Where’s Walt Disney Company (DIS) headed after mixed third quarter?

The Walt Disney Company (NYSE: DIS) this week reported mixed results for the third quarter when its earnings declined despite modest revenue growth, and the core media & entertainment business experienced weakness. After initiating an organizational restructuring to streamline the business, the management is hiking subscription fees to improve margins and launching a crackdown on password sharing.

The Burbank-headquartered entertainment behemoth’s stock gained soon after the earnings announcement on Wednesday evening and maintained momentum in the following session. However, DIS has been among the worst-performing stocks this year as it struggled to regain the lost strength even when the broad market boomed in the first half.

Growth Plan

Robert Iger, the former Disney veteran who returned to the company in November last year, is bullish on the parks and experiences business. He is planning movie-themed expansion in Disney parks across markets to attract more visitors, while also implementing his transformation strategy for the rest of the business.

Iger is of the view that the parks, streaming, and film studios businesses would drive the greatest growth and value creation for the company over the next five years. Taking a cue from the disappointing performance of some of its recent films, the management will be making efforts to improve the quality of films going forward. Recent initiatives to reduce operating costs should translate into profitability, but the high restructuring costs would offset a part of those benefits.

From Walt Disney’s Q3 2023 earnings conference call:

“In the midst of the transformative work we’ve been doing, we are prioritizing long-term free cash flow growth and have generated $1.6 billion of free cash flow in the third quarter. Our balance sheet remains strong with our single-A credit ratings reflecting that strength. We have made significant progress in deleveraging coming out of the pandemic. And we continue to approach capital allocation in a disciplined and balanced manner, prioritizing investments to generate future growth, while also keeping an eye towards shareholder returns.”

Key Numbers

There was a dip in the number of Disney+ Hotstar subscribers in the third quarter, continuing the recent trend. Overall, it was a mixed quarter for the company, with adjusted profit dropping 6% to $1.03 per share and revenues rising 4% to $22.3 billion. Earnings beat consensus estimates while revenue slightly missed, as it did in the prior quarter. On an unadjusted basis, the company reported a loss of $460 million or $0.25 per share for the June quarter, compared to a profit of $1.41 billion or $0.77 per share last year. The negative earnings mainly reflect a $2.65 billion of one-time charges and impairments.

On the positive side, Disney parks are once again abuzz with visitors after recovering from the pandemic-era shutdown, and the parks and experiences segment achieved a 13% revenue growth in Q3. Meanwhile, media and entertainment revenues, which account for more than 60% of the topline, edged down 1% amid weakness in both the domestic and international channels.

Disney’s stock was up more than 5% on Thursday afternoon. The stock is currently trading close to where it was at the beginning of the year.