It's been a tumultuous few years at Disney (DIS -1.46%). There have arguably been few companies that are dealing with as much volatility as Disney, even other large companies with broad businesses like Amazon.
There have been so many ups and downs across its categories that it's almost like a game of whack-a-mole. Let's see what's up and what's down right now, and whether or not things might stabilize over the next year.
Streaming: Up
I'm giving this an overall up, but the streaming business is going through its own volatility. It's taking longer than Disney investors have been comfortable with to become profitable. Management has made streaming a key part of its growth strategy, and reiterated that it's on target to get there by the fiscal fourth quarter. Without the sports component, streaming was already profitable in the second quarter (ended March 30).
The company added 6 million core Disney+ subscribers in the quarter, wiping out the subscribers it lost from its Disney+ Hotstar package after it lost sports rights in India. It also added total Hulu subscribers.
The future of ESPN+ is uncertain. The company will be combining some live events with Disney+, but it's not willing to send ESPN away from its linear track. It will be launching a new ESPN+ in another year or so, so this is something to watch.
Parks: Up
Parks is the category that sets Disney apart from any other media and entertainment company. There are no global theme parks that quite match Disney's, and it's investing in new rides and overall enhancements.
Parks was a big winner in the second quarter, with sales up 7% year over year and operating income up 12%. The company raised prices to cover the impact of rising costs and is using that money to keep guests happy. Parks are getting high customer satisfaction scores, and Disney knows that this is the way to run the parks business -- customers are paying a lot, but they perceive a high value. Management is confident that large investments will yield a high return in happy, returning guests.
Linear networks: Down
This is a continuation of the trend of cord-cutting and the move to streaming, so it's no surprise to anyone that linear networks are struggling. When you factor in pressure in the ad industry because of inflation, there's isn't much to expect from Disney's linear networks for now.
Revenue declined 8% year over year, and operating income was down 22%. CEO Bob Iger explained that linear networks are actually a key part of the overall content strategy, capturing a market that's not embracing streaming and opening these viewers up to the Disney ecosystem.
Films: Up
Films have been more "mixed" than "up," but its two most recent releases are this summer's smash hits, so I'm going to give it the thumbs-up.
Pixar Studios' Inside Out 2 had the year's biggest opening weekend until this past weekend and is now the top-grossing film of 2024. It looks like it's going to be surpassed, though, by Marvel Studios' Deadpool & Wolverine, which overcame it with the highest-grossing weekend of 2024.
It had looked like the Disney model of recycling its franchises into sequels and prequels and series and more was losing its luster, but it just got it back. Iger has committed to putting more control in the hands of creatives and offering tighter, higher-quality content, and it just might be working. It now has two hit films in the top 10 this year after it had zero for the first half of the year.
Disney has nine releases coming out over the next 12 months. The vast majority are part of existing franchises, and some are expected to be blockbusters. If they can pull through, Disney will be back in its top spot.
Overall: Lukewarm up
Despite what looks like mostly good business, total sales were sluggish in the second quarter, up only 1% year over year. Adjusted earnings per share (EPS) increased from $0.93 to $1.21, but generally accepted accounting principles (GAAP) EPS was a $0.01 loss after positive $0.69 last year.
Disney stock is about flat this year. It looks like the market is pricing in a few factors. There's the generally lukewarm performance, a retail slump that could hurt Disney over the summer, and the continued streaming losses. There's also the continued volatility, because even though things are looking up, there hasn't been enough for investors to feel confident that Disney can sustain momentum.
If and when streaming becomes profitable, which is expected to happen by the fiscal fourth quarter, Disney stock will likely get a boost. But it may take a few quarters of Iger's leadership for the business to sustain growth and profits and for investors to feel more confident. A year from now, that could certainly be the case. If the company can maintain streaming profitability, roll out more film hits, and keep visitors coming to its parks, Disney stock should be a lot higher then. But given that Disney is in flux right now, it's difficult to say with any certainty where it will be holding next year.
