Disney has had a rough time even after CEO Bob Iger returned from a brief retirement. But the media veteran said on Wednesday that Disney is finally on the path toward success again. The company surprised investors by announcing it would grow earnings per share by a whopping 20% this year, easily beating Wall Street analysts’ estimates.
“Our strong performance this past quarter demonstrates we have turned the corner and entered a new era for our company, focused on fortifying ESPN for the future, building streaming into a profitable growth business, reinvigorating our film studios, and turbocharging growth in our parks and experiences,” Iger said in a statement.
But the company still faces a number of significant headwinds, from its continued losses on streaming to questions about succession planning when Iger someday exits his second turn heading up the company.
Disney reported earnings per share of $1.04 for the fiscal first quarter, beating Wall Street’s estimate of $0.99, according to FactSet. Its earnings per share grew 49% from the 70 cents it reported during the same quarter a year ago.
However, Disney reported revenues of $23.5 billion for the quarter – nearly in line with revenue from the same quarter last year and missing Wall Street’s expectations for the first quarter.
Disney’s stock shot up 7% in after-hours trading.
Seeking a comeback
Wednesday’s earnings came with a string of additional announcements, including that Taylor Swift’s Eras Tour concert film would make its streaming debut exclusively on Disney+ on March 15.
However, Disney continues to lose money in its streaming service business, though it has cut those losses compared to last year. Operating losses for Disney’s direct-to-consumer streaming products, which include Disney+, Hulu, ESPN+ and Hotstar, a streaming platform in India, narrowed to $216 million from nearly $1.1 billion last year.
Disney has never turned a profit in the division since launching Disney+ in 2019, though the company estimates that its streaming business will exit the red by the end of this year. Activist investors started pressuring the company to change in recent quarters.
The company is trying several things to try to get streaming to turn a profit. Last month, Disney updated its user agreements for Disney+, Hulu and ESPN+, officially banning users from “impersonating” someone by password sharing.
Suspected password borrowers will be alerted of a password-sharing crackdown this summer, according to Disney’s earnings call Wednesday. In an interview with CNBC on Wednesday, Disney CEO Bob Iger said that impacts of a password-sharing crackdown wouldn’t be felt until 2025.
The move comes after a successful password-sharing crackdown by Netflix, which led to an explosion in new subscribers as password “borrowers” were pushed into creating their own subscriptions.
“Netflix had an over 10-year head start on us,” Iger said on CNBC. Disney’s streaming service is “still a nascent business in many respects.”
Sports streaming
Iger also said Disney planned to launch a standalone ESPN streaming service in 2025 that would “provide a much more immersive experience” for sports fans, including integrating betting and fantasy sports leagues.
Iger said the service would ultimately be offered as a bundle with Disney+ and Hulu. “If you’re a Hulu subscriber and you want to get this new service, you can buy that as an add-on to Hulu,” Iger said on a call with investors on Wednesday. “We see it as a real positive.”
The announcement of a planned ESPN service comes one day after ESPN, along with Fox Corporate and Warner Bros. Discovery (CNN’s parent company) made the once-unthinkable announcement that they would join forces and a new streaming service that would bundle the three companies’ sports assets. Each company will own one-third of the new venture.
Iger told CNBC that when he came back to the company a year ago, he “discovered a company that was really struggling.” He pointed to problems in the studios, money-losing businesses, questionable balance sheets, frustrated shareholders and many other issues. “Morale was bad.”
Paul Verna, a principal analyst at Insider Intelligence, said strength in Disney’s fiscal first-quarter results bodes well for Iger’s ability to fend off pressure from activist investors.
“There are still big battles ahead for Disney this year and beyond,” Verna said. But Wednesday’s results “will no doubt bring a sigh of relief to the company’s leaders and shareholders.”
Partnership with ‘Fortnite’-maker
Disney also announced a major push into video games Wednesday. The entertainment giant said it would invest $1.5 billion to acquire an equity stake in Epic Games, the maker of the popular video game “Fortnite.” As part of the partnership, Disney and Epic Games will collaborate on a “games and entertainment universe” using Disney’s stories and characters.
“This represents probably our biggest foray into the game space ever, which I think is not only timely but an important step when you look at the demographic trends and you look at where Gen Alpha and Gen Z and even Millennials are spending their time in media. it’s pretty dramatic in terms of the amount of time spent in games,” Iger said on CNBC.
Disney’s foray into the video gaming space comes as competitor Netflix also ramps up their expansion into video games.
In December, Netflix launched three mobile-friendly games from Grand Theft Auto, one of the best-selling video game franchises ever. In Netflix’s most recent quarterly earnings report, the company said its GTA offering was in the top mobile game downloads for several weeks.
— CutC by cnn.com
