Disney Reports Better-Than-Expected Q1 Earnings and Announces Strategic Moves
The Walt Disney Company has announced its fiscal first-quarter earnings, exceeding expectations as it successfully reduced costs while revenue remained stagnant. The media giant reported that it is on track to achieve its goal of cutting costs by at least $7.5 billion by the end of fiscal 2024. Furthermore, Disney expects its earnings per share for fiscal 2024 to be around $4.60, representing a minimum 20% increase from 2023.
In addition to its impressive financial results, Disney made two significant strategic announcements. Firstly, the company revealed that it will acquire a $1.5 billion stake in Epic Games, the studio behind the popular game Fortnite. This move demonstrates Disney’s commitment to expanding its presence in the gaming industry. Secondly, Disney announced the launch of its flagship ESPN streaming service in the fall of 2025. This streaming service will cater to sports enthusiasts and is expected to attract a large subscriber base.
These announcements come at a crucial time for Disney as it faces pressure from activist investor Nelson Peltz to improve its financial performance. In response to Peltz’s demands, Disney has made significant progress in its cost-cutting initiatives, which has been well-received by investors. As a result, Disney’s shares rose approximately 7% in extended trading.
Let’s take a closer look at Disney’s financial performance for the first quarter and how it compares to Wall Street’s expectations. Disney reported adjusted earnings per share of $1.22, surpassing the projected 99 cents. However, revenue fell slightly short of expectations, with $23.55 billion compared to the anticipated $23.64 billion.
Despite the revenue stagnation, Disney’s net income attributable to the company increased to $1.91 billion, or $1.04 per share, up from $1.28 billion, or 70 cents per share, in the same period last year. The company’s direct-to-consumer unit reported an operating loss of $138 million for the quarter. However, when including the performance of ESPN+ and other streaming businesses, the losses narrowed to $216 million, a significant improvement from the prior-year period’s $1.05 billion loss.
One notable development in Disney’s streaming business is the decline of 1.3 million core subscribers for Disney+. This decrease can be attributed to price increases. However, despite the decline in subscribers, Disney saw an increase in average revenue per user due to the subscription cost hikes.
In addition to its financial results, Disney announced its plans to launch a new sports streaming venture in collaboration with ESPN, Fox, and Warner Bros. Discovery later this year. While the pricing for this service has not been determined, industry insiders suggest that it could start at around $45 or $50 per month, with lower introductory pricing to attract sign-ups.
Disney’s earnings report coincides with its ongoing battle with activist investor Nelson Peltz and Blackwells Capital. Peltz previously engaged in a proxy battle against Disney but ended it after the company committed to various cost-cutting initiatives. However, Peltz revived his fight last fall, seeking to shake up the board and secure a seat for himself and former Disney CFO Jay Rasulo. Peltz has cited the company’s stock plunge, a drop in earnings estimates, and disappointing studio content as reasons for his push for a board shake-up.
Disney CEO Bob Iger addressed the situation, stating that he has not spoken to Peltz recently and has no plans to do so. Iger has also acknowledged Disney’s challenges in the theatrical release market and pledged to rely less on sequels and more on fresh, high-quality films. However, given the production timelines of approximately 18 months, the impact of these changes is not expected to be seen until 2025 or 2026. At that point, Disney has scheduled the release of four highly anticipated blockbusters: an Avatar film, two Star Wars features, and an Avengers team-up movie.
Investors are also paying attention to Disney’s new financial reporting structure, which divides the company into three divisions: entertainment, sports, and experiences. The entertainment sector experienced a 7% decline in revenues to $9.98 billion, primarily due to a slump in linear networks and content sales. However, the direct-to-consumer business saw a 15% increase in revenue to $5.55 billion.
At ESPN, revenues rose by 4% to $4.84 billion, driven by a decrease in programming and production costs and growth in ESPN+ subscription revenue and subscribers. Disney’s experiences division reported a 7% increase in revenue to $9.13 billion, despite lower attendance at its domestic theme parks in Florida. The two California-based parks saw comparable growth to the previous quarter, with guests spending more during their visits. Additionally, higher ticket prices and increased passenger cruise days contributed to growth in Disney’s Cruise Line