In a Surprise, Disney+ Becomes Profitable

When Disney reported robust earnings in February, the activist investors then circling the company essentially called it a stunt — a temporary, heat-of-battle effort to fend them off and not, as Robert A. Iger maintained, proof that a struggling Disney had finally “turned the corner.”

The Disney chief’s argument just got a lot stronger.

Disney blew past Wall Street’s expectations for a second consecutive quarter on Tuesday, in part because its flagship streaming service made money — a first. Disney+ had been expected to lose more than $100 million in the most recent quarter, widening losses since its 2019 arrival to roughly $12 billion. Instead, it swung to a $47 million profit.

“Two quarters earlier than expected,” Hugh Johnston, Disney’s chief financial officer, noted by phone. The company had previously predicted that Disney+ would become profitable in September; some investors and analysts have been skeptical about that, putting downward pressure on Disney shares.

Disney’s per-share earnings for the most recent quarter rose 30 percent increase from a year ago. Revenue inched up 1 percent, to $22.1 billion.

Disney beat analyst expectations for per-share earnings by 10 percent. The company matched expectations for revenue.

In the quarter, Disney+ added 6.3 million subscriptions worldwide (excluding India), bringing its total to 117.6 million. Average revenue per paid subscriber climbed 6 percent, to $7.28.

Subscriptions to Hulu, which Disney also owns, were largely flat (50 million), while the company’s sports-oriented streaming service, ESPN+, shed a few hundred thousand subscriptions to end the quarter with 24.8 million. Together, Disney’s three streaming services lost $18 million, an improvement from $659 million in the same period a year ago.

Mr. Johnston said Disney’s streaming portfolio was on track to turn a profit as a whole by September. In the coming quarter, Disney faces some losses tied to Disney+ Hotstar, a low-price streaming service in India.

Disney Experiences, the division that includes theme parks and cruise ships, helped fuel the company’s quarterly growth. The unit’s revenue totaled $8.4 billion, a 10 percent year-on-year increase, and operating income totaled $2.3 billion, up 12 percent. Higher ticket prices at Disney World in Florida contributed to those results. Hong Kong Disneyland also had a big quarter. (Disneyland in California faltered a bit, in part because of higher operating costs.)

Traditional television, with fewer people paying for cable hookups, continued its downward trajectory. Revenue at Disney’s entertainment networks, which include ABC, FX and National Geographic, declined 8 percent, while operating income plunged 22 percent. Advertising growth at ESPN contributed to a 2 percent increase in revenue and helped limit a decline in operating income to 2 percent.

Disney’s last reported earnings in February, pairing strong results with a blizzard of announcements about future entertainment offerings. A “Moana” sequel. A partnership with Epic Games, the maker of Fortnite. A timeline for the rollout of a flagship ESPN streaming service that integrates sports programming with ESPN’s fantasy platforms and ESPN Bet.

At the time, multiple activist investors, including the formidable Nelson Peltz, were running proxy campaigns for board seats. While the activists had sharply different views on how Disney should be managed — one wanted “Netflix-like margins” of up to 20 percent in streaming, another floated splitting up the company — they expressed the same basic motivation: Disney’s stock price was not high enough.

Disney shares have been trading at about $117, up from $85 six months ago. But the stock was priced at about $197 three years ago.

Mr. Iger ultimately defeated them. But Mr. Peltz told CNBC that he would “watch and wait” to see if Disney delivers on growth and succession promises. If it doesn’t, he said: “You’ll see me again.”