February 27, 2024

Disney share are up more than 12% in a big move after impressing Wall Street with an earnings beat, solid outlook and deals with Epic Games and Taylor Swift.

The numbers hit as two activist shareholders are trying to push outside directors onto Disney’s board claiming the company is floundering strategically and the stock too low. With shareholders set to cast votes at an April 3 annual meeting, the fiscal first quarter results and commentary needed to make a splash, and did.

“We would not want to be making that activist case after those fireworks,” said analyst Doug Creutz of TD Cowen in a note today.

Nelson Peltz’ Trian Partners was unmoved. “It’s déjà vu all over again. We saw this movie last year and we didn’t like the ending,” said a Trian spokesperson.

Peltz launched a proxy fight with Disney a year ago as well but backed down after newly returned CEO Bob Iger announced a major restructuring and cost cuts, and the stock rose. But then it fell and floundered for most of last year as Iger and his team wrestled with challenges from streaming losses to declining linear asset to box office returns.

A turnaround takes time, Iger said. Changes don’t come with the snap of a finger, he told CNBC, and Disney’s own management and board are the ones to engineer it, not someone on the outside.

Peltz has nominated himself and former Disney executive Jay Rasulo to the board. Another Disney investor, Blackwells Capital, has three nominees. A Blackwells rep didn’t immediately return a request for comment.

Wall Street is clearly backing Iger.

“In a little over a year since returning to the company as CEO, Bob Iger’s actions are already having an impact,” said BofA analyst Jessica Reif Erlich, praising yesterday’s “bold, decisive steps to address the evolving landscape” and raised her price target on the stock (which is now trading at $111) from $110 to $130.

Bold steps include a hefty $1.5 billion investment in Epic Games with plans to develop a Fortnite-adjacent Disney World, and a deal for Taylor Swift’s Eras Tour concert film to come to Disney+, both announced yeterday.

Streaming losses shrank and Disney confirmed that DTC will turn profitable in the fourth fiscal quarter and, moving forward, become a business “with margins to be proud of.” Disney noted in excess of $7.5 billion in annualized cost savings due to measures it’s taken. Bold steps include the recent JV announcement with WBD and Fox for a new sports app, and ESPN’s flagship product launch in 2025. Iger said he’s also laser focused on the film division and investments in theme parks.

“In a little over a year since returning to the company as CEO, Bob Iger’s actions are already having an impact. Moreover, the company has undertaken bold, decisive steps to address the evolving landscape,” said Evercore ISI’s Vijay Giant. He upped his price target from $100 to $115.

On streaming, which MoffettNathanson called the single biggest challenge, “The comment by CFO Johnston about “a sense of urgency” when it came to streaming profitability was one of the single most impactful statements on a call filled with key highlights. Given CEO Bob Iger’s honest observation upon his return that “we got a little bit maybe intoxicated by our own sub growth”, the company sounds like they will center their primary communication mission on building the case for Disney to be the #2 global streaming player in terms of profitability and scale,” the firm said.

“With a market cap that is larger than the entirety of Disney, Netflix has been rightly crowned the winner of the streaming wars with what appears to be a winner-take all positioning aka the biggest tech giants. No other company – not even Disney – has made the case yet they have the potential to build a large, profitable business. There appears to be a new urgency to spend more time focused on that opportunity.”

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