Disney earnings miss forecasts as streaming costs rise

(Reuters) – Walt Disney Co (DIS.N) reported a steeper earnings decline than Wall Street expected on Tuesday as the company poured money into the streaming media business it is building to challenge Netflix.

Shares of Disney, which had risen 27% this year and hit an all-time high last week, dropped 5% in after-hours trading to $135.

Excluding certain items, Disney earned $1.35 per share, below average analyst estimates of $1.75 per share, according to IBES data from Refinitiv.

Disney, the owner of ESPN, a movie studio and theme parks around the world, is investing in digital media platforms to compete with Netflix Inc (NFLX.O). Costs to build online services will weigh on profits for several years, the company has said.

Disney’s biggest digital bet, a family-friendly subscription service called Disney+, is scheduled to debut in November. Adult-oriented programming will be concentrated on Hulu, which Disney now controls.

Competitors from AT&T Inc’s (T.N) WarnerMedia and Comcast Corp’s (CMCSA.O) NBCUniversal are expected next year.

The direct-to-consumer and international unit reported an operating loss of $553 million, up from $168 million a year earlier, from consolidation of Hulu and spending on Disney+ and the ESPN streaming service.

At the theme parks unit, overall operating income rose 4% to $1.7 billion but declined at Disney’s U.S. parks. The company attributed the drop to expenses for an ambitious “Star Wars”-themed expansion in late May at California’s Disneyland and lower attendance.

Media networks, which includes ESPN, the Disney Channels and FX, reported a 7% increase in operating income to $2.1 billion.

A blockbuster movie slate led by “Avengers: Endgame,” the highest-grossing movie of all time, and the addition of cable networks purchased from Twenty-First Century Fox Inc helped boost revenue to $20.2 billion.

“Endgame” boosted movie studio profit to $792 million, along with hits “Toy Story 4” and “Aladdin.”