The previous three years have been difficult for Walt Disney (NYSE: DIS). As for shareholders, the stock is down about 40% from its early 2021 top. COVID-19 is primarily to blame. Contagion accelerated the expansion of competing streaming services and destroyed the theater cinema industry. Disney was unprepared for the quick transformation, like other companies.
All wounds heal with time. Three years into the shakeup, with a senior CEO back in charge, there's hope. Disney can be fixed, and the turnaround is underway. Three reasons exist to buy Disney stock before the recovery rally continues.
Walt Disney is finally addressing streaming's economics. Disney+ began in 2019, without profitability in mind. The media giant sought market dominance initially. It would take time to make the platform lucrative.
The company's streaming division (Disney+, ESPN+, and Hulu investment) is still losing money. The fiscal 2024 first quarter (ending Dec. 30) direct-to-consumer division lost $216 million.
However, these losses are decreasing and will certainly continue. CFO Hugh Johnston stated in the company's last earnings call, "We still expect to reach profitability at our combined streaming businesses in Q4 of fiscal 2024 and have never been more confident about our path to creating a strong and sustainable streaming business."
Cost-cutting contributed to this improvement. But future progress will also show a better streaming mix. Disney plans to buy the remaining one-third of Hulu this year, eliminating co-owner Comcast so it can run and promote the platform properly.
Iger knows why movies are underperforming lately. Disney's film business was booming before the outbreak. However, the success appears to have been more about Star Wars and Marvel's Avengers than the filmmaking. The media giant's film division has been unproductive and its latest films have been poor.
However, that may change. At last year's DealBook conference, CEO Bob Iger admitted, "Disney's founders lost sight of their main goal. We must entertain first. Not about messages." Added, "And I don't really want to tolerate the opposite."
What that implies practically is unclear. Filmmaking takes months, while editing and finishing requires even longer. Most of Iger's predecessor's films are still being released. After a year and a half as CEO, moviegoers should see more films that follow Iger's philosophy, which worked from 2005 to 2020.
The Nelson Peltz-Trian proxy war may compel a reorganization Proxy conflicts like Walt Disney and activist investor Nelson Peltz's are usually a major headache for the targeted corporation. But that's not always awful. Sometimes a nuisance can bring about needed change.
Peltz-led activist investing firm Trian Partners wants at least three hand-picked Disney board members. "We believe restoring the magic at Disney starts with a focused, aligned, and accountable board, intensely committed to returning a 'ownership mentality' to the boardroom," Trian told shareholders. Disney needs that plus best-in-class corporate governance to boost shareholder returns." Change is more likely with enough of its own voting directors on the board.
Naturally, Iger and Disney are resisting. They desire a better stock price like Peltz and other stockholders. Both sides have different ideas about how to do that. Although annoying, this type of widely publicized verbal sparring typically drives management to make necessary adjustments to ward off activist investors' attempts to take over a company.
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