Interactive Investor

ii view: Disney ups cost-saving hopes as streaming losses shrink

Shares for this one-stop entertainment mammoth fell 44% in 2022 and are little changed in 2023. We assess prospects.

10th August 2023 11:55

by Keith Bowman from interactive investor

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Magic Kingdom, Disney World, Florida 600

Second-quarter results to 1 April

  • Revenue up 4% to $22.3 billion
  • Adjusted earnings per share down 6% to $1.03 per share
  • Disney Plus subscribers of 146.1 million, down from 157.8 million three months ago

Chief executive Bob Iger said: “Our results this quarter are reflective of what we’ve accomplished through the unprecedented
transformation we’re undertaking at Disney to restructure the company, improve efficiencies, and restore creativity to the centre of our business.”

ii round-up:

Entertainment giant Walt Disney (NYSE:DIS) reaffirmed its intent to pursue profit growth as it detailed hopes to exceed its previous cost-savings target and outlined plans to up the price of its ad-free Disney Plus streaming service. 

Targeted cost savings under former chief executive Bob Iger, who is now back at the helm, are expected to exceed its initiative target of $5.5 billion. Losses for its Direct-to-Consumer streaming business halved during the quarter to 1 July, coming in at $512 million and beating management’s prior estimate of $750 million. 

Shares for the Dow Jones company gained by more than 4% in post-results trading having come into this latest news little changed year-to-date. That’s in contrast to a 45% gain for streaming rival Netflix Inc (NASDAQ:NFLX) and compares to a near 6% gain for the Dow 30 index itself.  

Like Netflix, Disney is also now planning to crack down on password sharing between different households with the price of its streaming service potentially being raised by up to 27% going forwards. 

Total Disney Plus subscribers fell 7.4% from the previous quarter to 146.1 million. That missed Wall Street forecasts nearer to 151 million, with changes to its Asian Hotstar business and a decision not to renew its Indian cricket coverage largely responsible. 

Elsewhere, sales for its Parks, Experiences and Products division rose 13% to $8.3 billion, pushing profit up 11% to $2.4 billion. 

Overall adjusted earnings per share for Disney fell 6% to $1.03 per share, beating analyst forecasts closer to $0.95 per share, but with exceptional charges totalling $2.65 billion in relation to its ongoing restructuring generating a loss per share of $0.25 or $460 million. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results, highlighting the profitable foundation of the parks business in helping to take the company forwards. 

ii view:

Started in October 1923 by brothers Walt and Roy, Disney today offers investors a one-stop entertainment business. Its many brands include Pixar, Marvell Studios, Lucasfilm, 20th Century Studios, ABC News, National Geographic and Hulu. Its ESPN television networks, originally standing for Entertainment and Sports Programming Network, still includes both traditional and sports channels.

For investors, reigniting creative flare arguably is yet to happen with box office success for recent films such as Indiana Jones and the Dial of Destiny and Pixar’s Elemental proving disappointing. Intense competition across the streaming arena, including stock market titan Amazon (NASDAQ:AMZN) and its Prime service, should not be forgotten, while the return of previous head Bob Iger still leaves questions and uncertainty over likely future leadership.  

More favourably, success in cutting costs could help Disney reinstate the dividend before the end of the current financial year, having halted it at the start of the pandemic. Continued exposure to sports content still remains invaluable in its ability to generate large audiences, while its traditional TV networks excluding sport could potentially be sold. 

For now, and with the consensus analyst estimate of fair value sat at over $110 per share, longer-term investors are likely to stay patient. 

Positives: 

  • Geographical diversity, strong brands, and media content bank
  • Cost cutting

Negatives:

  • Cost-pressured consumers may cut entertainment spending
  • Dividend payment suspended

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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