Disney (DIS.US) reports results and achieves streaming profitability faster than expected

Disney (DIS.US) shows growth after mixed results for the third quarter and achieving streaming profitability

Disney reports a 3.7% year-over-year increase following the publication of mixed results for the third quarter of fiscal year 2024, which exceeded most analyst expectations. The entertainment giant recorded revenue growth across all segments and achieved profitability in its streaming business, but reported a decline in operating profit in the Experiences segment.

Key financial data: 

• Revenue: $23.16 billion
  • Up 3.7% year-over-year from $22.3 billion in Q3 2023
  • Above analyst expectations of $23.05 billion 
• Adjusted earnings per share (EPS): $1.39
  • Up 35% year-over-year from $1.03 in Q3 2023
  • Above analyst expectations of $1.19 
• Total segment operating profit: $4.25 billion
  • Up 19% year-over-year from $3.56 billion in Q3 2023
  • Above analyst expectations of $3.84 billion

Segment results: 

• Entertainment:
  • Revenue: $10.58 billion (up 5% year-over-year)
  • Operating profit: $1.20 billion (nearly tripled year-over-year) 
• Sports:
  • Revenue: $4.5 billion (up 5% year-over-year)
  • Operating profit: $802 million (down 6% year-over-year) 
• Experiences:
  • Revenue: $8.4 billion (up 2% year-over-year)
  • Operating profit: $2.22 billion (down 3% year-over-year)

Key streaming information:

• Combined streaming business achieved profitability for the first time
• Disney+ Core subscribers: 118.3 million (up 1% year-over-year)
• Total Disney+ subscribers: 154.5 million (slightly below analyst expectations of 154.6 million)
• Average monthly revenue per paid Disney+ Core subscriber decreased from $8.00 to $7.74

Streaming data:

• Disney+ Core subscribers: 118.3 million (up 1% year-over-year)
• Disney+ Hotstar subscribers: 35.5 million (down 1% year-over-year)
• Total Disney+ subscribers: 154.5 million
• Average monthly revenue per paid Disney+ Core subscriber decreased from $8.00 to $7.74

Disney expects moderate growth in Disney+ Core subscribers in the fourth quarter, continuing the positive trend in the streaming segment.

However, not all segments look equally optimistic. The results of the Experiences segment in the fourth quarter will reflect weakening consumer demand, which may pose a challenge for this traditionally strong business area.

It's worth emphasizing that the company reported significant improvement in results in the Entertainment segment, both in box office and streaming. Particularly impressive is the fact that the company achieved profitability in its combined streaming businesses a quarter earlier than planned. The success of "Inside Out 2" proved crucial for this segment's results, demonstrating the strength of the brand in theaters and its positive impact on Disney+ subscriptions.

Not all parts of the business model showed satisfactory results. The Experiences segment experienced weakening consumer demand, which may signal broader economic trends. Sports also sends mixed signals - on one hand, it recorded an impressive 17% increase in domestic ESPN advertising revenue, on the other hand, it suffered from losses in the Star India business.

Disney CEO Robert Iger remains optimistic. He emphasized strong quarterly results, especially in the Entertainment segment, and expressed confidence in the company's ability to continue growing profits. Iger points to Disney's diverse portfolio of assets as a key factor enabling adaptation to changing market conditions.

Recommendations: Disney has 44 recommendations, of which 35 are "buy" with the highest target price at $145, 8 are "hold", and 1 is "sell" around $100. The 12-month average stock price forecast is $123.22, implying a 37% upside potential compared to the current price.

Technical analysis: The stock price remains near the previous day's closing price in pre-market trading at $89.5. Support will be the 78.6% Fibonacci retracement level at $88.29, which was broken during yesterday's session. If it's breached, the second support is at $86.24, at the October peak. The first resistance is the 61.8% Fibonacci retracement level, breaking which would open the way to test the beginning of the upward gap at $99.37. RSI is starting a slow rise from oversold levels, noting higher lows. MACD is losing downward momentum, which may also favor a bullish thesis.