Topline
Disney shares tanked Tuesday after delivering a fairly strong earnings report, as the entertainment giant walks the tightrope between growth and rightsizing its streaming business.
Disney CEO Robert Iger said he thinks streaming will be a "growth driver" for the company.
Key Facts
Early Tuesday, Disney reported $22.08 billion in revenue and $1.21 earnings per share in the three-month period ending March 30, narrowly falling short of consensus analyst sales estimates of $22.12 billion but beating forecasts of $1.10 profit per share.
Disney also upped its guidance for full-year profit growth from 20% to 25%, still a tick below Wall Street forecasts of 25.3% growth.
Perhaps most interestingly, Disney reported a $47 million quarterly operating profit for its Hulu and Disney+ streaming services, a massive turnaround from the 2023 comparable period’s $587 million loss and a notable feat for the broader direct-to-consumer segment that burned through more than $8 billion of cash the last three fiscal years.
Still, Disney shares fell 10% to $105, notching their worst day since Nov. 9, 2022, sending the stock to its lowest ticker since early February.
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Why Is Disney Stock Down?
Tuesday’s selloff looks goofy at first glance, but it reflects the arduous task facing CEO Bob Iger and company to return the Hollywood behemoth to its glory days. For one, Disney’s share price remains up 16% year-to-date, outpacing the S&P 500’s 10% gain, meaning the market needed to really be impressed by Disney’s results to further advance its stance on Disney’s valuation. The largely in-line headline numbers and outlook underscore the years-long issues Disney has, as the $4.70 earnings per share guided by Disney is far lower than its full-year profits every year from 2015 to 2019, and analysts don’t expect Disney to recapture its 2018 record profit until 2028.
Big Number
$20 billion. That’s how much market value Disney lost Tuesday, roughly equivalent to the total market capitalization of entertainment rival and HBO parent WarnerBros Discovery.
Crucial Quote
“We fully expect streaming to be a growth driver for the company in the future,” Iger said on Tuesday’s earnings call, declaring the Hulu and Disney+ profit a “testament to the turnaround” initiated by the company since he returned as chief executive in Nov. 2022.
Key Background
Iger’s remarks pose a fairly bold statement considering the wide losses felt by every streamer other than Netflix. Analysts project Disney’s streaming unit to turn its first ever full-year profit next year, though its high-margin parks division is still expected to account for a majority of profits. Disney stock posted its best-day in four years following its February earnings report. Last quarter also featured a victory over billionaire activist investor Nelson Peltz at Disney’s April annual shareholder meeting, with Peltz’s campaign focused on Disney stock’s extended slump, with Disney’s -11% five-year return far underperforming the S&P’s 95% return. Disney shares remain more than 40% below their 2021 peak.
Tangent
In line with his quest for efficiency, Iger said Tuesday he expects Disney to slow production for its highly popular (and expensive) Marvel superhero content to “probably about two” television series and “two to the maximum three” movies per year. That’s quite the slowdown from the average of four-plus Marvel Cinematic Universe shows on Disney+ dating back to WandaVision’s 2021 release and the 10 MCU films released from July 2021 to November 2023 at an average run rate of more than four movies per year. Disney aims to "reduce output and focus more on quality” with Marvel, according to Iger, who added he remains “extremely excited” about Marvel’s offerings, including the upcoming Avengers team-up movies, with the prior four Avengers installments each ranking among the 15 highest-grossing movies ever.
