Disney Faces Challenges: Quarterly Report in Focus

The entertainment giant Disney will announce its third-quarter financial results on the upcoming Wednesday before the opening bell, as the company strives to achieve sustainable profitability in its streaming division and stabilize demand within its parks business. Disney recently adjusted its reporting structure after CEO Bob Iger reorganized the company into three core business segments: Disney Entertainment, which includes the entire media and streaming portfolio; Experiences, which encompasses the parks business; and Sports, incorporating the ESPN networks and ESPN+. Last year, Disney faced challenges such as a declining linear TV business, slower growth in its parks, and profitability hurdles in the streaming sector. CEO Bob Iger has attempted to reposition the company with an aggressive turnaround plan and recently emerged victorious from a high-profile power struggle against activist investor Nelson Peltz. However, investors remained cautious, and the stocks have fallen more than 20% in the last three months. Wall Street is eagerly awaiting Disney's performance based on Bloomberg's consensus estimates. The forecasts will be scrutinized closely, especially after the disappointing predictions from the last quarter raised concerns about the company's long-term prospects. In May, Disney announced that a key part of its streaming business became profitable for the first time, although weaker results for the third quarter are expected. This highlights the challenges of achieving sustainable profitability in the streaming area as the linear TV business declines. On Tuesday, Disney announced renewed price increases for its various streaming services. The monthly price for Disney+ with advertisements will rise by $2 to $9.99, while the ad-free version will also increase by $2 to $15.99. Hulu's ad-supported plan will also rise by $2 to $9.99 per month, while the ad-free plan will increase by $1 to $18.99. The Disney bundle, which includes ad-supported plans of Disney+ and Hulu, will be offered at $10.99 per month, an increase of $1 and a more attractive option compared to individual plans. The price changes, among others announced, will take effect on October 17. Disney expects full profitability in streaming by the fourth quarter of this year. A faster path to significant profit would be an advantage for the direct-to-consumer segment, wrote CFRA analyst Ken Leon in a note before the earnings release. He added that the company’s renewed deal with the NBA will also be in investors' focus, especially regarding expenses for costly sports rights. Apart from the NBA, the company will launch a new sports streaming platform with Fox and Warner Bros. Discovery in the fall at a price of $42.99 per month. A separate sport streaming platform for ESPN is planned for fall 2025. The parks remain another concern, after the company said that third-quarter operating income for this segment “should be roughly comparable to the prior year.” CFO Hugh Johnston said the firm has seen “some indications of a global cooling off from the peak of post-COVID travel” in its theme parks and rising costs and inflation are expected to weigh on profits. In a note to clients last month, KeyBanc analyst Brandon Nispel said that visitor numbers at Disney’s theme parks increased year-over-year on only one out of 30 days in June, based on internal domestic geolocation data. Bloomberg Intelligence analyst Geetha Ranganathan agreed that the demand decline is likely to impact the results, but any weakness should be “temporary given a $60 billion investment commitment as well as the introduction of new cruises in fiscal years 2025-2026, which will double the capacity.” A bright spot is the return of Disney’s theatrical strength, with strong performances from films like “Inside Out 2” and the recent “Deadpool & Wolverine.” The company is also set to dominate the box office in the second half of the year with the upcoming releases of “Moana 2” and “Mufasa: The Lion King.” However, analysts say that the focus will remain on the parks and streaming areas. "While we think [Disney's cinematic comeback] is nice additional income and operating profit, cinematic results are hardly the profitability drivers they once were," Nispel said.