Disney Rallies After Streaming Surge Helps It Top Estimates
(Bloomberg) -- Walt Disney Co. jumped in late trading after adding more online subscribers than predicted last quarter, chipping away at Netflix Inc.’s dominance of the streaming industry.
Though the entertainment titan is still reeling from the pandemic, the growth of Disney+ has softened the blow. Gains at the ABC broadcast network last quarter contributed to a smaller-than-expected fourth-quarter loss. The company also has increased capacity at Walt Disney World to 35% and wrung more than $2 billion in cost savings from its acquisition of Fox’s entertainment assets last year.
But the star of the quarter was Disney+, a direct-to-consumer platform that launched a year ago. The service grew to 73.7 million paid subscribers, smashing the 65.5 million analysts had been anticipating. Subscribers to the Disney+ Hotstar service in India helped fuel the growth and now account for a quarter of the total.
“The real bright spot has been our direct-to-consumer business,” Chief Executive Officer Bob Chapek said on a call with investors Thursday. “It has quickly exceed our highest expectations.”
Disney shares rose as much as 7.3% to $145.45 in after-hours trading. The stock was down 6.3% this year through Thursday’s close.
Disney reported a loss of 20 cents a share, excluding some items, in the period ended Oct. 3, compared with the 73-cent shortfall that analysts expected on average. Revenue slumped to $14.7 billion, but beat estimates as well.
Lower programming costs helped ABC through a tough stretch, boosting profit by 47%, Disney said. Including cable networks like ESPN, earnings at the media division rose 5% from a year ago to $1.86 billion, also helped by higher ad revenue. That beat Wall Street estimates for earnings of $1.26 billion.
The parks division registered a loss of $1.1 billion, slightly smaller than expected. Once a growth engine, Disney’s parks have become a challenge: Properties in California remain closed and visitors to other resorts are constrained by virus-related restrictions and consumers’ unwillingness to travel. Its cruise ships are languishing in port.
But the company is now letting more visitors into Walt Disney World and said reservations for the current quarter are 77% booked. Chapek said demand from customers for sailings next year was strong and that he envisions returning to the seas, with passengers in a “bubble” of Covid-19 precautions.
Chapek also said he was “extremely disappointed” that California parks remain closed, the result of a standoff with the state. Disneyland in Anaheim, California, isn’t expected to reopen this year, the company said.
Disney plans to forgo its next semiannual dividend as it copes with the crisis. Last month, activist investor Dan Loeb urged the company to permanently suspend the payout and redirect those funds to its streaming service. Disney said it will consider paying the dividend in the future.
Losses narrowed at Disney’s direct-to-consumer businesses -- the home to its streaming operations -- with Hulu and ESPN+ contributing to the improvement. Chapek called Disney+ “key to the future of our company” and said he was a big fan of Hulu’s live TV product, which offers broadcast and cable TV networks to customers who don’t want a traditional pay-TV subscription.
Earnings at he movie studio, meanwhile, tumbled to $419 million last quarter. The business has given up releasing films in theaters this year, but continues to book income from home viewing.
Chapek said that while he was pleased overall with the company’s decision to release its film “Mulan” online for a $30 fee, controversy surrounding the picture likely hurt sales. He said the company would continue to explore the video-on-demand strategy and will talk more about it at an investor day scheduled for Dec. 10.
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