Disney's stock surged Thursday following a robust fiscal fourth-quarter earnings report, which surpassed Wall Street's expectations, driven by a profitable quarter for its direct-to-consumer streaming segment. The entertainment giant's shares climbed over 10% in early trading, later paring gains to a 6% increase by afternoon.
Disney reported adjusted earnings per share of $1.14, beating analysts' forecasts of $1.10, and a notable increase from the $0.82 reported in the same quarter last year. Revenue came in at $22.57 billion, also topping estimates of $22.47 billion and surpassing the previous year's $21.24 billion.
Key to Disney's earnings success was its direct-to-consumer (DTC) business - encompassing Disney+, Hulu, and ESPN+ - which reported operating income of $321 million for the three months ending September 28. This marked a stark turnaround from the $387 million loss in the comparable period last year and significantly outpaced Bloomberg's projection of $203 million. Streaming profitability has become a vital focus for Disney and other media companies as consumers pivot away from traditional pay-TV models in favor of digital platforms.
Reflecting this shift, Disney recently raised subscription prices across its streaming platforms, a move aimed at improving margins amid persistent declines in linear television viewership. "Our streaming gains serve as a natural hedge against the challenges in linear networks," Disney CFO Hugh Johnston noted during the company's earnings call. Linear network revenue fell by 6%, with a 38% drop in operating income compared to the prior year, illustrating the changing dynamics in the media landscape.
Disney expects its DTC operating income to reach approximately $875 million in fiscal 2025. Johnston emphasized that the company is well-prepared for the evolving preferences of viewers. "I think we're well-positioned if [consumers] decide to stay in linear for longer, and I think we're well-positioned if they decide to move over to the streaming side," he said.
The company's earnings report comes amid an ongoing search for a successor to CEO Bob Iger, who plans to step down by the end of 2026. Recent reports indicate that Disney's board has broadened its pool of potential candidates, with current board member and former Morgan Stanley CEO James Gorman slated to assume the role of chairman in early 2025.
The positive results mark a glimmer of hope for Disney as it grapples with broader challenges in the media sector. Warren Buffett's skepticism of streaming's profitability has resonated throughout the industry. "Streaming... it's not really a very good business," Buffett remarked in 2023. Yet, Disney's recent performance hints at a possible turning point, with the company successfully controlling content spending while growing its subscriber base.
Disney's streaming platforms collectively posted a full-year operating income of $143 million, a stark contrast to the $2.5 billion loss recorded last year. The shift underscores a new era in entertainment, as Disney and its peers strive to make streaming a sustainable revenue driver in place of legacy pay-TV.
However, traditional media's profitability challenges are far from over. The pay-TV model historically guaranteed media companies stable monthly payments regardless of viewer engagement, a luxury streaming cannot replicate due to its higher subscriber churn. Yet, Disney remains optimistic. Future bundles and the continued migration of top-tier content to digital platforms could mitigate churn rates and enhance consumer retention.
Analysts are cautiously optimistic about Disney's trajectory. "Disney's focus on boosting margins through targeted price increases and disciplined content spending indicates a potentially stronger streaming business than we have seen before," remarked Thomas Chauvet, head of luxury goods equity research at Citi.
