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What happened? 

Disney+ and Hulu have managed to report a profit of $47mn for the first three months of 2024.  

Churning out a profit was the first time this occurred for Disney+. It caused some positivity, because making a profit in the media and entertainment industry is generally challenging. 

ESPN+, Disney’s other streaming platform continued the trend of losing subscribers and burning cash. This has resulted in a combined streaming loss of $18mn.  

The company reported a second quarter revenue of $22.1bn. 

More on this story 

With all of that being said, investors generally weren’t happy. Shares plunged down by 9% upon the news and it marked Disney’s worst stock trading day in 18 months. 

We do need to give Disney a pat on the back though-recent figures are much better than what was recorded during the same period last year. In 2023, the collective streaming business had loss of over $659mn. They’re definitely doing something right. 

Paul Verna, a principal analyst at eMarketer stated, “What [Wall Street] seems to be reacting to is the guidance for some softness in entertainment streaming next quarter.” 

DIS: A quick glance 

What is Disney? Disney is a global entertainment company that promotes a wide range of Disney properties such as theme park resorts, television shows and films and more. 

Founder/s: Walt and Roy Disney on October 1923 

Current CEO: Bob Iger 

What is Disney’s most profitable arm? Their Parks, Experiences and Products business. Collectively, they generate around 70% of Disney’s revenue. 

Current stock price: 105.79 (at the time of writing) 

One interesting fact about Disney: Walt Disney didn’t draw Mickey Mouse-Ub Iwerks, a Kansas City animator. 

What factors have led to this? 

• Cost-cutting measures. Since Iger’s return as CEO in 2022, he has been on a mission to turn around its streaming businesses and make some profit. In an effort to reign in costs, Disney laid off thousands of employers. The move has streamlined that part of the business and it means the extra money can be used to help make this division more profit. 

• Mergers. Disney’s Star India service and Viacom18, which is owned by Reliance Industries, merged in a deal worth $8.5bn. The combined firms will offer more than 120 channels and serve around 750 million customers up and down India. Reliance, which is led by Mukesh Ambani, Asia’s wealthiest man, have agreed to invest $1.4bn to help grow the joint venture. They were struggling with the Indian business since acquiring it in 2019. The merger, although costly, has given Disney’s streaming arm a little less of a thing to worry about.  

• Higher prices. The increase in Disney’s revenue was partly because of higher ticket prices in its Experiences division, which include its theme parks and cruises. This has helped the division to grow by 10% in revenue. 

What implications could this story have? 

• Higher prices. Posting Disney+’ first profit in an industry that is hard to generate one is a win for the company. I’m sure Disney won’t want this to be a one-hit-wonder-they'll want to increase and sustain these profits. One way to do this is to increase prices for customers. This is something we’ve been witnessing in many of Disney+ competitors, such as Netflix, Paramount + and Amazon Prime. It seems the price hikes aren’t deterring customers too much as well. I’d say there is a very strong possibility that this could occur, in fact we shouldn’t be surprised when the news will be announced. 

• Further cost-cutting measures. The job cuts that have happened over the last several months is a sign that the extra money from not paying extra staff, for example, can be used to prop up a division of the company. To further develop their streaming arm, a lot of research and development is needed. I’m sure Disney will want to invest more time, money and resources, so that they can continue to stay afloat in a competitive industry. What sets Disney+ apart from others, is the amount of classic TV shows and films they offer. What Disney+ could do is spend some time collecting partnerships for exclusive content deals that is only available on their platform. This can increase the number of subscribers in the short term and help to increase the overall revenue. Could more mergers happen in the future? This is likely, especially when a division isn’t perfuming up to their standard. 

What could the future hold for Disney? 

Let’s spend some time on the recent proxy battle you may have heard of between Disney’s CEO, Bob Iger, Nelson Peltz, a billionaire activist investor, and Ike Perlmutter, Marvel’s former CEO.  

At the end of the costly battle, Peltz and Perlmutter failed to win a seat as shareholders voted to stick with the company’s full board. Had the latter have won, sweeping changes to one of the US’ most well-known companies would have happened. The eye for change came after Disney saw six straight quarters of operating losses within its content sales business (these include its box office and home entertainment divisions). They struggled to return to the figures seen in 2019. 

Whilst understandable as to why they’d make such a move to be offered board seats, the loss of the battle could be seen from a mile away. Bob Iger came back to Disney in 2022, after retiring in 2021, to help steer the company’s shares back up and to guide them through tough times. 

With Bob Iger’s return only for a 2-year tenure, the journey to find a successor is on. Who will replace Iger as the CEO of one of America’s most well-known companies?  

Closing thoughts: 

I think the profit for Disney+ and Hulu is something to be celebrated, because it’s not easy to generate one in the streaming industry. However, there is still a lot of work to be done, especially after having multiple successive quarters of operating losses. 

As I’ve stated above, Disney will want to sustain the profit they have seen, and there are a range of ways this could be achieved. Some are more likely than others. Disney is a company that is constantly in the news and its share price fluctuates regularly as a result. It could very well be the case that they could be making consistent profits in a year or two from now, and even have the largest market share in the streaming industry. 

We’ll have to see how things pan out for them. 

That’s it for this week! What are your thoughts on the story? Do you think Disney can sustain profitability in this division? Who do you think will success Bob Iger as Disney’s CEO? I’d love to know your thoughts. You can comment below, message me on any of my social media platforms or you can email me: hello@parahinsights.com. I look forward to hearing from you. 

Until next time, remember to stay curious! 

Further resources: 

‘Disney just had its worst day in a year and a half’- Article by CNN 

‘Disney agrees $8.5bn deal to merge Indian media assets with Reliance Industries’- Article by IBC News 

‘Disney-revenue growth in line with expectations’- Article by Hargreaves Landsdown 

‘Disney’s cinematic drought may have opened a door for activist investor Peltz’ -Article by CNBC 

‘Disney wins proxy fight against activist investor Nelson Peltz, as shareholders reelect full board’-Article by CNBC 

Disclaimer: 

This blog is for informational purposes only. Parah Insights is not associated with the news sources in this blog, and sharing does not equal endorsement. Parah Insights does not provide financial, tax, legal or accounting advice – always consult your financial and legal advisors to determine what’s right for you and your business.