Disney stock rallied Thursday after Walt Disney posted a major earnings beat and better-than-expected outlook late Wednesday. Meanwhile, the Dow Jones entertainment giant announced plans for a new sports streaming service and faces a three-way battle for control of its board.
Disney reported a 23% increase in adjusted earnings to $1.22 per share, its second straight increase after four consecutive quarters of declines. Revenue growth slowed for the third quarter in a row, inching up less than 1% to $23.55 billion.
FactSet analysts expected flat year-over-year adjusted earnings at 99 cents per share on $23.7 billion in revenue.
Entertainment revenue fell 7% to $9.98 billion, driven by a 12% decline in linear network revenue and a 38% drop in content sales and licensing. Direct-to-consumer revenue jumped 15% to nearly $5.5 billion for the quarter.
Disney+ subscribership, including Disney+ Hotstar, fell to 149.6 million, down from 150.2 million in Q4 and 161.8 million last year, respectively. However, it still beat FactSet estimates of 148.3 million. Disney+ Core subscribers ticked down 1% to 111.3 million.
Total Hulu subscriptions increased 2% to 49.7 million, just above views of 49 million.
Disney Experiences revenue climbed 7% to $9.13 billion while sports revenue rose 4% to $4.84 billion.
Epic Games Collaboration, Eras Tour On Disney+
During the company conference call, management said Disney had taken a $1.5 billion stake in "Fornite" developer Epic Games, pending regulatory approval. The pair will collaborate on a new games and entertainment "universe" that will interoperate with "Fortnite." Executives on the earnings call floated the potential of streaming content and shopping experiences to the video game platform. Epic and Disney previously collaborated on in-game cosmetics and events that featured characters from Marvel, Star Wars, Indiana Jones and more.
Taylor Swift will also make her Disney+ debut after the entertainment giant secured the streaming rights to "Taylor Swift: The Eras Tour." The movie grossed more than $260 million at the global box office, making it the best-selling concert film of all-time. "Taylor Swift: The Eras Tour" will start streaming on March 15 as a Disney+ exclusive.
Outlook, Cost Savings Update
For the second quarter, Disney expects to add 5.5 million to 6 million Disney+ Core subscribers.
The Dow Jones giant reported it is on track to "meet or exceed" its target of achieving $7.5 billion in annual savings by the end of fiscal 2024 and realized over $500 million in selling, general and administrative expense savings in Q1 alone.
Disney expects to generate around $8 billion in free cash flow for the year. The company sees 2024 adjusted earnings increasing at least 20% to $4.60 per share, up from $3.76 per share last year.
FactSet expects full-year earnings of $4.29 per share on $92.1 billion in sales.
The company plans to target $3 billion in stock repurchases during the year.
Disney also hiked its dividend by 50% to 45 cents per share, which will be payable on July 25.
Board Battle
The Dow Jones behemoth is in the middle of another proxy battle with Nelson Peltz's Trian Fund Management and Blackwells Capital for influence over the company's board of directors.
Disney on Feb. 1 urged shareholders to only vote for its 12 nominees for the board, and reject nominees from Blackwells and Peltz's Trian Group. Trian in December nominated Peltz and former Disney CFO Jay Rasulo to the board and on Jan. 18 set a target for reaching margins of 15%-20% by 2027, using Netflix as a guide.
Blackwells nominated Jessica Schell, former EVP and general manager at Warner Bros. Discovery; media and real estate entrepreneur Craig Hatkoff; and Leah Solivan, founder of TaskRabbit.
Blackwells argues that the trio are experts in media and content, real estate and strategic asset review, as well as physical and spatial computing and AI-driven experiences, which will be crucial for Disney's future, according to a Tuesday proxy statement.
In addition, Blackwells mentioned a potential separation of Disney into three separate, public entities "with a management reorganization and leadership selection for each business." One suggestion was to spin out its theme park and real estate holdings into a public real estate investment trust, which Hatkoff could oversee and implement. Those represent 44% of Disney's market capitalization, according to Blackwells.
New Sports Streaming Service
Elsewhere, ESPN, FOX and Warner Bros. late Tuesday announced a joint venture to develop and launch a new sports streaming service in the U.S. this fall. The new product will combine content from Disney-owned ESPN, along with TNT and Fox Sports and feature the major U.S. sports leagues, many top college divisions, as well as The Masters, FIFA World Cup, Wimbledon, Formula 1 and more. NBCUniversal will still have rights to "Sunday Night Football" while Amazon will keep "Thursday Night Football" and CBS will maintain its package of Sunday NFL games outside the joint venture.
The service will have a new brand and independent management team, according to Disney's release late Tuesday. Each entity will own one-third of the joint venture and have equal board representation, while also licensing their sports content on a nonexclusive basis.
Price plans have yet to be released. Variety reported the new service will likely cost more than a stand-alone regional sports network, which typically ranges from $20 to $30 per month. However, it will be cheaper than larger streaming packages, such as Hulu+ and YouTube TV, that can cost $75 to $80 per month.
Subscribers will also have the ability to bundle the product with Disney+, Hulu and Max.
Disney Stock
DIS stock leapt 11.5% Thursday, easily topping the Dow Jones Industrial Average and putting shares above a buy zone for a nine-week flat base. Shares cleared the 96.51 buy point last Friday.
Disney stock was flat Wednesday. It surged 2.7% Tuesday following the Blackwells proposal.
Disney stock has climbed 40% off a nine-year low touched in October. It remains more than 45.6% below its March 2021 record high.
You can follow Harrison Miller for more stock news and updates on X/Twitter @IBD_Harrison
