Shares of Walt Disney (NYSE:DIS) trended lower on Tuesday after the media and entertainment company released mixed second-quarter earnings results. The corporate topped earnings estimates on the strength of its cost-cutting measures but fell in need of revenue estimates.

Investors saw this as a negative within the immediate aftermath, as Walt Disney shares were down roughly 8% on the opening bell.

A magical run

Walt Disney advertises its Disneyland theme park because the “happiest place on Earth,” and investors have also been pretty glad with its stock currently. The corporate has been the highest performer on the Dow Jones Industrial Average this 12 months, soaring 28% 12 months thus far (YTD).

Management prevailed last month in a two-year long proxy battle against activist investor Nelson Peltz, who was defeated in his bid to achieve board seats. Along with that win, Walt Disney stock has been rising for a wide range of other reasons related to the improved performance, which stemmed from drastically reduced expenses and solid revenue gains.

Nevertheless, expectations could have been set a bit too high, at the least from a revenue perspective, as Disney fell in need of revenue projections in its fiscal second quarter that ended on March 31. Disney generated $22.08 billion in revenue within the quarter, up from $21.8 billion in the identical quarter a 12 months ago but down from $23.5 billion within the previous quarter. The corporate’s revenue also got here in barely below the $22.12 billion analysts had projected.

Once more, it was the Experiences division that led the way in which, with revenue rising 10% 12 months over 12 months to $8.4 billion. The segment includes Disney’s theme parks. Its sports division was also solid, with a 2% increase in revenue.

What likely upset investors was the Entertainment division, which encompasses the corporate’s movies, streaming and TV properties. Revenue within the entertainment division fell 5% 12 months over 12 months and a pair of% from the previous quarter to $9.8 billion. More specifically, the Disney+ streaming business reported fewer subscribers than Wall Street analysts had projected, coming in at 153.6 million versus the expected 154.5 million.

This response seems a tad overblown to me. Overall, the variety of Disney+ subscribers rose 3% from the previous quarter, and Hulu subscribers climbed 1%. Direct-to-consumer streaming revenue rose 13% 12 months over 12 months while it operated at a $47 million profit, up from a $587 million loss a 12 months ago and a $216 million loss last quarter.

In truth, streaming was a shiny spot for Walt Disney in comparison with the 40% revenue plunge in the flicks segment and the 8% decline in linear networks.

“Our results were driven largely by our Experiences segment in addition to our streaming business. Importantly, entertainment streaming was profitable for the quarter, and we remain on the right track to attain profitability in our combined streaming businesses in Q4,” said CEO Robert Iger within the earnings release.

Earnings top estimates

Then again, Walt Disney’s earnings numbers continued to impress, as its massive expense reductions boosted its bottom line.

While Disney reported an overall net lack of $20 million, in comparison with $1.3 billion in net income in the identical quarter a 12 months ago, it was hurt by $2.1 billion in one-time restructuring and goodwill impairment charges related to a three way partnership involving its Star India property.

On an adjusted basis, Disney beat estimates with adjusted earnings per share of $1.21, up from 93 cents within the second quarter of 2023. That’s up some 30% 12 months over 12 months — and it’s much better than the $1.10 in adjusted EPS that was estimated.

Today’s sell-off looks like an overreaction, as Disney stays on the right track to attain profitability in its streaming business this 12 months and is anticipated to comprehend $7.5 billion in annual run-rate savings in 2024. Nevertheless, it could have to do with the indisputable fact that Disney has turn out to be overvalued with its recent run-up and now has a sky-high P/E ratio of 71.

Thus, while I believe Disney has loads of growth ahead, however the valuation seems a bit high immediately.