Disney had its fourth quarter earnings report a few days ago, and Bob Iger had much to say about the state of the company and its expectations for future success. First, we should note the basics, which is that Disney’s earnings per share came out to an adjusted 82 cents per share which was better than the expected 70 cents per share. Disney’s revenue came in just under expectations at $21.24 billion. The entities that performed the best within the company were ESPN and the theme parks division.
Bob Iger did an interview with CNBC, as is most often the case with any quarterly earnings report, and we’d like to highlight some items we think most Disney fans will be interested to know, and offer some commentary along the way. This interview was a much more polished and optimistic conversation compared to the Q3 report interview he did a couple months ago with David Faber. Bob Iger no doubt trying his best not to make any headlines. I’m sure it did not do him any favors to offend the actors during the SAG strike (now over), or to add depreciative opinions to the linear television business just as the Disney company looks for bidders for ABC and other channels.
The company outperformed in the Disney+ subscriptions category. They added 7 million new users to the streaming service, and now are at a total of 150 million subscribers. That puts Disney firmly in the second place stand for all streaming services, right behind Netflix. Netflix maintains a considerable lead in total subscribers when compared to all other streaming services with its total subscribers at 247 million. Bob Iger was persistent to note that going forward the focus on Disney+ would be achieving profitability and that growth would be less of a priority. Bob Iger said he expects Disney+ to reach profitability by the end of 2024.
Disney’s linear television business saw a decrease in ad revenue, however Bob Iger was more upbeat on the marketing business. In fact Iger said he was “more bullish” on ad revenue for the company. He seemed to walk back the immediate interest in selling linear networks, although this could just be him trying his best to raise the perceived value of these assets for a better sale price.
ESPN had strong ratings for the quarter. It’s operating income and revenue were both up. Iger went over the plan to take ESPN to a “direct to consumer” model, and said this would occur in 2025 or sooner. It would seem from all his comments that this event will happen when/if they are able to attract one or two strategic partners. Iger said he would like companies that offer marketing, technology, or content support. Larger tech companies or different sports leagues would likely be the intended prospect in these deals. I do wonder, could this partnership be the difference maker for attracting the exclusive rights to another NBA broadcasting contract? Iger can’t outbid companies like Amazon, so perhaps Adam Silver would find this partnership a dealmaker. When it comes to technology companies, Iger has always had a very good relationship with Apple, going as far back as the days of Steve Jobs. Apple has recently entered the live sports world with its deal to exclusively broadcast games for the MLS. Who will these partners end up being or who would you like to see partner up with Disney? Feel free to comment in the section below with your thoughts.
There was not much discussed in the interview regarding Disney Studios and the box office performances. Perhaps intentional, since Elemental, Guardians of the Galaxy Vol III, and the live version of The Little Mermaid did not perform to Disney’s usual theatrical standards.
Iger acknowledged that Disney will buy the remaining stake in Hulu from Comcast in the coming months. This was not breaking news. This will cost Disney at least $8 billion. Both companies will go through a valuation process to objectively come up with the final sale price. Iger was quoted in the interview saying he was “not concerned about the price” of Hulu. It wouldn’t seem like the best timing for Disney to be taking on this debt. It’s noteworthy to state that the check for the remaining stake of Hulu is being written to Comcast, a competitor who is currently building a brand new theme park to further compete with Walt Disney World for families interested in vacationing in Orlando. Iger did announce the plans to launch a beta form of a combined Hulu-Disney+ app next month. There will also be an easy upgrade option to current Disney+ subscribers to add Hulu for a nominal monthly fee of $2.
Disney’s theme parks and experiences sector of the company continues to be the company’s best performing asset. Operating income was up 31% compared to last year. Much of this growth was from Disney Cruise Line. Although there was overall growth in revenue, there was lower guest spending at Walt Disney World. Perhaps a decrease in guest spending is because of the possible oncoming recession, or maybe many in the world have finally hit their breaking point with all the added fees and extra costs for a Disneyworld vacation?
In the last two earnings calls, both Bob Iger and Disney’s CFO promised an increased investment in the theme parks. The number that has been making headlines is “60 billion dollars over the next 10 years.” It’s unclear how this money will be invested and in which parks. When the subject is explained, Bob loves to lead with his new favorite phrase: “turbo charge.” Nearly every conversation he has had about park investment has him touting “turbo charging the parks.” Before the fans get all excited for a fifth gate at Walt Disney World, we have to remember this number could be at any park, including any of the international parks, and we have no idea when these investments will start. According to the CFO, the investment will likely occur in the latter half of the next decade, so Disney fans may be waiting a little longer before we see any announcement to get excited about. Unfortunately, we know Disney takes their sweet time with construction, so any announcement of investment today would likely not be completed into something we can enjoy for at least 3-4 years. If you’re like me, you wouldn’t mind a break from all the construction walls at the parks. Personally, I’d love more of an investment in the quality of the service at the current parks and resorts, and an increased maintenance of the current rides. Maybe finally some brand new updated monorails? Let’s hope!
Bob did also mention the return of the dividend. This may be partly in response to the Nelson Peltz proxy fight that started back in February of this year. This may not be enough however, as many are saying both Nelson Peltz and Ike Perlmutter appear to be ramping up that fight once again. Disney unfortunately has put itself in this place where it has to listen to minority stakeholders in the company with its current stock price sitting at 10 year lows. Another proxy war may be in the future, and it will be interesting to see what comes of it. Will there be a need to shake up who sits on Disney’s board?
Disney announced plans to increase its cost cutting from the previous target by an additional $2 billion dollars.
On the earnings call, Bob Iger was quoted at saying the following: “As we look forward, there are four key building opportunities that will be central to our success: achieving significant and sustained profitability in our streaming business, building ESPN into the preeminent digital sports platform, improving the output and economics of our film studios, and turbocharging growth in our parks and experiences business.” If you have read Bob Iger’s book The Ride of a Lifetime, you know that Bob’s success as a leader has been his ability to identify core concepts for a company’s growth and then act on them. If I had to make a prediction, I would expect these four items will be the key priorities for the Disney company over the next 10 years.
What did you think of what Bob Iger had to say? How do you feel Disney is doing as a business and are you looking forward to something that’s expected in fiscal year 2024? Do you feel Disney is on the right track to get their stock price back to an all time high? Feel free to comment below!
