Disney's streaming business turns profitable for first time ever

Disney's third-quarter earnings report brought significant news as the company announced that its streaming business turned profitable for the first time, a key milestone achieved ahead of expectations. The combined streaming services, including Disney+, Hulu, and ESPN+, played a crucial role in this achievement, with notable improvements in both subscriber numbers and average revenue per user (ARPU).

Shares of DIS are holding steady, trading near the $90 level. DIS shares have been remarkably stable during the recent market anxiety. Shares trade at 16.4x earnings (compared to 19.7x for the S&P in 2025 earnings) and, with the potential for increased profitability in its streaming space, it could be argued that shares are even cheaper.

Disney reported adjusted earnings per share (EPS) of $1.39, significantly exceeding the analyst estimate of $1.19 and showing a strong year-over-year increase from $1.03. The company's revenue for the quarter came in at $23.16 billion, a 3.7% increase from the previous year, and slightly above the expected $23.08 billion. This revenue growth was driven by solid performances across various segments.

The entertainment segment generated revenue of $10.58 billion, a 4.5% increase year-over-year, surpassing the estimated $10.37 billion. Operating income for this segment nearly tripled to $1.20 billion, compared to $408 million in the same period last year, and exceeded expectations of $811.3 million. This improvement was attributed to better-than-expected results in Direct-to-Consumer and Content Sales/Licensing.

Direct-to-Consumer revenue reached $5.81 billion, slightly above the estimated $5.73 billion. The operating loss for this segment narrowed to $19 million, much better than the expected loss of $141 million. This performance was driven by growth in Hulu subscribers, with total Hulu subscribers reaching 51.1 million, and higher ARPU for both Hulu SVOD and Hulu Live TV + SVOD.

The sports segment, which includes ESPN, posted revenue of $4.56 billion, a 5.1% increase year-over-year, and exceeded the expected $4.4 billion. Operating income for the sports segment came in at $802 million, down 6.1% year-over-year, but above the estimated $757 million. The decline in operating income was primarily due to lower results from Star India, partially offset by a 17% increase in domestic ESPN advertising revenue.

Experiences revenue, which includes theme parks and resorts, was $8.39 billion, up 2.3% year-over-year, but below the estimated $8.61 billion. Operating income for this segment was $2.22 billion, down 3.3% from the previous year, and below the expected $2.34 billion. The decrease in operating income was attributed to a moderation in consumer demand towards the end of the quarter, though other parts of the portfolio, such as Disney Cruise Line and Consumer Products, showed improved results.

Disney's recent price hikes for its streaming services, announced just before the earnings report, reflect its strategy to enhance revenue from these platforms. Starting October 17, the basic Disney+ plan will increase to $9.99 per month, while the ad-free plan will rise to $15.99 per month. Hulu with ads will cost $9.99 per month, and the ad-free version will increase to $18.99 monthly. The price for ESPN+ will go up to $11.99 per month. These increases aim to bolster the profitability of the streaming segment further.

Looking ahead, Disney has forecasted a 30% growth target for adjusted EPS for the year. The company remains focused on driving cost savings and improving margins, particularly within its streaming businesses. Despite the challenges in the Experiences segment, Disney anticipates continued strong demand at Disney Cruise Line and is actively managing costs to mitigate the impact of moderated consumer demand. With strategic pricing adjustments and a diversified portfolio, Disney is well-positioned to achieve its financial goals and deliver long-term value to shareholders.