Over the years, The Walt Disney Company (NYSE: DIS) evolved from a traditional media firm into a diversified entertainment group. As the business grew so did the challenges, and the company is currently on a drive to streamline operations and enhance profitability. Reflecting those initiatives, the performance of the company’s ambitious video streaming venture Disney+ improved in the March quarter, with net loss narrowing despite a dip in subscription numbers.
Stock Drops
On average, the Burbank-headquartered entertainment behemoth’s stock traded slightly above $100 in the past twelve months. After a gradual retreat from its 2021 peak, DIS has remained almost stagnant since last year, except for a few short-lived rebounds. The stock suffered a big loss this week in the selloff that followed the company’s earnings announcement.
It seems investors were disappointed by the drop in subscription numbers and weakness in the media & entertainment business, which eclipsed the impressive performance of the parks and experiences segment. Being a dividend master, meanwhile, Disney remains a favorite among income investors – after regular annual hikes, the dividend stands at an impressive $1.62 per share, with an above-average yield of 3.8%.
Rightsizing
After returning to the helm of Disney, CEO Robert Iger initiated a restructuring program to streamline the business, with a focus on cost-cutting measures that include large-scale headcount reduction. Currently, the management is preparing for the third wave of layoffs.
“I’ve been back at the company for almost six months, and in that time we’ve embarked on a significant transformation to strategically re-align Disney for sustained growth and success. I’m pleased to say that the strategy we detailed last quarter is working. Our new organizational structure is returning authority and accountability to our creative leaders, as well as allowing for a more efficient, coordinated, and streamlined approach to our operations,” said Iger during an interaction with analysts this week.
Going by the rapid change the digital media market is undergoing, marked by continued cord-cutting and adoption of streaming services, the future looks bright for Disney+. However, it faces challenges like stiff competition, high operating costs, and consumers’ cautious spending patterns. In an effort to vitalize the business, the management is planning to incorporate Hulu content into Disney+ and offer a one-app experience. Also, plans are afoot to set a higher price for the ad-free version.
Mixed Results
Second-quarter revenue was broadly in line with the market’s projection, while earnings came in slightly below estimates. The top line grew 12% from last year to $21.8 billion. Adjusted earnings per share, excluding non-recurring items, dropped 14% to $0.93. Meanwhile, unadjusted earnings more than doubled to $0.69 per share.
The highlight of the quarter is a 17% growth in the parks division, outshining the core media business that grew just 3%. The streaming segment lost around four million subscribers during the three months, bringing down the total subscriber number to 157.8 million which also fell short of expectations. However, the segment recorded a narrower loss compared to last year, benefitting from the management’s prudent pricing actions.
After being punished by investors following the earnings announcement, Walt Disney’s stock on Thursday traded at the lowest level in more than four months.