Disney is the DJIA’s worst performer today with shares down over 8% after reporting fiscal second quarter earnings that were mixed and a bit messy as the company and industry reset.
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Disney CEO Bob Iger Is Open To Selling Hulu
Wall Street analysts trimmed some estimates today but were largely supportive, expressing confidence in the media giant’s ability under CEO Bob Iger to work through key issues.
“Despite all the massive investments and losses in DTC and the continuing collapse of linear networks, the long-term profit picture should be brighter than the market knows and thus we think the stock is undervalued,” said MoffettNathanson in a note today. “The issue for Disney’s stock, at this point in time, is that there is no map or GPS to get us to that special place.” The firm has an “outperform” rating and a $127 price target on the stock, which is trading at just under $93 midday.
Disney lost some streaming subscribers last quarter, but narrowed DTC losses. Parks, especially internationally, are rebounding although consumer products aren’t. Linear television continues to decline, the cost of sports rights to rise. Iger indicated that the best resolution for Hulu would be Disney buying out Comcast — an expensive proposition. “As the Hulu negotiations with Comcast are still looming, we believe it would be unwise for Disney to start talking up 2025 streaming profitability ahead of that closure. As a result, any commentary about cost savings and revenue synergies that would arise from uniting Hulu and Disney+ globally will have to wait until this tug of war is resolved,” MoffettNathanson said. The Disney and Comcast put/call contract for Hulu expires in 2024.
Iger said yesterday that talks with Comcast to aquire its one-third stake in Hulu have been “cordial and constructive.” The stake is valued at a minimum of $9 billion.
Also looming: It’s impossible to forget that Iger returned to Disney in November with a two-year contract. Succession didn’t go so well last time and the CEO has promised it’s a top priority of his and of the board, as it should be. But with the industry in flux and the company’s transition still very much a work in progress, some investors worry about Disney having to start over again with someone new.
Meanwhile, Iger’s priorities, according to BofA’s Jessica Reif Erlich, are focused on rationalizing content spend to improve ROI (return on investment), raising prices of ad-free Disney+ and launching it internationally, and making Hulu available within Disney+ streaming by year-end in a new app. She’s on board, with has a “buy” on Disney and a $135 price target.
Iger and CFO Christine McCarthy said yesterday Disney will be pulling some content off streaming and that it anticipates a $1.5 billion-$1.8 billion content impairment charge. They also said Disney in on track to meet or beat its $5.5 billion target for projected cost savings in part as it lays off 7,000 employees.
“We believe Disney has the essential assets to successfully transition to streaming, but it’s a multi-faceted effort,” wrote Macquarie Capital’s Tim Nollen. He has an “outperform” rating and 12-month target of $125. “The messaging was positive, but the current situation is mixed.”
Disney plans to reinstate its dividend in the second half of fiscal 2023.
Evercore ISI has an “outperform” on Disney and a $130 price target.
TD Cowen’s Doug Creutz is at a “market perform” rating with his model “under review.”
Disney was the last of the major media companies to report quarterly numbers, closing out earnings season. The results came against the backdrop of a tough ad market and ongoing strike by the WGA. The common thread is streamlining, cutting costs and more targeted content spending aimed at reaching DTC profitability. Disney is at the start of high-profile legal battle with Gov. Ron DeSantis over Walt Disney World’s longstanding autonomy in the state as part a special economic district.
In other trading today, Netflix is a gainer, up 2% at $342. Paramount Global is off 2.8% at $15.43; Warner Bros. Discovery is down 3.8% at $12.55. The latter two also had messy March quarters.
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