August 12, 2021

By Lisa Richwine and Tiyashi Datta

(Reuters) – Walt Disney Co earnings topped Wall Street forecasts for the most recent quarter as its streaming services picked up new customers and the pandemic-hit theme parks unit recorded a profit.

Shares of the entertainment company rose 5% in after-hours trading on Thursday to $185.53. Before the earnings report, shares were roughly flat from the start of the year.

Disney Chief Financial Officer Christine McCarthy said that looking forward, theme park reservations at both U.S. parks remain strong, even as COVID cases surge.

“We are still bullish about our parks business going forward,” said CEO Bob Chapek on a call with analysts. Reservations are currently outpacing attendance for the quarter that just ended, executives said.

Florida, where the flagship Walt Disney World is located, is the epicenter of the latest U.S. outbreak, posting record cases and hospitalizations in recent days.

Disney was more optimistic than some other companies about the impact of the Delta variant on operations. Southwest Airlines and vacation rental firm AirBnB both warned that the surge in cases could hurt their businesses.

For April through July 3, Disney posted earnings per share of 80 cents, excluding certain items. Wall Street had expected 55 cents, according to the average projection of analysts surveyed by Refinitiv.

Disney’s theme parks welcomed more visitors as pandemic restrictions eased. Theme park revenue rose for the first time in five quarters, hitting $4.34 billion.

Net income for that division, which includes consumer products and experiences, reached $356 million, compared with a loss of nearly $1.9 billion a year earlier when many Disney parks were closed. The U.S. parks eked out a profit of $2 million.

“We think Disney’s U.S. parks breaking even this quarter is an important turning point for the entertainment giant,” Nicholas Hyett, equity analyst at Hargreaves Lansdown. “It has weathered the storm, and strong results from the parks have helped it beat analyst expectations.”

Disney has staked its future on building streaming services to compete with Netflix Inc in the crowded market for online entertainment.

Disney+, Hulu and ESPN+ – the company’s three online subscription offerings – gained close to 15 million new subscribers to total nearly 174 million. Disney+ had 116 million paying customers at the end of the quarter, just ahead of the 115.2 million consensus of analysts surveyed by FactSet.

“Disney is placing huge bets on streaming and is benefiting from low-hanging fruits by mirroring Netflix’s strategy,” PP Foresight analyst Paolo Pescatore said. “It is apparent that Disney+ is now an indispensable video streaming service alongside Netflix.”

During the quarter, Disney+ featured “Loki,” a series about the shape-shifting Marvel villain, and offered Emma Stone movie “Cruella” on the same day it hit theaters.

At the media and entertainment distribution unit, operating income fell 32% from the prior year, to $2.0 billion, as programming costs rose.

The direct-to-consumer division, which includes Disney+, reported a loss of $293 million as it invested in programming and other costs. That compared to a loss of $624 million a year earlier.

The company’s overall revenue rose 45% to $17.02 billion in the third quarter, topping analysts’ estimate of $16.76 billion, according to IBES data from Refinitiv.

Net income from continuing operations was $923 million, or 50 cents per share, compared with a loss of $4.72 billion, or $2.61 per share, a year earlier.

(Reporting by Lisa Richwine in Los Angles and Tiyashi Datta in Bengaluru; Additional reporting by Eva Mathews in Bengaluru and Subrat Patnaik in Los Angeles; Editing by Maju Samuel and Lisa Shuamker)