Disney Reports Decent Earnings With Iger Already Reapplying His Stamp

Disney Stock at a Glance

• Current Morningstar Fair Value Estimate: $155
• Walt Disney Stock Star Rating: 4 stars
• Economic Moat Rating: Wide
• Moat Trend Rating: Stable

Disney Earnings Update

Disney (DIS) reported a decent start to both fiscal 2023 and CEO Bob Iger’s second stint in office as parks continued to post strong results and streaming losses moderated.

As expected, Iger announced a substantial cost reduction plan with savings of $2.5 billion in noncontent costs, including roughly 7,000 job cuts, and a $3 billion reduction in nonsports content spending. Attached to this plan is yet another restructuring as Iger will dismantle former CEO Bob Chapek’s centralized media division to return more creative and financial control to creative division heads. As a result, the firm will have three segments—entertainment; ESPN; and parks, experiences, and products. The parks division will be the same as currently structured while ESPN will be run as a separate segment for the first time. Iger made certain to point out that the separation of ESPN does not indicate a potential spinout or sale. We are maintaining our $155 fair value estimate.

Stronger Disney+ Subscriptions Seen Later This Year

Disney+ lost 2.4 million customers globally in the quarter due to a drop of 3.8 million in Hotstar streaming service countries. Management continues to expect stronger subscriber net additions in the core Disney+ in the second half of the fiscal year. Despite the subscriber decline, losses in the direct-to-consumer, or DTC, segment dropped sequentially by $400 million to $1.1 billion.

While the loss increased versus a year ago, management reiterated that the business is still expected to achieve profitability in fiscal 2024. Iger disclosed that the firm will shift its streaming strategy from a single-minded focus on subscriber growth to an emphasis on both profitability and growth. This includes looking at pricing, geographic coverage, local content spending, and marketing.

Total revenue improved by 8% year over year to $23.5 billion. The parks and consumer segment posted another quarter of strong top-line growth that reached 21%, with both domestic and international parks posting 27% growth.