Disney Earnings Beats Expectations

Disney answered its critics, including a bevy of activist investors, with a quarterly earnings report that shows strong momentum, particularly in streaming and sports.

The Wall Street Journal reports the entertainment giant reported earnings for the December quarter that beat Wall Street’s expectations for several key metrics, including two crucial measures of success in its streaming business: a relatively stable base of global Disney+ subscribers and shrinking direct-to-consumer operating losses.

Disney said it struck a deal to invest $1.5 billion in return for an equity stake in Epic Games, the maker of “Fortnite,” which is one of the world’s most popular videogames with more than 100 million active monthly users. The deal will expand the licensing of characters and story lines from Disney franchises including Marvel, Star Wars, Pixar and Avatar within “Fortnite.”

“This probably represents our biggest foray into the videogame space ever,” Iger said in a CNBC interview Wednesday.

Disney also took steps toward reinvigorating its theatrical slate Wednesday, announcing that “Moana 2,” a sequel to the 2016 animated feature which grossed $697 million in theaters worldwide, would be released in November.

Disney announced late Tuesday that its ESPN network had reached a deal with rivals Fox Corp.and Warner Bros. Discovery to launch a sports-focused streaming service later this year, a venture that could potentially reshape how fans watch sports and hasten the demise of the traditional cable TV bundle. 

The company said it would increase its cash dividend payment from 30 cents to 45 cents a share for its June payment and repurchase up to $3 billion in stock before the end of September. Disney shares rose nearly 7% in after-hours trading.

Both the better-than-expected results and the announcement of the new ESPN venture are likely to complicate things for activist investor Nelson Peltz, whose Trian Fund Management is embroiled in a proxy campaign seeking two board seats and other changes at Disney.

Blackwells Capital, another activist hedge fund, is also seeking board seats. Disney has advised shareholders in proxy materials not to vote with either activist and instead support Disney’s slate of 12 directors, which includes two new board members announced in November.

The number of domestic Disney+ subscribers fell slightly, to 46.1 million, likely the result of price increases, but the service lost fewer subscribers than Wall Street analysts had predicted. Overall global subscribers to Disney+, including its Hotstar service in India, also fell slightly to 149.6 million, from 150.2 million a year earlier.

ESPN’s financial results—which Disney began reporting separately last year—improved. Its operating income swung to $199 million on $4.4 billion in revenue, from a loss of $38 million on $4.4 billion of revenue a year earlier.

Both revenue and operating income grew in Disney’s Experiences division, which includes the company’s theme parks, hotels, cruise lines, licensing, publishing and merchandise businesses globally. Operating income in the division rose 8% to $3.1 billion.