Disney rally 6% in pre market 📈 Earnings and Iger comments pleases Wall Street

Disney (DIS.US) shares gained more than 7% before the open as the company reported successful quarterly results that reassured analysts despite a higher-than-expected loss from streaming services. Re-assuming the position of CEO, Bob Iger shared with the market a convincing plan to restructure the business and drive Disney's profitability through cost cutting and prudent spending:

• Disney will lay off 7,000 employees to cut costs, decision-making positions unchanged
• Iger pointed to overspending on advertising and focusing on quality content but not 'at all costs'
• Streaming profits down especially outside the US and in India due to loss of cricket broadcast licenses
• Content volume and spending will decline, company will focus on Star Wars, Marvel and Pixar franchises
• ESPN will ultimately not be spun off, Iger wants to find a way to monetize it
• Demand at parks remains high, company will consider additional Avatar-related attractions

Revenues: UDS 23.51 billion vs. forecast of $23.44 billion

Earnings per share (EPS): UDS 0.99 ($1.28 billion) vs UDS 0.77 forecasts and UDS 1.06 in Q4 2021 

Theme parks: $8.1 billion in revenue (21% y/y), $3.1 billion in profits (25% y/y)

Disney+: $1.5 billion loss vs. $1.5 billion forecast and $1.5 billion in Q3 2022, and 2.4 million subscriber decline

Iger's plan is to split the company into three internal segments - entertainment (film, TV, streaming), ESPN (sports) and parks, (experiences and products). The CEO indicated that he will seek board approval for a small dividend by the end of 2023, and hopes to increase it over time. Disney will no longer give long-term guidance for its streaming subscription targets. 'New ways' of generating profits can't compare to old ways. The CEO stressed that streaming, while it is the future, cannot match the base business through which the company has grown for decades. Since the launch of Disney+, the new business has generated a total of $10 billion in losses.

The company reported 2.4 million subscriber churn from Disney+ in Q4 2022 (fiscal Q1 2023) in the face of rising subscription prices and lower consumer spending. Total subscriptions of 161.8 million disappointed forecasts of 162.7 million (FactSet). Source: Reuters

With streaming competition on the rise (Netflix, WarnerBros Discovery, HBO), companies have to take risks by increasing spending on content that will attract viewers and cater to their 'whims' which poses significant risks to the business;
Technology makes it the consumer who 'has the power' and can move between different platforms destabilizing profitability. 

• Disney's chairman stressed that the key to the company's future will be the creativity of the creators and the quality of the content that has led it to the top for more than a century. In doing so, however, he pointed to cost and expense control;
• To drive streaming's profitability, Iger indicated that the company will lay off 7,000 employees (about 3%) as part of a broader plan to reap $5.5 billion in savings. The previous wave of layoffs took place in 2020 and included 32,000 employees from theme parks. With the decision, lower costs will make Disney 'more resilient' in times of economic uncertainty;
• Iger also announced that sequels for top animated films are in the works: Toy Story, Frozen and Zootopia;
• Disney's Media and Entertainment Distribution division, which included 'good friends' of former CEO Bob Chalk, has been eliminated; Iger wants to 'crush the concrete' at the company and get spending under control at last.

Disney (DIS.US), W1 interval. The 'death cross' formation, in 2008, paradoxically heralded a return to the uptrend. Today, the two averages are again close to an intersection, which in theory should herald longer-term weakness, but in practice, as a 'lagging indicator', it may herald the exhaustion of supply. The opening today points to levels above $118 per share. Source: xStation5