The Walt Disney Corporation does not release fiscal Q1 earnings until February 8, but investors, analysts, and reporters (like yours truly) might want to start mentally preparing right now.
Wells Fargo's equity analysts predict that Disney CEO Bob Iger, who has been recently reinstated, will "come out swinging" in a "action-packed" conference call scheduled for 4:30 p.m. ET that day. The actual financials for the October-December 2022 quarter will outright beat the webcast by about 30 minutes.
No one quite understands the power of magic like Iger, who first headed Disney from 2005 to 2020. He's back to make a splash (mountain) and correct some of his predecessor/successor Bob Chapek's perceived mistakes, particularly when it comes to streaming.
Chapek went all-out on streaming — perhaps too all-out. Early on in his brief (and troubling) tenure at Disney's streaming business, Chapek issued overconfident subscriber recommendations, predicting 230 million to 260 million Disney+ subscribers by 2024, the same year Disney+ would become profitable. The former goal is likely to be redrawn, according to Wells Fargo's Tuesday letter to its investors.
Disney+ had just over 164 million subscribers in September, and streaming expansion at all costs proved to be... costly. However, the direct-to-consumer business lost a shocking $1.5 billion. By contrast, Iger's bottom line will be the bottom line.
Another challenge that Iger would like to address is the face of Nelson Peltz, who has been desperately attempting to join the Walt Disney Corporation's board of directors since last summer. Chapek had his ear, but there is no relevance or good ideas under current Disney management.
Disney suggests that shareholders vote against appointing Peltz to the board of directors, claiming that the activist investor lacks a basic understanding of our industry by his own admission, and that Trian had not "actually presented a single strategic proposal for Disney," and that he is "oblivious" to larger picture changes in media.
Bob Iger/Nelson Peltz
Wells Fargo forecasts Disney stock to rise for $106 per share, indicating that the best way to defend against activism is a higher stock price.
The fastest route to a higher stock price is to lower costs, which means abandoning Chapek's lofty goals. Some of these include Chapek's DMED (Disney Media & Entertainment Division) reorganization, which removed power from artists, as well as his staunch opposition to separating ESPN from Disney (Iger is more open to it than Chapek was); Wells Fargo believes it is both a correct decision and an inevitable one.
Wells Fargo anticipates Disney to undertake a "aggressive" cost-reduction program for its streaming business, reducing by roughly $2 billion or so. For the following year, the bank is reducing its own Disney+ core subscriber estimates (not including Hotstar) for fiscal year 2024 from between 135 million to 126 million. If all goes well, it expects Disney+ to be profitable on an OIBDA (operating income before amortization and amorization — so, not net income
Wells Fargo wrote on Tuesday that its streaming efforts would “converge into a single bundled service, creating a global duopoly.”
Cahall projects that Disney+ (including Hotstar), Hulu, and ESPN+ will total 365 million subscribers by 2025. Even Chapek would do the Hot Dog Dance over that estimation: Disney+, ESPN+, and Hulu combined for about 235 million subscriptions at the end of September, months before the launch of the Disney+ ad-supported tier.