The Walt Disney Company recently released its Fiscal Q1 earnings report, showcasing impressive financial metrics yet highlighting significant concerns around its streaming service, Disney+. For the first time since its launch, Disney+ experienced subscriber losses alongside strong box office performances contributing to overall revenue growth.
Disney exceeded Wall Street expectations with adjusted earnings per share (EPS) rising 44% to $1.76, surpassing the forecast of $1.46. The company reported revenues of $24.69 billion, reflecting growth of 5% year-over-year. This upbeat financial outlook prompted shares to rise about 1% during pre-market trading after the earnings report was made public.
Despite the financial successes, Disney's flagship streaming service, Disney+, revealed troubling figures. The number of subscribers fell by 700,000 globally, bringing the current total to 124.6 million, down from 125.3 million the previous quarter. The decline came after Disney+ implemented price increases last fall, boosting costs from $7.99 to $9.99 for the ad-supported version and from $13.99 to $15.99 for ad-free subscriptions. CEO Bob Iger noted, “The subscriber churn was not as bad as expected,” providing some reassurance amid the subscriber declines.
Hulu, another significant player within the Disney portfolio, counterbalanced some of the negative chatter surrounding Disney+ by gaining 1.6 million subscribers during the quarter, bringing its total to 53.6 million. Iger stressed the importance of Hulu's contribution, stating it plays a pivotal role as Disney navigates through the changing streaming dynamics.
Disney's Direct-to-Consumer (DTC) segment generated $293 million profit, illustrating substantial improvement from the loss of $138 million recorded during the same period the previous year. The company attributed much of this success to strong theatrical performances led by Moana 2, which became the third film to surpass $1 billion at the box office for 2024.
This theatrical success fed directly back to the company’s financial stability, with Disney's entertainment division seeing revenue increase by 9%, totaling $10.87 billion. Meanwhile, linear networks faced some challenges, recording a 7% dip to $2.6 billion but remaining profitable with $1.1 billion operating income.
Turning back to Disney+, the losses present broader challenges reflective of the industry. Disney+ reported losing 1.5 million subscribers primarily outside North America, with the streaming giant’s ability to maintain subscriber counts now under scrutiny. The increased subscription prices and tighter regulations against password sharing appear to have affected global thresholds of user retention, pushing Disney to rethink its approach.
Iger hinted at possible configurations for some of Disney’s smaller networks, indicating changes might be necessary moving forward. “I won’t rule out the possibility of some smaller networks...being configured differently,” he mentioned during the earnings call, showcasing the company’s willingness to adapt.
With continued exploration of new strategies, Disney remains optimistic. Analysts predict adjusted EPS growth to rise within the high single digits, and the company is expected to maintain focus on increasing operating income across both entertainment and sports segments.
Looking forward, Disney's sports division projects to expand by 13%, with its Experiences segment, including theme parks, aiming for 6-8% growth. This promising outlook paints Disney as more than just its streaming endeavors, strengthening the notion of diversified investments.
Despite the challenges evident within Disney+’s subscriber metrics, financial experts on Wall Street still hold positive sentiments about the company’s overall strategy, with 18 buy ratings versus 5 holds. The average price target rests at $126.81, indicating potential upside of about 12% from current market levels.
Disney’s latest earnings report reinforces the complexity of the streaming business—where profitability often struggles against the backdrop of subscriber growth. For streaming platforms, the challenge emerges: how much can subscription prices rise before loyalty wanes? Disney is demonstrating with its multi-faceted approach, leveraging its entertainment successes, showcasing resiliency, and highlighting the delicate balance between revenue generation and consumer retention.