Wall Street Is Cheering Disney's Earnings Beat. But There's a Better Reason to Buy Disney Stock Right Now.


After years of volatility and a sluggish stock price, investors finally think Disney (DIS 1.98%) did something right. The entertainment giant gave investors a positive earnings report last week, with a huge earnings beat, and Disney stock surged roughly 10% in two days.

But don’t buy Disney stock because of one earnings report. There’s a much better reason to buy it right now — and that’s CEO Bob Iger.

Is everything finally going right?

Disney isn’t just a large company, with $89 billion in trailing 12-month revenue. It’s a large company made up of various intersecting units, which can be complicated to manage. When done correctly, these parts work together to create a magnificent entertainment machine, and they work to hedge the entire business when some elements come under pressure. This was well illustrated when streaming took off as parks closed early in the pandemic, and more recently when parks rebounded as streaming started to stall. Disney is now trying to get itself to a point where all of its segments are growing profitably.

Its biggest pain point over the past few quarters has been a heavy streaming loss. Disney has maintained that the premium streaming network Disney+ would become profitable by the end of fiscal 2024, and that point is getting closer. There was a management shakeup last year when Bob Iger returned to straighten things out and longtime CFO Christine McCarthy left. Since then, streaming losses have been improving. In the 2024 fiscal first quarter (ended Dec. 31), revenue was flat year over year, but earnings per share (EPS) excluding certain items was $1.22, up from $0.99 last year and ahead of Wall Street’s expected $0.99.

Streaming revenue increased 15% over last year, and operating loss contracted from $984 million to $138 million, an 86% improvement. Disney+ subscribers dropped 1% from last quarter, but revenue increased due to price hikes.

When Iger came on board, he made several commitments. One was to reorganize the company and give creatives more control of content decisions. Disney reported under the new structure last week, with three reporting segments: entertainment, sports, and experiences. Iger said the reorganization will lead to a “more cost-effective, coordinated, and streamlined approach,” and it seems to be bearing fruit. Iger originally targeted $5.5 billion in cost savings, and he said Disney is on track to reach or exceed $7.5 billion in cost savings by the end of the fiscal year. He reiterated that Disney+ should become profitable by the end of the fiscal year.

The CEO that just can’t go

Iger was CEO of Disney from 2005 through 2020. During that time, he demonstrated a keen understanding of the company and the moves that would be necessary to succeed. He presided over Disney when it acquired Lucasfilm, maker of the Star Wars franchise; Marvel Studios, which has created the most successful film franchise in the past 100 years; 20th Century Fox; and animation studio Pixar. He expanded Disney’s parks internationally and set the company up for the rise of streaming.

One of Disney’s big announcements this year was a $60 billion park investment. The parks segment was Disney’s largest segment for many years, and it’s a major part of the Disney entertainment cycle, offering an unparalleled entertainment experience for fans. It typically generates high and growing revenue, and it’s a crucial piece of how Disney monetizes its content and franchises.

Signaling his desire to placate shareholders, he reinstated the company’s dividend, which was suspended at the beginning of the pandemic, as soon as he returned to the CEO role. Management just announced a 50% dividend raise.

Keep the CEO transition on your radar

Iger’s contract has been renewed through 2026, which gives investors some breathing room. But he is going to leave again at some point, which could put Disney back in flux. Perhaps he will set things up differently this time to position whoever follows him for better success, and perhaps the market will look different. Previous CEO Bob Chapek came onto the scene with plenty of volatility. If the economy is stronger, Disney+ is sailing, and parks are growing, any CEO will have an easier time steering the Disney ship.

For the time being, investors can continue to feel confident in Iger’s leadership and Disney’s expanding opportunities. Management is targeting a 20% increase in EPS in 2024, higher than Wall Steet’s consensus of $4.28, and if Disney+ turns to profitability, Disney stock should soar this year.



Source link

About The Author

Scroll to Top