Disney (DIS) stock rose as much as 7.5% on Thursday after reporting results that were better than expected, with the company adding more streaming subscribers than forecast and raising its targeted cost cuts for this year.
The company said after the bell on Wednesday it now expects annual cost cuts to total $7.5 billion this year, up from the previous $5.5 billion target set in February. That includes a $4.5 billion annualized cut to content spending, up from the prior $3 billion.
The company's streaming figures came in much stronger than expected with nearly 7 million core Disney+ net additions, compared to consensus calls of 2.68 million.
Streaming losses narrowed to $387 million from a loss of $1.41 billion in the prior-year period after the company raised prices for the second time this year, upping the monthly price of its ad-free Disney+ and Hulu plans by more than 20%.
Analysts polled by Bloomberg had expected direct-to-consumer (DTC) losses to amount to $454 million in the quarter. The company previously reported a loss of $512 million in Q3, a $659 million loss in Q2, and a $1.1 billion loss in Q1.
Adjusted earnings of $0.82 a share beat expectations of $0.69 per share and was more than double the prior-year period's earnings per share of $0.30. Revenue, meanwhile, slightly missed estimates of $21.43 billion to hit $21.24 billion, up 5% compared to the prior-year quarter's $20.15 billion.
On the earnings call, the company said it expects free cash flow to balloon to $8 billion in full-year 2024, assisted by lower content spend. Disney expects to spend $25 billion on content next year versus the $27 billion spent in full-year 2023. It will also recommend a dividend by the end of the calendar year.
"We continue to expect that our combined streaming businesses will reach profitability in Q4 of FY24, although progress may not look linear from quarter to quarter," the company said in the release.
Wednesday's results mark the first time the media giant delivered earnings under its new reporting structure after CEO Bob Iger reorganized the company into three core business segments: Disney Entertainment, which includes its entire media and streaming portfolio; Experiences, which encompasses the parks business; and Sports, which included ESPN networks and ESPN+.
Here's how those individual segments performed in the quarter versus Wall Street consensus estimates compiled by Bloomberg:
Entertainment revenue: $9.52 billion versus $9.77 billion expected
Sports revenue: $3.91 billion versus $3.89 billion expected
Experiences revenue: $8.16 billion versus $8.20 billion expected
In an interview with CNBC following the company's earnings release on Wednesday, Iger said he's had a call with Peltz but doesn't have specifics on what the activist investor ultimately wants.
The executive did address the stock price, however, saying, "We don't manage the stock price for short-term gains or on a short-term basis. We have a long-term view and this past year has been spent fixing things that needed to be addressed. ... The long-term picture for Disney shareholders is quite bright."
Iger said an integrated Hulu and Disney+ app will launch in March 2024 and that ESPN will transition to streaming "no later than 2025."
The company is currently seeking strategic partners, either through a joint venture or part ownership, to enable ESPN to launch a new direct-to-consumer service.
ESPN generated operating income of $953 million in the quarter, up 15% compared to the prior year — largely driven by its domestic business.
The company credited higher domestic ESPN operating results to a few key factors. First, Disney saw a decrease in programming and production costs. Additionally, price increases and subscriber gains boosted ESPN+ subscription revenue. There was also an uptick in advertising revenue, while affiliate revenue decreased amid the Charter dispute in September.
Standalone linear network revenue continued to struggle, declining 9% in the quarter with domestic operating income falling 5% amid an especially weak advertising market, echoing the results of competitors. Disney said the Hollywood strikes were also to blame.
ESPN is less than 60% of total linear networks revenue, or roughly 30% of operating income.
Disney's Experiences division, which includes its parks, cruise lines, and consumer products, saw revenue leap 13% year over year in the quarter to hit $8.16 billion. Operating income came in at $1.76 billion, below estimates of $1.87 billion but 30% above Q4 2022's $1.34 billion total.
The company said lower results at its domestic parks and resorts stemmed from a decrease at Walt Disney World Resort due to inflation and lower guest spending.
Disney plans to invest $60 billion into its theme parks business over the next 10 years. Most of its full-year 2024 domestic parks growth will be in the second half of the year, the company said.