Disney ( DIS ) reported its entire streaming division turned a profit for the first time on Wednesday, but weakness in its parks division hurt an overall strong report, with the company pointing to “moderating consumer demand” toward the end of the quarter.
In its third-quarter results, Disney said its direct-to-consumer streaming business, which includes Disney+, Hulu and ESPN+, posted an operating profit of $47 million, compared with a loss of $512 million in the same period last year. The company had previously expected its streaming business as a whole to be profitable by the current quarter.
Overall, the company reported adjusted earnings per share of $1.39 for the third quarter, beating the $1.19 expected by analysts surveyed by Bloomberg and up from the $1.03 Disney reported in the same period a year ago.
Revenue was $23.2 billion, beating market expectations of $23.1 billion and up from $22.3 billion in the same period last year.
Disney also raised its full-year adjusted profit growth outlook to 30% from 25% previously.
Disney shares closed down 4.46%. At the time of reporting, Disney shares were roughly flat this year.
Looking ahead, Disney said it expects streaming profitability to improve in the fourth quarter, with both DTC Entertainment and ESPN+ on track to return to profitability after losing $19 million in the third quarter.
“We have multiple fundamentals in place to improve margins over the next few years and remain optimistic about our trajectory,” the company said in a statement.
One of those foundations will be new price hikes for those services: The company announced on Tuesday that it’s raising prices across its Disney+ and Hulu plans again, with the changes set to take effect in October. The company also plans to add new features, such as access to ABC Live and playlists of content for young children.
“We’ve increased prices in the past and seen very little customer churn,” Disney CEO Bob Iger said on a conference call. “We don’t see it as material.” He added that the goal with streaming is to “drive more engagement on the platform,” which has created opportunities for new features and bundling.
In the third quarter, the media giant reported that Disney+ core subscribers increased slightly to 118.3 million from 117.6 million in the same period last year. Analysts had expected subscriber numbers to remain roughly flat.
Despite recent price hikes and a crackdown on password sharing, average revenue per user (ARPU) for domestic Disney+ subscribers fell 3% to $7.74. On the earnings call, Disney CFO Hugh Johnston said that increased bundling and a shift toward ad tiers were impacting the metric.
The story continues
Parks put pressure on linear project
For Disney, the biggest disappointment of the quarter was its theme parks business, where domestic operating profit fell 6% year over year to $1.35 billion, and the company warned that slowing demand could continue for “several quarters to come.”
“Consumer behavior is certainly, not necessarily recessionary, but they are becoming a little bit more cautious with their money,” Johnston told Brian Sozzi on Yahoo Finance’s Morning Brief.
But Johnston offered some optimism on the earnings call, saying “demand is moderating a little bit, but not materially so,” adding that the company expects theme park revenue to be “fairly flat” in the current quarter.
The company added that Disneyland Paris would be affected by a decline in normal consumer demand due to the Olympics and a weakening economic cycle in China. The company said demand for cruises remained “robust.”
In this handout photo provided by Walt Disney World Resort, Cinderella Castle in Magic Kingdom Park is currently undergoing a luxurious renovation that is nearly complete on June 30, 2020, in Lake Buena Vista, Florida. (Olga Thompson/Walt Disney World Resort via Getty Images) (Handout Photo via Getty Images)
Meanwhile, linear TV continued to struggle, with domestic linear TV networks revenues falling 7%, dragged down by lower advertising revenues as consumers cut their cable TV subscriptions and lower affiliate revenues. The division’s operating profit fell 1%.
ESPN bucked the downward trend, with rising advertising and subscription revenue helping to boost the sports giant’s domestic operating profit by 1 percent.
Disney strengthened its focus on sports streaming in February, announcing upcoming joint venture partnerships with Fox and Warner Bros. Discovery. The company is also working on a separate sports streaming platform for ESPN, scheduled to debut in fall 2025.
Disney’s box office power also appears to be getting back on track, with movies like “Inside Out 2” and the recent “Deadpool & Wolverine” doing well, and with the impending releases of “Moana” and “The Lion King,” Disney is poised to lead the box office later this year. As a result, content sales and licensing revenues have soared, jumping to $245 million in the third quarter from a loss of $112 million in the same period last year.
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her at Yahoo Finance. Translatorvisit me on LinkedIn or email me at alexandra.canal@yahoofinance.com.
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