Disney Stock is Soaring: Has it Turned the Corner?

The last few years have been challenging for Walt Disney Company (NYSE:DIS), marred by problems with its streaming business, high expenses, political entanglements, and proxy battles, to name a few of the issues. However, the company’s stock price soared on Thursday after it released strong first-quarter earnings results, and an optimistic CEO Bob Iger said the media and entertainment giant has “turned the corner.”

Disney bested revenue and earnings projections, announced some new initiatives, and offered some robust guidance that sent its share price up 11% on Thursday to over $110 per share.

Disney to launch new streaming sports venture

For its first fiscal quarter, Disney’s revenue was about flat year over year at $23.5 billion, but its operating income surged 27% to $3.9 billion, while its earnings per share (EPS) jumped 49% to $1.04. This was primarily due to a cost-cutting initiative that resulted in $500 million in expense reductions in the quarter.

“Our strong performance this past quarter demonstrates we have turned the corner and entered a new era for our company, focused on fortifying ESPN for the future, building streaming into a profitable growth business, reinvigorating our film studios, and turbocharging growth in our parks and experiences,” Iger said in the earnings release.

The primary revenue generator for Disney in the quarter was its Experiences business, which includes its theme parks. That segment’s revenue increased 7% year over year to $9.1 billion. The Sports segment, which includes ESPN, notched a 4% revenue increase in the quarter to $4.8 billion, while Entertainment, which encompasses movies, streaming and television, was down 7% to $10 billion.

The streaming business has been a major drag on Disney’s earnings, and while it operated at a loss again this past quarter, those losses were less steep. Overall, the direct-to-consumer streaming properties like Hulu and Disney+ recorded a $216 million loss, down from a $1.1 billion loss in the same quarter a year ago. While the number of paid subscribers for Disney+ shrank 1% to 111.3 million, the average monthly revenue per subscriber went up 2% due to subscription price increases. The number of Hulu subscribers increased 2%, while its average monthly revenue per subscriber went up 4%.

The other big news from Disney is the announcement of a joint venture between ESPN, Fox and Warner Bros. Discovery (NASDAQ:WBD) to create a direct-to-consumer streaming sports platform that contains sports content from across the three companies.

It will be a paid service, although the monthly fees were not divulged. Each company would own a third of the joint venture, and it would operate under its own brand and management team. It is targeted for a fall debut.

“The launch of this new streaming sports service is a significant moment for Disney and ESPN, a major win for sports fans, and an important step forward for the media business,” Iger said. “This means the full suite of ESPN channels will be available to consumers alongside the sports programming of other industry leaders as part of a differentiated sports-centric service.”

In addition, Disney formed a partnership with Epic Games and bought a $1.5 billion stake in the company to create a new gaming and entertainment universe tied in with Epic Games’ popular Fortnite video game.

Streaming to become profitable?

As Iger indicated in the earnings release, the quarter represented a turning point for the company, and that description may be based on its outlook for fiscal 2024.

On the expense reduction front, the company said it is on pace to meet or exceed its $7.5 billion annualized savings target by the end of fiscal 2024. It also expects earnings per share to reach about $4.60 by the end of the fiscal year, a 20% increase over 2023.

Further, Disney’s free cash flow is targeted to hit roughly $8 billion by the end of fiscal 2024; that’s up from $4.9 billion at the end of the last fiscal year.

It is also notable that Disney projects its struggling streaming business to be profitable by the end of the fiscal year.

Disney’s price-to-earnings (P/E) ratio is high right now at 60, but its forward P/E is a more reasonable 21. There is a lot to like about where Disney seems to be headed, but investors may want to be cautious for now to look for continued execution by management.