What drove DIS's earnings surprise in Q3 2024?

Disney's Q3 2024 earnings report exceeded expectations with a revenue of $22.57 billion and an EPS of $0.04, which, although modest, reflected a significant improvement in profitability and operational performance across various segments, particularly in the Entertainment and Direct-to-Consumer (DTC) businesses. Here are the key drivers of DIS's earnings surprise:

1. **Entertainment Segment Performance**: The Entertainment segment saw a substantial improvement in operating income, nearly tripling year-over-year to $1.1 billion. This was due to the success of "Inside Out 2," which became the highest-grossing animated film of all time, and the strong performance of Marvel's Deadpool & Wolverine at the box office. Additionally, ESPN's operating income grew by 4%, despite a 6% decline in the Sports segment overall.
2. **Direct-to-Consumer (DTC) Business**: The DTC segment delivered robust results, with a 14% increase in ad revenue growth in Q4, contributing to $253 million in operating income. The combined DTC streaming businesses improved their profitability in Q4, with operating income of $321 million. This improvement was due to strategic initiatives such as the introduction of paid sharing and recent price increases, which could boost average revenue per user (ARPU) and subscriber growth.
3. **Box Office Success**: The success of "Inside Out 2" and other films contributed to the growth in the Content Sales/Licensing and Other segment, which reported $316 million in operating income.
4. **Strategic Investments and Cost Management**: Disney's focus on investing in businesses and managing resources more effectively to fuel creativity and innovation likely contributed to the improved financial performance.

In summary, Disney's Q3 2024 earnings surprise was driven by strong performance in the Entertainment segment, the success of the DTC business, box office success, and strategic investments and cost management. These factors combined to exceed market expectations and demonstrate Disney's continued growth and profitability in a competitive media landscape.