Disney Shares Surge 12% After Impressive Earnings Beat and Exciting Partnerships
Disney’s stock has experienced a significant surge of more than 12% following an impressive earnings beat and exciting new partnerships with Epic Games and Taylor Swift. This positive development comes at a crucial time as two activist shareholders are attempting to push outside directors onto Disney’s board, claiming that the company is struggling strategically and undervalued in the stock market. With shareholders scheduled to cast their votes at the upcoming annual meeting on April 3, the fiscal first-quarter results and commentary needed to make a splash, and they certainly did.
Analyst Doug Creutz of TD Cowen expressed his belief that the recent earnings beat and partnerships have dealt a blow to the activist shareholders’ case. He stated, “We would not want to be making that activist case after those fireworks.” However, Nelson Peltz’ Trian Partners remains undeterred, with a spokesperson stating, “It’s déjà vu all over again. We saw this movie last year and we didn’t like the ending.” Peltz had previously launched a proxy fight with Disney but backed down after CEO Bob Iger announced a major restructuring and cost-cutting initiative, resulting in a rise in the stock price. Unfortunately, the stock later fell and struggled throughout the year due to various challenges faced by Iger and his team.
Iger emphasized that turning around the company takes time and cannot be achieved overnight. He firmly believes that Disney’s own management and board are best suited to engineer the necessary changes, rather than relying on external influences. Despite the activist shareholders’ nominations of themselves and former Disney executive Jay Rasulo to the board, as well as Blackwells Capital’s three nominees, Wall Street is firmly backing Iger.
BofA analyst Jessica Reif Erlich commended Iger’s actions since returning as CEO, stating that they are already having an impact. She praised the recent bold steps taken by Disney, including a $1.5 billion investment in Epic Games to develop a Fortnite-adjacent Disney World and a deal with Taylor Swift for her Eras Tour concert film to be featured on Disney+. As a result, Erlich raised her price target on Disney’s stock from $110 to $130.
Disney has also made significant progress in addressing its streaming losses, with plans for the Direct-to-Consumer (DTC) division to turn profitable in the fourth fiscal quarter. The company expects DTC to become a business “with margins to be proud of” moving forward. Additionally, Disney has implemented measures resulting in over $7.5 billion in annualized cost savings. Other notable initiatives include a joint venture with WBD and Fox for a new sports app and ESPN’s flagship product launch in 2025. Iger has emphasized his focus on the film division and investments in theme parks as well.
The challenge of streaming has been a key focus for Disney, with MoffettNathanson highlighting CFO Johnston’s statement about a “sense of urgency” regarding streaming profitability as one of the most impactful statements during the recent earnings call. CEO Bob Iger acknowledged that the company had become overly focused on subscriber growth and expressed the need to build a strong case for Disney to become the second-largest global streaming player in terms of profitability and scale.
While Netflix currently holds the title of the streaming wars winner, with a market cap larger than that of Disney, there is a renewed urgency within Disney to invest more time and effort into seizing the opportunity to build a large, profitable streaming business. The potential for success in this area is yet to be fully realized by any company, including Disney.
Overall, Disney’s impressive earnings beat and exciting partnerships have generated significant optimism among investors and analysts alike. The stock surge reflects Wall Street’s confidence in CEO Bob Iger’s leadership and strategic decisions. With the upcoming annual meeting and the ongoing battle with activist shareholders, Disney’s ability to continue its positive momentum will be closely watched in the coming months.