When Walt Disney (DIS, Financial) faced significant losses in its DTC business from 2021-2023, its theme park operations provided a financial cushion. However, in 3Q24, a shift occurred. While demand at domestic theme parks waned, the Entertainment segment's profits surged, thanks in part to the DTC streaming business turning profitable for the first time.
- DTC Streaming turned a corner with a $47 million operating profit, compared to a $512 million loss a year earlier. This success was driven by price hikes for Disney+ and Hulu and disciplined content spending. While Disney+ and Hulu nearly broke even with a $19 million operating loss, subscriber growth for Disney+ exceeded expectations, rising 1% to 118.3 million.
- Just two years ago, the DTC business posted a $1.06 billion operating loss. Turning this around to profitability is a major achievement for DIS and CEO Bob Iger, but the real highlight of Q3 was the theatrical film business.
- The film segment thrived with the release of "Inside Out 2," which became the highest-grossing animated film ever, generating nearly $1.6 billion in ticket sales. This success helped offset the challenges faced by the Linear Networks business, which saw a 6% decline in operating income to $966 million. Overall, the Entertainment segment's operating income soared by 194% year-over-year to $1.2 billion.
- Additionally, DIS scored big with Marvel's "Deadpool & Wolverine," breaking the record for the largest R-rated global opening. Although this release came post-Q3, it sets a positive tone for Q4. With upcoming releases like Moana 2 and Mufasa: The Lion King, DIS raised its FY24 EPS growth target to 30% from 25%.
- Despite these bullish developments, the Experiences segment faces challenges. Although it still generates the bulk of DIS' earnings, with Q3 operating income dipping 3% to $2.2 billion, any negative outlook here impacts the stock. DIS expects Q4 operating income for Experiences to decline by mid-single digits year-over-year, driven by reduced domestic theme park demand and lower attendance at Disneyland Paris due to the Olympics.
The main takeaway from DIS' Q3 report is the positive swing to profitability for the DTC Streaming business. However, weakening demand for domestic theme parks could pose challenges in offsetting income declines in the Experiences segment.
