Disney just had its worst day in a year and a half

Disney just had its worst day in a year and a half

Disney has pulled off a rare feat for a legacy media company: Its streaming service actually turns a profit — with a few caveats. But Wall Street was still not satisfied, sending shares down more than 9%. It was Disney’s worst trading day in 18 months.

See here: Disney (DIS), fresh off winning a bruising (and very expensive) boardroom proxy battle last month, for the first time squeezed some profit from Disney+ and Hulu, to the tune of $47 million. But Disney’s other streaming property, ESPN+, continues to lose subscribers and bleed cash, bringing combined streaming losses to $18 million.

That’s a lot of money, but it’s a sizable improvement over the $659 million loss the collective streaming business reported in the same period a year ago.

Wall Street always looks ahead to future growth, of course, so it’s the projected slowdown next quarter that has investors perplexed.

“In my view, they gave some pretty good results,” Paul Verna, a principal analyst at eMarketer, told me. “What the Street seems to be reacting to is guidance for some softness in streaming entertainment next quarter.”

Disney said it still expects the combined streaming business to be profitable by the end of its fiscal year, in September.

Of course, “making a profit is one thing,” Verna adds. “Maintaining it is another.”

Disney is in the midst of an awkward transition that no one could have predicted a decade ago. Imagine telling CEO Bob Iger in 2014 that one day his company — the dyed-in-the-wool movie-making, intellectual property-wielding giant of Hollywood — would go to war against tech nerds like Apple and Amazon, all in the hope of catching up. with that poor DVD delivery service Netflix.

But that is, more or less, what happened.

Streaming is a new(ish) beast and very different from the traditional cable TV model of Disney and other media giants like Paramount, Viacom and Warner Bros. Discovery (CNN’s parent company) has relied on it for decades to increase profit margins.

But years of cable cuts mean the cable train is going away, and companies like Disney will have to figure out how to keep making good TV and movies while also locking in streaming viewers before Netflix eats their lunch.

“It’s a very tough business,” says Verna. “Profit margins are lower … maybe it’s psychological, but it’s almost like these companies that have built their entire business on the cable model — it’s very difficult for them to let go of that and accept that the future is going to look different for them.”

For Disney, in particular, streaming is just one headache among many. It had a run of box-office flops (“The Marvels,” “Indiana Jones and the Dial of Destiny,” “Haunted Mansion”). Iger has tried to execute an ambitious turnaround strategy — which led to thousands of layoffs and a costly merger of his Indian operations — while fending off activist investors in a shareholder drama worthy of its own eight-episode TV series. And in the midst of it all, Iger, who is 73, is theoretically lining up a successor to helm when his contract expires in two years.

Tuesday’s market reaction suggests that Wall Street has “more questions than answers for earnings in the next few quarters,” Brian Mulberry, portfolio manager at Zacks Investment Management, said in a note. “While it’s a relief, I’m sure, to have the scramble for board seats behind them, it now creates more focus on results.”