Disney's Q2 Earnings: Streaming Profitability and Tepid Outlook
Disney's direct-to-consumer (DTC) segment, including Disney+ and Hulu, turned a profit for the first time, posting an operating income of $47 million.
However, the company expects weaker results in the current quarter, driven by losses from Disney+ Hotstar.
Overall, Disney reported adjusted earnings of $1.21 per share and revenue of $22.1 billion, beating analysts' expectations.
Challenges in Achieving Streaming Profitability
Despite the profit in Disney's DTC segment, not all streaming services were profitable. ESPN+ contributed to a $18 million loss.
Disney expects full streaming profitability by the fourth quarter of this year, but analysts express concerns about the soft guidance for the third quarter.
The company's merger with Reliance Industries resulted in an impairment charge of over $2 billion.
Theme Park Performance and Outlook
Disney's theme park business delivered another strong quarter, with operating income surging in the second quarter.
However, the company anticipates a moderation in travel and rising costs, which could impact profitability in the third quarter.
Disney CFO Hugh Johnston noted a slowdown in post-COVID travel at theme parks.
Other Key Takeaways
Disney added over 6 million Disney+ subscribers in the second quarter, exceeding expectations.
Average revenue per user (ARPU) increased sequentially, driven by price hikes and password-sharing crackdowns.
ESPN's domestic operating income declined due to lower affiliate revenue and fewer subscribers.
Disney is investing in sports streaming through joint ventures and a separate ESPN platform.
Investor Reaction and Analyst Commentary
Disney stock dropped nearly 10% on Tuesday following the earnings announcement.
Analysts raised concerns about the tepid outlook for the streaming business and the potential impact on profitability.
Some investors view the weak outlook for the Experiences business as a negative for the stock.
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