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Disney - streaming losses widen, restructure announced

Revenue rose 8% in the first quarter, to $23.5bn.

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Revenue rose 8% in the first quarter, to $23.5bn. Growth was almost entirely driven by Disney Parks, Experiences and Products, reflecting increases at domestic parks.

There was growth of just 1% in Disney Media and Entertainment Distribution, but within this, the group's streaming service saw a 13% rise. Despite the revenue increase, direct-to-consumer losses widened from $0.6bn to $1.1bn - reflecting higher losses at Disney+ and weakness at Hulu. CEO Bob Iger acknowledged increasing competition in streaming.

Group operating profit fell 7% to $3.0bn.

Disney announced it will be cutting headcount by around 7,000 jobs to reduce costs.

There was a free cash outflow of $2.2bn, compared to $1.2bn at the same time last year.

Disney shares rose 5.4% in after-hours trading.

View the latest Disney share price and how to deal

Our View

Old and trusted CEO, Bob Iger has retaken the mantle with gusto. Disney investors are very happy to hear the media giant is taking drastic action to cut costs, which sadly includes the loss of 7,000 jobs.

Huge and mushrooming costs in Disney+ are proving a thorn in the side. It's an especially difficult situation because of feverish competition in the streaming space.

Yet, we're broadly optimistic about the group's foray into streaming. The group's brands include Disney+, ESPN+ and Hulu. This is an important pivot, because despite stellar performances lately, we've probably seen Cable's last hurrah.

It's impossible not to be impressed by recent subscriber growth. Disney's subscriber beat is partly down to the dynamics of scale - it has simply had more room to run before bumping up against the side of the tank. And that's why the rate of growth is expected to temper soon - those sides are closing in. While that's expected, a worse than expected blip would be badly received by the market.

We concur with the old adage, revenue for vanity, profit for sanity though. The idea that we could see profits in 2024 is very promising, but we're reserving judgment until we see results. The required urgency is a large reason why we think Iger's been brought back to supercharge efforts and stem losses.

Fortunately, we think Disney has a head start on rivals. An excellent content catalogue - whether that's princesses on Disney+ or quarterbacks on ESPN - is one thing - but Disney's ability to sell those products through a variety of channels, multiplies the benefit many times over. Theme parks, computer games, Disney Stores - all help the group squeeze maximum benefit from its content.

And theme parks are propping up the bottom line. As travel normalises and tourism resumes, high customer volumes are offsetting the enormous costs that come with running these parks. Disney cruises are filling up again and profits are sailing. Over the long-term, we view parks and experiences as highly resilient assets. In the shorter-term, there's a chance tougher economic conditions could see ticket sales or merchandise revenue weaken.

Over the long-term, Disney has an excellent offering and should hopefully be held in good stead. The main driver of market reactions will be the speed at which it can grow its streaming business - ups and downs can't be ruled out.

Disney key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Matt-Britzman
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 9th February 2023