The Walt Disney Co. will bite the bullet and back off from its aggressive subscriber growth targets on once and future CEO Bob Iger’s first earnings call since returning to the company, Wells Fargo analyst Steven Cahall predicted.
Iger will try to balance Wall Street disappointment over the lower subscriber target with cost-cutting at the company’s money-losing direct-to-consumer business, Cahall said. The move will please investors by moving up when Disney Plus and the rest of the company’s streaming portfolio will move into the black.
“We expect Bob Iger's first public call since returning as CEO to be action-packed,” Cahall said in a research note. “With a proxy battle looming, management's best avenue to defend against activism is a higher stock price.”
Strategically, Iger will be focusing on the company’s strengths at creating intellectual property and away from subscriber growth, fitting in with Wall Street’s new focus on cutting red ink from streaming and making direct-to-consumer businesses profitable.
Disney will report fiscal first-quarter earnings on February 8.
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Cahall expects the big news for Wall Street to be a $2 billion cost-cutting program that will focus mostly on non-programming costs. Cahall calculated that Disney’s DTC non-content costs are now about 30% of revenue compared to Netflix’s 21.5%.
The large reduction in costs would enable Disney to break even on streaming earlier than currently expected in 2024.
Cahall expects Disney to have 126 million Disney Plus Core subscribers in 2024, compared to the company’s current guidance that it will have between 135 million to 164 million.
All of this comes as Iger and Disney fight a proxy battle with investor Nelson Peltz’s Trian Partners. Peltz is seeking a board seat, wants a new CEO within two years and want costs and debt cut so a dividend can be reinstated.
“We think the best way for Disney management to fend off Peltz from getting a board seat is to get the stock higher on earnings,” Cahall said. “While the back-and-forth can get a bit ugly, shareholders are benefiting from the acrimony. Trian wants a higher stock price and is going to push management to decisions that it believes will deliver that aim. Management is defending against Trian’s prospective proxy battle and presumably sees a higher share price as its best cover.”
Disney stock has been up 5% over the past five days, and was trading at $105.22 a share, largely unchanged in early trading Tuesday. ■
