Disney beats estimates as combined streaming services turn a profit

Disney reported its fiscal third-quarter earnings Wednesday, topping analyst estimates as its combined streaming businesses turned a profit earlier than expected.

Here is what Disney reported compared with what Wall Street expected, according to LSEG:

The company's total segment operating income increased 19% to $4.225 billion compared with the same period last year, led by the positive results for Disney's entertainment unit, particularly streaming. 

Disney's combined streaming business, which consists of Disney+, Hulu and ESPN+, turned a profit for the first time — and it happened a quarter earlier than the company had expected.

Executives on Wednesday's earnings call touted the progress of Disney's streaming business toward profitability, a goal for all media companies as they look to chase customers switching to streaming. CEO Bob Iger also praised the recent successes of the company's film and TV slates as propelling that business forward.

The combined streaming business posted an operating profit of $47 million compared with a loss of $512 million in the same quarter last year. However, without ESPN+, the direct-to-consumer streaming unit reported a loss of $19 million.

Meanwhile, in May, Disney highlighted a slightly different metric, noting that Disney+ and Hulu together turned a profit, but when combined with ESPN+, the streaming businesses suffered a loss.

Disney recently changed how it reports its segments, with ESPN falling under its sports unit, and Disney+ and Hulu being counted as part of the direct-to-consumer entertainment segment.

Disney+ Core subscribers — which excludes Disney+ Hotstar in India and other countries in the region — increased by 1% to 118.3 million, despite the company's earlier guidance that it wouldn't add new customers during the fiscal third quarter. Total Hulu subscribers grew 2% to 51.1 million.

Revenue for the entertainment segment was up 4% to $10.58 billion, driven largely by subscription revenue growth due to price increases and customer growth for Disney+ Core. Revenue for the traditional TV networks was down 7%.

The company announced further streaming price hikes on Tuesday.

"We're seeing growth in consumption and the popularity of our offerings, which gives us the pricing leverage we believe we have," Iger said on Wednesday's call, noting that Disney hasn't seen customers losses it would "consider significant" when it has increased prices in the past.

In addition to adding TV and film content to its streaming platforms, Iger said Disney plans to make advancements to technology features on its platforms, as well as add live channels in the upcoming months. Iger also noted Disney's upcoming crackdown on password sharing, following Netflix's lead in a bid to grow profitability.

He said the various bundles that Disney is partaking in — from its own services to teaming up with Warner Bros. Discovery and Fox Corp. on other bundles — are an effort to stem subscriber losses.

"I feel very bullish about the future of this business," Iger said during the call. "We're not saying much more about it, except you can expect it to grow nicely in fiscal 2025."

Disney's overall revenue increased 4% to $23.155 billion compared with the same period last year.

Revenue for ESPN's domestic and international business — excluding Star India revenue — increased by 5%, largely due to a big uptick of 17% in domestic advertising, as well as growth in subscription revenue. The ad market has started to rebound in recent quarters, particularly for digital and streaming. ESPN's operating income was up 4% to $1.09 billion.

Disney CFO Hugh Johnston said on the call Wednesday that the ad market is "really healthy and strong for us," namely because of Disney's live sports portfolio and streaming services.

"The portfolio is working well," Johnston said in an interview. "Yes there was softness in the domestic parks, but the entertainment division's profit tripled in the quarter." 

While Disney's entertainment and sports divisions drove earnings, the U.S. theme parks business was impacted by slowing consumer demand and inflation.

Executives on Wednesday's earnings call said flat attendance, particularly at U.S. parks, is likely to carry over the new few quarters.

"We saw a slight moderation in demand, I certainly wouldn't call it a significant change," Johnston said. "I would just call this a bit of a slowdown that's being more than offset by the entertainment business."

Revenue for the overall experiences unit, which includes domestic and international parks and experiences, as well as consumer products, was up 2% to $8.386 billion. 

Operating income for U.S. parks was down 6%, while international parks operating income was up 2%. The company attributed the decrease in operating income at the domestic parks to higher costs driven by inflation, as well as increased technology spending and new guest offerings.

This carried over from the previous quarter, when the Disneyland Resort in California was under pressure with lower profits, with executives citing similar reasons.

Last month Comcast's earnings were weighed down by its Universal theme parks, which the company attributed to increased competition from cruises and international tourism. Despite this, Comcast executives said they remained "bullish" on the business, especially with a new theme park opening in 2025.

Until recently, theme parks had been a big boost on earnings for these media companies, and in Disney's case a key profit driver. Disney has pledged to spend roughly $60 billion on its theme parks over the next decade.

On Wednesday, Johnston said the company wasn't prepared to give long-term guidance on theme parks as it's unclear how quickly the future investments will "manifest" for Disney's earnings.

"We wouldn't be making capital investments in an accelerated way if we didn't expect to accelerate growth," Johnston said on Wednesday's call.

— CNBC's Julia Boorstin contributed to this report.

Disclosure: Comcast, which owns CNBC parent NBCUniversal, is a co-owner of Hulu.