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Disney shares dropped more than 9 per cent in morning trading on Tuesday even as it reported the first profit in its core streaming business since it leapt into a battle with Netflix five years ago.
The Disney+ and Hulu streaming unit earned an operating profit of $47mn in the quarter to the end of March, compared with a $587mn loss a year earlier.
Disney achieved the milestone months earlier than expected thanks to cost-cutting and the popularity of Hulu programmes including Shogun and The Bear.
The group’s total direct to consumer streaming business, which includes sports service ESPN+, narrowed its operating loss to $18mn in the quarter.
The streaming business has lost more than $11bn since its launch, but Disney has cut costs and raised prices in an aggressive push to achieve profitability.
“Crossing the profitability threshold early is something that we can feel very good about,” Hugh Johnston, Disney’s chief financial officer, told the Financial Times.
Forrester analyst Mike Proulx said: “It’s extremely rare in streaming to hear the word ‘profitable’ but Disney finally achieved it, kind of. This is a big turning point for Disney and for the streaming market in general.”
Disney+ would lose money in the current quarter because of Disney+ Hotstar in India, though the combined streaming business was expected to be profitable in the fourth quarter, the company said, as it forecast further improvements in streaming profitability next year.
The streaming news came as Disney reported a net loss of $20mn — owing largely to goodwill impairments — on $22.1bn in revenue in the quarter to the end of March. This compares with net income of $1.3bn on revenue of $21.8bn in the same period a year ago.
Excluding those impairments, Disney’s adjusted earnings of $1.21 a share were up 30 per cent from a year ago and topped the $1.10 Wall Street had expected. The company also raised its adjusted earnings target for the full year.
Bob Iger, chief executive, said the strong results were due in large part to its experiences division, where theme parks outside the US, including Shanghai Disney, performed well. “We are turbocharging growth in our experiences business with a number of near- and long-term strategic investments,” he said.
The earnings report was the first since Iger fended off a proxy challenge from Trian Partners’ Nelson Peltz, who was seeking two seats on the board. Iger said the latest results were proof that the “turnaround and growth initiatives we set in position last year have continued to yield positive results”.
Iger’s plan to reinvigorate the company’s film studios will be put to the test with upcoming releases including Kingdom of the Planet of the Apes this month, Pixar’s Inside Out 2 in June and Marvel’s Deadpool & Wolverine in July.
On a call with analysts, Iger said he was “working hard” to restore Disney’s creative output after a string of box office disappointments.
“I’ve been working hard with the studio to reduce output and focus more on quality. That’s particularly true with Marvel,” he said. “We’re going to about two TV series a year, down from four, and reducing our film output from four a year to two, or the maximum [would be] three.”