BREAKINGVIEWS-Disney’s old magic faces a more hostile world

By Jennifer Saba

NEW YORK, May 7 (Reuters Breakingviews) - In the Magic Kingdom, it’s all smiles. Outside of boss Bob Iger’s domain, though, storm clouds are brewing. Walt Disney DIS.N reported strong results on Wednesday, as money-printing theme parks and a surge of new streaming subscribers buoyed the $170 billion entertainment giant. Rising competition and anxiety from the ongoing trade war threaten an unwelcome dose of glum reality.

After a stretch of prizing price increases over growth, Wall Street analysts expected the company’s Disney+ service to shed subscribers, according to Visible Alpha. Instead, it gained 1.4 million for the quarter ending in March, even as revenue per user rose again. And when they unplug from online experiences, fans are still flocking to real-life ones: revenue jumped 9% year-over-year to $6.5 billion at Disney’s domestic theme parks. Investors sent shares up 11% on Wednesday morning.

Iger’s empire, like all others in old media, was upended by the arrival of Netflix NFLX.O, which shattered the lucrative traditional cable television model. These latest results indicate that it can, perhaps, stick the landing on transitioning to streaming. Analysts now pencil in a 4% operating margin for Disney+ this year, turning around prior losses, before rising to 10% in 2026. Meanwhile, a new planned theme park in Abu Dhabi, the company’s first since opening in Shanghai in 2016, looks to grow its traditional strengths.

Yet only so much is in Iger’s control. Disney maintains that operating income at its parks should grow by as much as 8% in 2025. But international tourism is under threat as blowback mounts to President Donald Trump’s trade agenda. Travel to the United States fell nearly 12% in March compared to a year ago, according to data from the U.S. International Trade Administration. Tourism from Western Europe fell even more, some 17%. Major carriers American Airlines AAL.O, Delta Air Lines DAL.N and Southwest Airlines LUV.N scrapped their outlooks amid uncertainty.

Fellow media giant Comcast CMCSA.O is offering some fresh competition, too, planning to open its own park later this month in Disney’s stronghold of Orlando, Florida. This matters a lot, since the division housing Disney World represented 56% of operating profit in the quarter. Other traditional businesses are in decline: the company’s cable networks saw revenue fall 13% year-over-year.

Disney’s enterprise valuation, measured as a multiple of expected EBITDA over the next 12 months, has fallen considerably behind Netflix’s of late. Investors, at least, seem cognizant of the pitfalls. Iger’s magic has a lot more to overcome.

Follow @jennifersaba on X

CONTEXT NEWS

Walt Disney said on May 7 that revenue for the three-month period ending March 29 rose 7% year-over-year to $23.6 billion. Earnings attributable to the company rose to $3.3 billion from a loss of $20 million in the year-ago period.

The company’s flagship streaming product Disney+ gained 1.4 million subscribers, now totaling 126 million. The division’s operating profit jumped to $336 million from $47 million a year ago.

Disney also announced that it plans to open its seventh theme park in Abu Dhabi, in partnership with developer Miral. The division reported a 6% increase in quarterly revenue to $9 billion.