Walt Disney Co (DIS)

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Disney keeps focus on cost cuts as quarterly revenue, subscribers miss
By: Investing.com | August 9, 2023

(Reuters) -Walt Disney on Wednesday missed Wall Street's expectations for quarterly revenue but said it was on track to cut costs by more than the $5.5 billion it promised investors in February.

The entertainment conglomerate, which beat profit expectations for its fiscal third quarter, also said it fell slightly behind analyst projections for U.S. subscribers of Disney+.

Shares reversed losses after the bell and were last up 4%.

The company, which is looking for ways to attract and retain subscribers in a competitive streaming market, also announced it would launch ad-supported streaming in Europe and Canada, starting on Nov. 1, and provide U.S. subscribers with a new, ad-free package of streaming services starting Sept. 6.

Chief Executive Bob Iger, who returned for a second stint running Disney, faces formidable challenges on nearly all fronts of the entertainment empire, beyond Wall Street's mandate to make its streaming business profitable. It also is coping with an eroding television business and a movie box office that has yet to return to pre-COVID levels.

In a statement on Wednesday, Iger referred to Disney undergoing an "unprecedented transformation," including a restructuring of the company, to help it become more efficient and restore creativity.

? "In the eight months since my return, these important changes are creating a more cost-effective, coordinated and streamlined approach to our operations, that has put us on track to exceed our initial goal of $5.5 billion in savings," he said.

He focused on cost efficiencies on a call with analysts, saying Disney was not just reducing the number of titles it releases, but also the cost per title, and that the company was "rationalizing" its streaming business to deliver "sustained profitability."

TRANSITIONING TO STREAMING

Disney said it cut losses at its streaming video services to $512 million in its fiscal third quarter, narrower than its loss of about $1.1 billion a year ago. It added 800,000 Disney+ subscribers, 100,000 subscribers shy of analyst estimates, and shed 12.5 million subscribers to the Disney Hotstar service in India, or nearly a quarter of its subscribers, as it gave up rights to Indian Premiere League cricket matches.

"Disney will have to cut prices from current levels in an effort to stimulate demand and defend its market share in an increasingly competitive industry," said Jesse Cohen, senior analyst at Investing.com.

"The streaming space is certainly feeling the pinch of persistently high inflation which has forced consumers to make changes to their spending habits as disposable income shrinks."

Paolo Pescatore, analyst at PP Foresight, echoed that Disney will have to focus on attracting new streaming subscribers and managing costs as it transitions from its traditional core business to streaming.

Disney reported revenue of $22.33 billion for the quarter ended July 1, up 4% from a year ago but short of the Wall Street average estimate of $22.5 billion, according to Refinitiv. It delivered per-share earnings of $1.03, when excluding certain items, beating Wall Street projections of 95 cents a share.

The company took $2.65 billion in impairment and restructuring charges in the quarter, reflecting the cost of removing some content from its streaming services, terminating licensing agreements and $210 million in severance payments to laid-off workers.

Disney's traditional television business continued its decline, with lower revenue and operating income across the company's broadcast and cable TV business. Higher sports programming production costs, together with lower affiliate revenue, dragged down the performance of its cable channels. TV revenue for the quarter decreased 7% to $6.7 billion, while operating income fell 23% to $1.9 billion.

Disney's direct-to-consumer business reported a 9% increase in revenue to $5.5 billion, as the average revenue per subscriber rose at Disney+ and Hulu.

Content sales and licensing, the unit that includes film and television sales, reported a deeper operating loss of $243 million in the quarter, compared with a loss of $27 million a year ago. The quarter included the release of "Guardians of the Galaxy Vol. 3," which performed less well at the box office than the prior year's "Doctor Strange in the Multiverse of Madness." Also released during the most recent quarter was the live-action remake of "The Little Mermaid," which disappointed.

Disney's Parks, Experiences and Products group reported a 13% increase in revenue in the quarter, to $8.3 billion, and an 11% bump in operating income to $2.4 billion. The results were buoyed by the rebound of the Shanghai Disney Resort, which was open for the full quarter compared with the same time a year ago, when COVID-19 forced the park to be closed for all but three days. The unit had lower operating income at its domestic parks, due to decreases at Walt Disney (NYSE:DIS) World Resort in Orlando, Florida.

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