On Wednesday, Walt Disney (DIS.N) CEO Bob Iger responded to activist investors with a series of announcements. These included a sizable investment in “Fortnite” creator Epic Games and plans to launch an ESPN streaming service in 2025.
After approving a $3 billion share repurchase program for the current fiscal year, Disney’s board of directors, led by Iger, revealed the plans. Additionally, they declared a dividend of 45 cents per share, marking a 50% increase from the dividend paid in January. Earnings-per-share exceeded Wall Street expectations.
Together, the moves helped Disney’s shares rise nearly 7% in after-hours trading.
Nelson Peltz, an activist investor, has exerted pressure on the company. He is demanding a profit comparable to Netflix for its streaming business, improved box-office performance for its films, and more information about its plans to make ESPN a dominant digital platform. Peltz’s expectations highlight the need for strategic changes within the company to meet these demands effectively.
Peltz is requesting that shareholders add himself and former Disney executive Jay Rasulo to the company’s board.
A spokesman for Peltz’s Trian Fund Management said of Disney’s earnings on Wednesday: “It’s deja vu all over again.” We saw this movie last year and didn’t like the ending.”
Among the new initiatives, Iger announced that Disney would invest $1.5 billion in Epic Games. He stated that the companies will collaborate to create a “huge Disney universe.” In this expansive world, customers can actively interact with characters and stories from Disney, Pixar, Marvel, Star Wars, and Avatar.
“This marks Disney’s biggest entry ever into the world of games and offers significant opportunities for growth and expansion,” Iger said in a statement.
Disney’s return to interactive entertainment is marked by the partnership, following the shutdown of Disney Interactive Studios, publisher of the “Infinity” toys-to-life game series, in 2016. The company had announced that it would shift its approach, opting to license its characters to external game companies. Now, with this new collaboration, Disney is actively reengaging in the interactive entertainment industry.
Iger disclosed details about the long-awaited streaming debut of the flagship ESPN sports network. It will be bundled with Disney+ and Hulu, featuring ESPN Bet, fantasy sports, and e-commerce. He stated that it is likely to launch in August 2025.
A day prior to this announcement, Disney declared a collaborative effort with Fox (FOXA.O) and Warner Bros Discovery (WBD.O) to introduce a streaming sports service. Intending to create a comprehensive platform for sports enthusiasts, they aim to amalgamate their vast portfolios of professional and collegiate sports rights, along with their networks such as ESPN, Fox Sports 1, and TNT. This collaboration will bring together a wide range of sports content under one umbrella.
When asked if the moves would reassure Peltz, Iger stated that the quarterly results and new initiatives revealed a team that was motivated, focused, and “very optimistic.”
“The last thing that we need right now is to be distracted in terms of our time, our energy, by an activist or activists that, frankly, have a completely different agenda, and don’t understand our company, its assets, even the essence of the Disney brand,” Iger said in an interview with CNBC.
Excluding certain items, Disney exceeded analysts’ consensus forecast by reporting earnings of $1.22 per share, surpassing the expected 99 cents.
The quarterly revenue of $23.5 billion, comparable to the previous year, slightly missed expectations set at $23.6 billion.
During the quarter, Disney announced a $500 million cost reduction across its businesses. It is on track to meet or exceed $7.5 billion in savings by the end of this fiscal year.
The Experiences division of the company, encompassing theme parks and consumer products, achieved record revenue, operating income, and operating margins.
Disney reaffirmed that its streaming business would be profitable by September. It cut streaming operating losses to $138 million in the quarter, a significant improvement from a year ago, when it lost nearly $1 billion. The average monthly revenue per Disney+ user outside of India increased 14 cents.
After implementing an October price increase, the Disney+ streaming service lost 1.3 million subscribers, almost doubling the analysts’ forecast of 700,000 subscribers. This unexpected decline raised concerns about the impact of pricing decisions on the platform’s subscriber base.
The company expected to add 5.5 million to 6 million Disney+ subscribers in the second quarter, with positive per-user revenue growth.
Reporting revenue of $5.5 billion, slightly higher than expected, the Entertainment unit’s streaming business, including Hulu and Disney+ Hotstar in India, marked a 15% increase over the previous year. This growth underscores the unit’s strong performance and ongoing success in the streaming market.
Overall revenue for the Entertainment segment, which includes Disney’s traditional TV business, streaming, and film, fell 7% year on year to $9.98 billion.
Disney’s sports division, which includes ESPN, the ESPN+ streaming service, and Star in India, reported an operating loss of $103 million due to a growing loss at Star in India.
The openings of the World of Frozen attraction at Hong Kong Disneyland and Zootopia at Shanghai Disney Resort positively impacted theme park results. This increase in attendance at those parks helped offset a decrease at Walt Disney World in Orlando, Florida. The unit reported $9.1 billion in revenue and $3.1 billion in operating income.
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