Streaming Cannot Save Disney, For Now

  • Disney shares fell almost 10% on May 7 after the company reported second-quarter earnings.
  • A closer look at the market reaction to Disney’s earnings reveals the negative sentiment is tied to the deteriorating parks business and the challenges faced by linear TV.
  • The streaming business is headed in the right direction but this will not save DIS stock in the short term.

The Walt Disney Company (DIS) shares fell almost 10% on May 7 after the company reported second-quarter earnings for Fiscal 2024. The company topped Wall Street projections for earnings per share and also guided for 25% growth in EPS for the current fiscal year, compared to previous expectations for 20% growth in EPS. In a major positive development, the entertainment streaming business of Disney turned profitable during the second quarter, and the company now projects the combined streaming business to be profitable by the fourth quarter of Fiscal 2024.

A closer look at the market reaction to Disney’s earnings reveals the negative sentiment is tied to the deteriorating parks business and the challenges faced by linear TV. Overall, the encouraging performance of the streaming business in the last quarter failed to satisfy investors when the company reported earnings, and this is likely to be a feature in the foreseeable future before market dynamics turn in favor of the entertainment giant. As discussed later in this analysis, Disney’s current valuation offers a seemingly attractive entry point for long-term-oriented investors.

The streaming business is headed in the right direction

Disney ended the second quarter with 153.6 million total Disney+ subscribers. Disney+Core, which excludes Disney+Hotstar, gained 6.3 million subscribers during the last quarter, boosting Core subscribers to 117.6 million. This impressive gain, which came ahead of analyst expectations, was driven by a 17% increase in domestic Disney+ subscribers. The highlight in the quarter was the entertainment direct-to-consumer business reporting an operating profit of $47 million on revenue of $5.6 billion. In the corresponding quarter last year, this segment reported an operating loss of $587 million on revenue of $4.9 billion. This marks a substantial improvement in the operating efficiency of the DTC business, which is pegged as the next big growth driver of the company.

Another bright spot during the quarter was the 14% year-over-year increase in domestic Disney+ average revenue per user. Overall, Disney+Core average revenue per user increased by 44 cents sequentially as well, driven by recent price hikes. The company’s continued ability to add subscribers at a healthy pace even on the back of price hikes is a testament to the effectiveness of the company’s new business acquisition strategy.

Legacy businesses will dampen investor sentiment for longer

The strength of Disney’s streaming business, or at least the recent improvements, did not help the company in the market after reporting earnings. This was primarily because of the struggles the company is facing in other business segments.

First, the unusually high post-Covid demand for the Experiences segment is beginning to wane, which does not come as a surprise given that normalization in demand for leisure activities was bound to occur sooner rather than later. Disney management, during the recent earnings call, acknowledged these challenges but projected a rebound in the fourth quarter of the current financial year. Given the substantial decline in personal savings in the last couple of years, these rosy expectations might not come to fruition in the foreseeable future. Pandemic-era excess savings, which is defined as the accumulated difference in actual de-annualized personal savings and the trend implied by data for the 48 months leading up to the first month of the 2020 recession by the National Bureau of Economic Research, has been fully utilized by U.S. consumers, according to latest data from the Bureau. From a peak of $2.1 trillion in August 2021, excess savings dwindled to a negative $72 billion in March 2024, suggesting these excess savings have been fully spent. Given this, the leisure sector is likely to see moderate growth even in the best-case scenario in the next few quarters, dampening the investor sentiment toward Disney.

Second, the cost of acquiring live sports streaming rights is continuing to increase, directly impacting the profitability of ESPN and related streaming services. During the recent earnings call, Disney claimed that the company is on track to securing a long-term NBA deal albeit at a much higher cost compared to the recent past. These elevated content acquisition costs will make it difficult for ESPN+ to turn profitable, which may contribute to the negative sentiment toward Disney among investors.

Third, Disney has yet to secure a suitable candidate to replace Bob Iger to lead the company, which highlights the leadership struggles the company is facing today. Mr. Iger returned to Disney for a limited period to steer the ship in the right direction but was forced to stay in the role in the absence of a satisfactory candidate to take the helm.

The challenges faced by Disney’s legacy businesses coupled with the company’s failure to find a long-term solution to its leadership struggles will take center stage in the foreseeable future, making it difficult for its stock to move higher despite improvements in the streaming segment.

Still a long way for Disney+ to catch up, but there is hope

Netflix, Inc. (NFLX), the streaming market leader, enjoys a first-mover advantage in the OTT streaming sector and has leveraged this effectively to finetune its monetization model. Today, Netflix’s global average revenue per user hovers close to $12, in comparison to just $7.28 for Disney+Core. Disney has been able to boost its ARPU with timely subscription price hikes recently, but the entertainment giant is still a long way away from catching up with Netflix. To bridge this gap, Disney is focused on a few strategies.

First, Disney is focused on leveraging some of its best creations across different studios such as Pixar and Marvel to develop original content that would resonate with an existing fan base.

Second, the company is trying to attract new subscribers by bundling streaming services such as Disney+, Hulu, and ESPN+ to offer them at a discount. This might prove to be an effective strategy to boost subscriber growth given that paying separately for the three services may force consumers to consider alternative options.

Third, the launch of a standalone ESPN+ is expected in 2025, which may help the company attract sports viewers who have been deprived of a high-quality streaming service for so long. Although fuboTV (FUBO) has been able to gain some traction as a sports-oriented streaming platform, there is room for disruption in this market segment, which makes ESPN+ a valuable asset for Disney today.

Finally, following the footsteps of Netflix, Disney is doubling down on its efforts to grow advertising revenue. Successfully launching and growing this revenue stream will help the company replace some of the lost ad dollars from its legacy TV business, boosting investor confidence in the company’s long-term prospects.

In the long run, these initiatives are likely to help Disney emerge as a streaming-first business. However, the company and its investors will have to face a challenging period before that as the legacy TV business continues to decline.


Disney’s streaming business is heading in the right direction. However, this progress is masked by the disappointing performance of its other business segments. In the long run, Disney will emerge as a streaming-oriented business with a few other strong business units including the Experiences segment. For now, the struggles of the legacy TV business will be magnified by the short-term challenges faced by Disney’s theme park business. During this consolidation period, contrarian investors may want to consider investing in Disney at a forward price-to-earnings ratio of around 30 in expectation of a major expansion in multiples supported by higher revenue and earnings growth in the streaming segment.

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