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Disney Stock Poised for Long-Term Gains as Iger Delivers Much-Anticipated Changes

By Shane NeagleStock MarketsFeb 10, 2023 06:28
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Disney Stock Poised for Long-Term Gains as Iger Delivers Much-Anticipated Changes
By Shane Neagle   |  Feb 10, 2023 06:28
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The Walt Disney Company (NYSE:DIS) announced a significant restructuring move, comprehensive jobs, and cost cuts on Wednesday, marking the most significant step by the new CEO, Bob Iger, since his surprising return to the company last year.

In addition to solid earnings, the restructuring changes should improve Disney's margins going forward.

The media and entertainment giant said it will reorganize into three divisions, including Disney Entertainment, ESPN, and a Parks, Experiences, and Products segment. The first division will include most of Disney’s streaming and media business operations, while the ESPN unit will encompass the TV network and the ESPN+ streaming platform.

Solid Numbers in Tough Macro

The restructuring plans were announced right after the company posted its earnings for the fiscal Q1 2023, which beat expectations across the board. The company also reported smaller-than-feared subscriber losses, sending its shares up over 6% in premarket trading.

Disney reported adjusted earnings per share (EPS) of 99 cents for the first fiscal quarter, topping the consensus estimates of 78 cents, according to Refinitiv. Net income stood at $1.28 billion in the three-month period, or 70 cents per share, up from $1.1 billion, or 60 cents per share, in the same quarter last year. Revenue came in at $23.51 billion, up 8% year-over-year, beating the expected $23.37 billion.

The company reported total Disney+ subscriptions of 161.8 million, beating the consensus projection of 161.1 million. Disney lost roughly 2.4 million subscribers in the quarter following the recent price hike for its streaming services, while analysts estimated a loss of more than 3 million subscribers. Disney reported an operating loss of $1.05 billion in the latest quarter, less than analysts’ expectations of $1.2 billion.

Unlike its TV and direct-to-consumer (DTC) divisions, Disney’s park, experiences, and products business saw strong growth compared to last year. The division reported a YoY revenue increase of 21% to $8.7 billion in Q1. More than $6 billion of that figure came from Disney’s theme parks as guests spent more time and money visiting parks, cruises, and hotels in the latest quarter, as well as on its digital solutions, including Lighting Lane and Genie+.

Iger’s Action Return Focus to Profit

With Iger back behind the wheel, Disney is looking to drastically transform its business through cost-cutting measures and by giving creative power back to its content creators. Iger said in a statement,

“We believe the work we are doing to reshape our company around creativity while reducing expenses, will lead to sustained growth and profitability for our streaming business, better position us to weather future disruption and global economic challenges, and deliver value for our shareholders,”

The return of the 71-year-old CEO came amid an important period for the rapidly changing media landscape as consumers continue to cancel their cable subscriptions and shift to streaming services.

However, even the streaming sector has been facing headwinds amid mounting expenses and increasingly cost-conscious consumers in recent quarters. Disney said it will stop providing long-term subscriber forecasts in an attempt to “move beyond the emphasis on short-term quarterly metrics,” Iger added.

In addition to a significant restructuring change, Disney said it plans to slash $5.5 billion in costs. The company will reduce $3 billion in content-related costs, excluding sports, and announced an additional $2.5 billion from non-content cuts. The company has already adopted around $1 billion in cost-cutting measures since last quarter.

Moreover, Disney also announced it will lay off 7,000 employees, representing around 3% of its total workforce as of Oct. 1, according to a filing with the SEC. The media and entertainment division employs around 166,000 people in the U.S. and roughly 54,000 internationally.

With these measures, Disney joins other media companies that have taken steps to reduce content spending and boost the profitability of their streaming businesses. Increasing competition in the legacy media and streaming spaces has led to slowing user growth, forcing companies to look for new revenue streams. As a result, Disney+ and Netflix (NASDAQ:NFLX) have introduced cheaper, ad-supported subscription plans to attract more consumers. Iger added,

“We will take a very hard look at the cost of everything we make across television and film,”

Disney’s announcements come in the midst of its proxy fight against asset management firm Trian Management led by activist investor Nelson Peltz. The billionaire investor laid out his case for a proxy fight against Disney after Trian issued a preliminary proxy statement in an effort to win a seat on the board. He said Disney “lost its way resulting in a rapid deterioration in its financial performance.”

Disney pushed back on Peltz’s attempts, arguing that the activist investor didn’t understand Disney’s business and the required skills to increase shareholder value. Peltz was one of the very few stakeholders who opposed Iger’s return to Disney, saying the company should instead focus on finding a new, permanent CEO.

Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.

Disney Stock Poised for Long-Term Gains as Iger Delivers Much-Anticipated Changes
 

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Disney Stock Poised for Long-Term Gains as Iger Delivers Much-Anticipated Changes

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