear network revenue falling 7%, dragged down by a decline in advertising revenue and lower affiliate revenue as more consumers cut the cord. Operating income within the segment dropped 1%.
ESPN bucked the downward trend, with domestic operating income for the sports giant up 1% due to growth in advertising and subscription revenue.
In February, Disney doubled down on sports streaming with the reveal of an upcoming joint venture partnership with Fox and Warner Bros. Discovery. The company is also working on a separate sports streaming platform for ESPN, set to debut in fall 2025.
Disney's theatrical power also seems to be back on track, with strong showings from films like "Inside Out 2" and the more recent "Deadpool & Wolverine." It's also on pace to lead the box office in the back half of this year with the upcoming releases of "Moana 2" and "Mufasa: The Lion King." Content sales and licensing income surged as a result, jumping to $245 million in Q3 compared to a loss of $112 million in the prior year.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at [email protected].
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