Walt Disney  (DIS) – Get Free Report shares moved higher Wednesday ahead of the media and entertainment giant’s third quarter earnings, slated for after the closing bell, with investors likely to focus on containing losses in its streaming division as it preps for the launch of ad-supported options and further price increases. 

Disney, which recently extended the contract of interim CEO Bob Iger until the end of 2026 following his return to the helm last year, is expected to post a bottom line of 95 cents per share for the three months ending in June, down 12.8% from the same period last year.

Group revenues are forecast to rise by around 5%, to $22.5 billion, thanks in large part to increased growth at its Parks and Experiences division which will likely offset further pressure in streaming.

Iger, 72, detailed sweeping changes on his return, including a major cost-cutting drive and a new three-part organizational structure focused on Parks, Entertainment and ESPN. He also said Disney would restore its regular dividend, which it suspended during the peak of the pandemic in 2020, by the end of the calendar year.

“We believe the beauty of a diversified media company will be on full display with Disney earnings,” said Daiwa Capital Markets analyst Jonathan Kees, who carries a ‘buy’ rating with a $108 price target on Disney stock. “We expect earnings growth propelled by topline growth driven by continued parks outperformance and cost savings.”

In that respect, investors are likely to focus on both the subscriber gains for its streaming services, which includes Disney+, ESPN+ and Hotstar, following a series of price increases aimed at offsetting content and acquisition costs.

Streaming Losses

The unit has yet to post a quarterly profit since its debut in the first quarter of 2020, but saw its operating loss narrow to $659 million over the three months ending in June. Disney expects the streaming division to be profitable in the coming fiscal year, which begins in October, as it starts to offer ad-support tiers following a similar move by rival Netflix  (NFLX) – Get Free Report.

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Disney+ paid subscribers fell by 4 million to 157.8 million over the three months ending in March, notching its second consecutive topline decline, thanks in part to the loss of televised cricket rights in India.

CFO Christine McCarthy said at the time that weakness in the streaming division would “linger” into the three months ending in June.

“We will continue optimizing our pricing model to reward loyalty and reduce churn to increase subscriber revenue for the premium ad-free tier and drive growth of subscribers who opt for the lower-cost ad-supported option,” Iger told investors in early May as he detailed plans to launch an integrated Disney+/Hulu app by the end of the calendar year, while also updating plans to roll-out and ad-supported service in Europe. 

“The truth is, we have only just begun to scratch the surface of what we can do with advertising on Disney+, and I’m incredibly bullish on our longer-term advertising positioning.”

The group’s Parks division, which generated nearly $8 billion in revenues over the March quarter with an operating profit of $2.2 billion, will also be in focus, although attendance trends are slowing as a result of price increases in key markets and a pullback in consumer discretionary spending.

“Our domestic theme parks attendance data is weak for April and May; Disneyland growth due to its 100th anniversary celebration is more than offset by Walt Disney World contraction from comparisons against its 50th anniversary celebration,” KeyBanc Capital Markets analyst Brandon Nispel noted in late June. “We worry the ‘tough comps’ are not properly reflected in consensus.”

Sports Betting Partnership

Still, Iger’s cost-cutting effort, which he expects to exceed an earlier target of $5.5 billion, is starting to bear fruit, as is his vision for finding a content partner for ESPN that will help offset the ongoing decline in ad revenues and profits from Disney’s linear networks division.

Disney, in fact, agreed terms with Penn Entertainment  (PENN) – Get Free Report last night to a deal that will see the gaming group pay $1.5 billion over ten years, as well as an equity kicker, in exchange for the use of brand rights, promotions and other forms of co-operation over the next ten years as it re-launches under the a new name: ESPN Bet.

“We see the licensing agreement as a step forward for ESPN as it provides better monetization opportunities vs. only a marketing partnership and can better utilize ESPN’s broad reach and brand recognition,” said KeyBanc’s Nispel. 

Disney shares were marked 1.23% higher in pre-market trading to indicate an opening bell price of $89.21 each, a move that would peg the stock’s year-to-date gain at around 2.5%.

Since Iger’s return in November of last year, however, the stock is down around 4%, compared to a 20.7% gain for the Dow Jones Industrial Average and a 26.5% gain for the S&P 500.

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