Disney’s next blockbuster is Bob Iger’s first quarter earnings report

The Walt Disney Corporation won’t report its first-quarter financial results until February 8, but investors, analysts and reporters (like yours truly) should start mentally preparing now.

Wells Fargo stock analysts expect recently reinstated Disney CEO Bob Iger to “come out swinging” on an “action-packed” conference call scheduled for 4:30 p.m. that day. Actual financials for the October to December 2022 quarter outpace the webcast by about 30 minutes.

No one knows the power of magic more than Iger, who first ran Disney from 2005 to 2020. He’s back to stand out (on the mountain) and to undo some of the perceived mistakes of his predecessor/successor, Bob Chapek – especially when it comes to streaming.

Chapek went all-in during the stream — maybe a little too all-in. Early in his brief (and troubled) tenure at the New York-listed company, Chapek issued an overly confident subscriber guide for Disney’s streaming business, singling out 230-260 million Disney+ subscribers by 2024 — the same year Disney+ turns profitable can become . The previous target will likely be restored, Wells Fargo wrote in a note to investors on Tuesday.

Connected

Connected

Disney+ ended September with just over 164 million subscribers, and streaming growth at any price has proven to be… costly. While Disney+ added just over 12 million subscribers in the fourth quarter of 2022, the direct-to-consumer business lost $1.5 billion. In contrast, the essence of Iger will be the bottom line.

Another problem Iger wants to destroy is Nelson Peltz’s face. The CEO of Trian Management has been desperately trying to join the board of the Walt Disney Corporation since last summer. Chapek had ears; According to the current management of Disney, it has no relevant knowledge or good ideas.

Disney is recommending that shareholders vote against Peltz’s appointment to the board, saying the activist investor has a “self-confessed lack of knowledge of our industry” and that despite months of negotiations, Trian “has not actually presented a single strategic idea for Disney. ” and “forgotten” about the larger image changes in the media.

Proxy fight!

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Ahead of such a “battle,” Wells Fargo wrote that Disney management’s “best way to defend against activism is through a higher stock price.” Shares of Disney stock ( DIS ) are currently trading at $106; Wells Fargo’s price target on Disney is $125 per share, valuing the stock at $228 billion.

The fastest way to a higher share price is to cut costs, which means dropping Chapek’s ambitious goals. Among the moves likely to be reversed are Chapek’s reorganization of DMED (Disney Media & Entertainment Division), which took away creative power, and his strong stance against ESPN’s spinoff from Disney. (Iger is more open to it than Chapek was, and Wells Fargo believes the move is right and inevitable.)

First, Wells Fargo believes Disney will announce an “aggressive” cost-cutting program for its streaming business, calling for about $2 billion in cuts. Looking ahead, the bank lowers its Disney+ core subscriber estimate (excluding Hotstar) from 135-165 million to 126 million for the 2024 financial year. If all that pans out, he believes Disney+ will be profitable on an OIBDA (operating income before depreciation and amortization — so not net income) basis in Disney’s fiscal 2024 third quarter, which ends June 30, 2024.

“Over time, we expect (Disney’s) streaming efforts to converge into a single packaged service, creating a global duopoly” with Netflix, Wells Fargo wrote on Tuesday. Netflix reported its quarterly results last week; It ended with around 231 million paid global streaming subscribers in 2022, including a few million from its new ad-supported plan.

Cahall projects Disney+ (including Hotstar), Hulu and ESPN+ with a total of 365 million subscribers by 2025. Even Chapek would do it Hot Dog Dance exceeding that estimate: Disney+, ESPN+, and Hulu had a combined total of about 235 million subscribers in late September, months before the launch of Disney+’s ad-supported tier.

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