Netflix had a big quarter, but don’t discount Disney+

Disney (DIS) thinks it could get back to growth in its important streaming business this year.

That hope continues as Netflix’s (NFLX) dominance strengthens.

“Netflix obviously had a big quarter in terms of content, both with some of the sports activities and some distribution deals they had done outside the US. But from our perspective, we’re managing the business in a way where we’re trying to grow subs and we’re trying to improve margins at the same time, and we’re very much on track,” Disney CFO Hugh Johnston told me on Yahoo Finance moments after the company’s better than expected earnings on Wednesday.

Disney+ notched 125 million subscribers in the most recent quarter, down 0.7 million from the preceding quarter. The figure fell well short of analyst estimates of 148.7 million.

By comparison, Netflix shocked investors several weeks ago by adding a whopping 19 million subscribers in the quarter. The company was boosted by its initial foray into live sports via events such as the Tyson vs. Paul boxing match.

Added Johnston, “We do expect a combination of more and better content [for Disney+] as we get toward the latter part of the year. The ESPN+ flagship will be an option, that will be a part of Disney+. In addition to that, paid sharing is certainly going to be a driver.”

Disney shares fell slightly in pre-market trading as investors balanced the streaming letdown versus better than expected profits.

• Net sales: $24.7 billion, +5% year over year, vs. $24.57 billion estimate

  • Entertainment revenue: $10.87 billion, +8.9% year over year, vs. $11 billion estimate

  • Direct to consumer revenue: $5.78 billion, +15% year over year, vs. $5.82 billion estimate

  • Sports revenue: $4.85 billion, +0.3% year over year, vs. $4.7 billion estimate

  • Experiences revenue: $9.42 billion, +3.1% year over year, vs. $9.3 billion estimate

  • Disney+ total subscribers: 124.6 million vs. 148.7 million estimate

• Adjusted EPS: $1.76, up 44% year over year, vs. $1.42 estimate

There was a lot to like in Disney’s quarter.

The company’s aggressive cost cutting under CEO Bob Iger is yielding much improved profitability. That showed up in the quarter in a few areas.

The direct to consumer business pulled in $298 million in operating profits in the quarter versus a $138 million loss last year. And the entertainment segment’s 95% operating profit improvement was fueled by strong box office response to the likes of Mufasa and tight cost controls.

“I think we’re doing a nice job of eliminating unnecessary cost and at the same time investing back in the business in all of the right ways,” Johnston said.

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