Walt Disney (DIS, Financial) shares experienced a sharp decline despite a recent surge over 5% in anticipation of its Q2 earnings report. Following a significant Q1 performance and a victory in its proxy battle against Nelson Peltz (Trades, Portfolio)'s Trian Group, optimism was high with Bob Iger back at the helm since November 2022. Although DIS surpassed Q2 EPS expectations and increased its FY24 EPS guidance from $4.60 to $4.70, a subdued Q3 outlook for its Entertainment DTC business and a slowdown in domestic theme park demand have tempered the initial enthusiasm.
Key highlights from Q2 include:
- The DTC segment of the Entertainment division turned a profit of $47 million, a significant improvement from a $587 million loss year-over-year. This was aided by an impressive increase of over 6 million Disney+ Core subscribers and a 6% rise in ARPU, spurred by recent price hikes.
- DIS reiterated its expectation to achieve full streaming profitability, including ESPN+, by Q4 of this year.
- The Experiences segment, primarily consisting of theme parks, reported a 10% revenue increase to $8.4 billion and a 12% rise in operating income to $2.3 billion. Notably, international parks like Hong Kong Disneyland saw a 29% revenue jump, benefiting from higher attendance and spending.
- Despite these gains, DIS anticipates a Q3 loss in the Entertainment DTC segment, mainly due to losing Disney+ Hotstar ICC Cricket rights, and expects flat operating income year-over-year for the Experiences segment.
While the earnings report was stronger than expected, the high expectations have led to some disappointment. Nevertheless, DIS shareholders have exciting developments to look forward to, including a new sports joint venture with Fox and Warner Bros. Discovery (WBD, Financial), and the upcoming launch of an ESPN streaming platform in 2025.
