It’s been a busy summer for Bob Iger. The Walt Disney CEO extended his contract, welcomed back two former executives as advisors, and briefly became the villain of the Hollywood strikes. Iger is on a four-year mission to turn Disney around, but early results are a mixed bag. Despite Wall Street’s longtime warmth toward the CEO, Disney’s stock has fallen 11% since he returned to the company in November, while the S&P 500 index has swelled 13%.
The company will report quarterly earnings Wednesday after market close. Better-than-expected results could give Disney a much-needed stock boost after its share price has been tumbling for two years, today worth less than half of its 2021 peak.
Its earnings could also give the company a leg up over its competitors, which largely underperformed this quarter. Netflix’s quarterly earnings disappointed investors last month. Its revenue fell short of analyst estimates, and shares slid 9%. Warner Bros. Discovery also missed revenue expectations last week, and its total subscriber count took a hit. But its stock rose a modest 2.5% after the company reported paying off debt, increasing free cash flow, and naming a new savings target.
The majority of analysts are optimistic on Disney’s stock future, with two-thirds of Wall Street analysts advising investors to buy the stock, according to Seeking Alpha. Their reasons include Disney’s recent cost-cutting measures and easing criticism from the political right and left. Analysts expect Disney to report $22.5 billion in revenue this quarter, up 3% from the previous quarter and 5% from the same time last year.
“After disappointing Q2 results, the pressure for Disney to deliver on its bottom line is increasing,” Vladimir Dimitrov, a strategy consultant, wrote for Seeking Alpha. Last quarter, Disney missed profit estimates and lost 4 million Disney+ subscribers, or 2% of its count. The results this quarter will be “pivotal” to appeasing Wall Street, he said.
What will analysts focus on?
All eyes will be on Disney’s streaming business, which Iger has made a top priority. Its properties include Disney+ and ESPN+, as well as a two-thirds stake in Hulu.
Disney is in a competitive position in the streaming wars, with a subscriber count second only to Netflix. Disney’s combined properties boast 231 million subscribers, 158 million of which belong to Disney+. Netflix has 238 million. While Netflix makes the most revenue of any streaming business, Disney+ and Hulu follow.
Streaming assets throughout the media industry aren’t yet profitable, with the exception of Netflix’s. Disney isn’t losing the most money, but it isn’t losing the least. Paramount, which owns Paramount+, has narrower losses than Disney’s business does, though it has a fraction of Disney’s subscriber count. In the year leading up to Disney’s most recent earnings announcement in May, the company lost $4.2 billion on its streaming business. During that same period, it made $87 billion in revenue. The company expects the segment to start earning a profit by the end of fiscal 2024, and any progress toward that goal, or signs of slippage, will be important.
Disney’s plans for ESPN are also up in the air. The company is looking to sell a stake of the asset to a company that could help with content or distribution, Iger said last month. While the channel is still profitable, its numbers are on the decline, according to the New York Times. The news reflects a larger trend away from traditional television and toward streaming, which is causing media companies to revise their business models. The shift for ESPN is inevitable, Iger said on a call with analysts in February.
Investors might also want to hear from Iger about the public relations mess he made for his remarks about the Hollywood writers and actors on strike. “There’s a level of expectation that they have that is just not realistic,” Iger said during an interview with CNBC’s Squawk Box last month. He was speaking from the Sun Valley Conference in Idaho, the so-called billionaire’s summer camp. Celebrities and social media users were quick to point out the CEO is expected to make $27 million in 2023 and receive a pay increase next year, while calling the unions’ terms unrealistic. In the following days, Disney’s stock fell 5%.
Actors and performers, represented by the SAG-AFTRA labor union, went on strike last month. They joined the union representing Hollywood writers, WGA, for the first time in 63 years. The unions and the trade association representing Hollywood studios couldn’t come to terms on wages, benefits, and the use of artificial intelligence.
The work stoppage, which halted nearly all productions in Hollywood, could result in delayed film and television show releases in the coming months and years. But it is also contributing to major cost savings for studios. Due to the strikes, Warner Bros. Discovery saved at least $100 million during its most recent quarter, and Netflix expects an additional $1.5 billion in free cash flow by the end of the year, executives said during their recent earnings calls. If the trend continues, Disney could report an increase of cash on hand.
