Disney Is Finally Getting Back To Business After Fixing Its Issues

On Wednesday, The Walt Disney Company DIS reported its fiscal fourth quarter results that topped profit estimates. The results followed the news of its commitment to purchase 33% stake of Hulu from Comcast Corporation CMCSA as well as the official reveal of the new CFO, PepsiCo Inc PEP veteran Hugh Johnston. Following Disney’s better-than-expected results, its perhaps biggest problem got resolved with the ending of the historic SAG-AFTRA strike.

Hollywood Actors Won The Corporate Battle

The SAG-AFTRA ended the 118-day work stoppage as its negotiating committee unanimously approved the deal with Walt Disney, Netflix Inc NFLX and others. Valued at more than $1 billion, the SAG-AFTRA gained the three-year contract increases in minimum salaries and a new bonus that will be paid by streaming providers, while also gaining protection for performers who feared being replaced by digital doubles through the unauthorized use of AI-generated images.

Quarterly Highlights

For the quarter ended on September 30th, Disney reported revenue rose 5% of $21.24 billion, which was a bit short of LSEG’s estimate of 21.33 billion while earning a net income of $264 million. Adjusted earnings amounted to 82 cents a share, topping LSEG’s estimate of 70 cents. Disney is now breaking its three business segments into entertainment, sports and experiences.

Disney reported its entertainment segment rose 2% YoY to $9.5 billion in revenue while the experience division experienced a 13% revenue jump to $8.16 billion and the streaming division succeeded to narrow down its losses.

Streaming Figures Came In Much Stronger Than Expected

With its latest figures, Disney confirmed the success of its strategic decision to move away from low-margin subscribers. Subscribers rose by nearly 7 million in terms of core Disney+ net additions from the previous quarter, blowing past consensus estimates. Its main rival, Netflix, added million subscribers during the latest reported quarter while also experiencing a YoY increase in revenue despite Hollywood strikes. While Netflix now has 247 million subscribers across the globe, Disney’s global subscriber base now topped 150 million, rising from 146.1 million reported for the August quarter. Streaming losses narrowed to $387 million which translates to a 74% improvement that outperformed Bloomberg’s expectation of the direct-to-consumer losses of $454 million, owed to raising prices for the second time this year as it increased the monthly fee of its add-free Disney+ and Hulu by more than 20%. CEO Bob Iger added that 50% of its new subscribers in the U.S. chose the ad-supported version.

Outlook

Disney raised its cost-cutting target to $7.5 billion from $5.5 million it previously set in February. It also provided an outlook for its content spend for 2024 in the amount of $25 billion, reducing 2023’s $27 billion which was itself down $3 billion compared to 2022. Netflix also lowered its content spend this year, from $17 billion to $13 billion.

During the earnings call, Iger revealed that Disney is currently in talks to license some of its content to Netflix, where it ended a previous output deal in 2017 while still licensing a selection of titles. However, Iger also noted that Disney’s “core brands” are not likely to be licensed to the competitor as they are the company’s competitive advantages and therefore, building blocks of its future growth.

Four Building Opportunities

Moving ahead, Disney continues to focus on four key opportunities. First is to arrive to significant and sustainable profitability on the streaming front, followed by making ESPN into the preeminent digital sports platform. Third is to enhance the creative output and financials of its film studios. Last but not least, Disney aims to turbocharge the growth of its parks and experiences.

Unsurprisingly, Disney’s Story Has A Happy Ending…

With its solid foundation of a century-old creative excellence and the innovation it built, Disney reinforced its strengths by doing the work in terms of restructuring and cost efficiency. And so, when the SAG AFTRA strike came to end so did Disney’s biggest troubles, allowing the world’s biggest entertainment company to move beyond fixing its problems to a new era of continuing to build its legacy business.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.