With a stellar quarter, Disney proves it’s a much different company than Netflix

Disney (DIS) reported a strong fiscal third quarter Wednesday after the bell. Revenue increased 26% year over year to $21.504 billion, beating estimates of $20.994 billion, according to FactSet. Disney’s direct-to-consumer subscriber growth was a positive surprise, too. Adjusted earnings per share of $1.09 exceeded estimates of $0.97. Bottom line This was an excellent quarter for Disney with better-than-expected profits driven by outperformance from the theme parks that continue to show no signs of an attendance or spending slowdown. And the Disney+ subscriber numbers were fabulous, as once again, the iconic franchise maker has shown its streaming business is much different from Netflix (NFLX). By the way, Disney now has 221.1 million streaming subscribers across its various services. That’s more than the 220.7 million Netflix reported last quarter. The stock is being rewarded with a roughly 6% jump in the after hours, which is on top of the 4% gain it had today. Second-quarter segment results Disney Media and Entertainment Distribution: Revenues of $14.11 billion, up 11% year over year, beat estimates of $13.6 billion. Operating income of $1.38 billion, down 32% year over year, missed estimates of $1.94 billion. Within the segment, Linear Networks revenue of $7.2 billion, up 3% year over year, was in line with estimates, and operating income of $2.47 billion, up 13% year over year, missed the $2.82 billion estimate. Notably, advertising revenue at ESPN increased 40% year over year, thanks to the timing of the NBA finals, the addition of NHL games, and strong pricing. Direct-to-Consumer revenue of $5.05 billion, up 19% year over year, slightly missed estimates of $5.17 billion, and the operating loss of $1.061 billion was larger than the $765 million loss that was expected. It is a little disappointing to see the wider operating loss because this is a market that cares about profitability, but we are willing to look past it this quarter. Why? Disney blew away subscriber growth expectations. Disney ended the quarter with 152.1 million Disney+ subscribers, up 14.4 million from the prior quarter and well above estimates of about 147.7 million. “Core” net subscribers made up 6 million of the new additions thanks to growth in existing markets and new launches, while Hotstar made up the other 8 million. Looking ahead to the fourth quarter, management expects core net additions to accelerate modestly versus the prior quarter, particular in the domestic market with the help of a steady flow of key releases like Marvel’s “She-Hulk,” a new Star Wars series called “Andor,” and Disney’s “Hocus Pocus 2.” Long term, management made some adjustments to its end of fiscal 2024 targets, which previously called for 230 million to 260 million total paid Disney+ subscribers. The company now sees core Disney+ subscribers in the range of 135 million to 165 million and Hotstar subscribers of up to 80 million. This update represents a cut of about 15 million to the previous target, but everyone knew the old goal was unreachable after Disney’s disciplined decision to not proceed with the expensive Indian Premier League digital rights. Although the subscriber target was lowered, management reiterated its confidence of reaching profitability in fiscal 2024. This is crucial, because again, this market cares about making money and everyone has been down on streaming this year due to Netflix’s subpar results. In more encouraging news, peak losses for the services are expected to be this fiscal year, so Disney is almost through the worst of it. One way to increase profits is to increase prices, and Disney announced a brand new pricing plan this evening. Starting Dec. 8 in the U.S., Disney+ with commercials will be $7.99 per month, which is the current price without ads. The ad-free version price will increase by $3 per month to $10.99. The price of Hulu is increasing, too. Disney announce last month a 43% increase in the price of ESPN+. The company isn’t expecting any meaningful long-term impact on churn due to these changes, but it will be something to watch. Elsewhere in DTC, Hulu subscribers increased to 46.2 million, up from 45.6 million in the prior quarter, while ESPN+ subs were up to 22.8 million from 22.3 million in the prior quarter. If you haven’t watched “The Bear” yet on Hulu, we highly recommend it. It’s a Cramer fave. Content sales/Licensing and Other sales of $2.1 billion, up 26% year over year, was in line with estimates, but reported an operating loss of $27 million compared to a profit of $16 million. Despite the strong performance of “Doctor Strange in the Multiverse of Madness,” the decrease in operating results were due to unfavorable foreign exchange and loser TV/SVOD and home distribution results, which is primarily due to a shift in strategy from licensing content to third parties and keeping it on Disney’s DTC services. Disney parks, experiences and products: Revenue more than doubled to about $7.4 billion, crushing estimates of $6.75 billion. Operating income of $2.186 billion blew away the estimate of $1.72 billion. Driving the beat was Parks & Experiences, which reported total revenue of $6.21 billion compared to estimates of $5.55 billion. Operating profit of $1.59 billion beat the estimates of $1.03 billion. These results were truly impressive. Expectations were lofty too. Domestic Parks & Experiences reported revenue of $5.423 billion and an operating profit of $1.651 billion, meaning margins expanded quarter to quarter from about 30% from 28%. Per capita guest spending, which is a measure of how much an individual spends at the park, was up over 40% versus pre-Covid 2019 levels and 10% over 2021 levels, one year into the pandemic. Occupancy levels at the domestic hotels was 90%. Importantly, Disney has not seen any signs of weakening demand. The company is still seeing demand in excess of the reservations available for guests. The return of international travel has progressed but is still below pre-pandemic levels, representing another tailwind for the parks because those guests tend to stay longer at the parks and spend more when they visit. International Parks & Experiences reported revenue of $788 million and an operating loss of $64 million. Although revenue and operating income from Disneyland Paris exceeded 2019 levels, the results were limited due to closures at Shanghai Disney, which was closed for all but the last three days of the quarter. Consumers Products revenue increased 2% to $1.183 billion, in line with estimates, while operating income grew 6% to $599 million, also in line with estimates. (Jim Cramer’s Charitable Trust is long DIS. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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