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Disney Keeps Lowering Operating Costs but Is It Time to Buy?
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Upon CEO Bog Iger’s return last year, Disney (DIS - Free Report) ) continues to focus on lowering operating costs with layoffs at Disney Entertainment’s subsidiary ESPN sending shockwaves throughout the sports world last week.
Many high-profile sports commentators were let go such as Jalen Rose, Jeff Van Gundy, and Keyshawn Johnson. While the move will naturally be criticized by many, the cost-cutting measures may be necessary for the media and entertainment giant to get back to days of sustained growth.
Cost-Cutting Continued
The high-profile layoffs last week follow Disney’s announcement earlier in the year that it would cut thousands of jobs and reduce its capital expenditures by $5.5 billion.
Similarly, Meta Platforms (META - Free Report) ) has sought to decrease its capital expenditures by reducing its staff and scaling back on its expansion into the metaverse.
Shareholders had previously called for Meta to do so and investors appear to be on board with Disney cutting costs as well with the company stating it will help bring back its dividend by the end of the year.
Image Source: Zacks Investment Research
At the start of 2023, Disney had around $203.63 billion in total assets and $104.75 billion in total liabilities. However, total current assets stood at around $29.09 billion and just above its total current liabilities at $29.07 billion.
Cash and equivalents of $11.61 billion decreased -21% from $15.95 billion in 2021 but have still climbed 180% over the last five years at $4.15 billion in 2018.
Image Source: Zacks Investment Research
Effects on Streaming
Wall Street may be monitoring the effects the recent ESPN jobs cuts have on Disney’s ESPN+ streaming subscribers and the company’s Direct to Consumer segment. This is especially true as Disney+ subscribers have dipped for two consecutive quarters representing the only quarterly declines since its launch in 2019.
To that point, the 25.3 million ESPN+ subscribers at the end of Q2 increased by 13.4% from the prior-year quarter. This certainly helps in competing with rival Netflix (NFLX - Free Report) ) in terms of total streaming subscribers but Disney’s Direct to Consumer segment is still not profitable.
Direct to Consumer losses decreased by $200 million during Q2 but still posted an operating loss of -$700 million. Furthermore, Linear Networks are profitable but operating income decreased -35% to $1.8 billion compared to $2.8 billion in Q2 2022.
According to Disney, the lower cable results were largely attributed to higher sports programming and production costs. This was driven by the timing of costs for the College Football Playoffs and the NFL, in addition to NBA contractual rate increases and higher sports production costs which coincide with the recent layoffs.
Image Source: Disney
Disney’s Outlook
According to Zacks estimates, Disney sales are now forecasted to rise 8% in fiscal 2023 and edge up another 5% in FY24 to $93.96 billion.
On the bottom line, earnings are projected to be up 7% this year and soar 34% in FY24 at $5.10 per share. Notably, fiscal 2024 EPS projections would represent 152% growth over the last five years with 2020 earnings at $2.02 per share.
This would also get Disney closer to 2018 and 2019 levels which saw EPS at $7.08 and $5.77 per share respectively, before the continued decline in the company’s bottom line.
Image Source: Zacks Investment Research
Takeaway
Disney stock currently lands a Zacks Rank #3 (Hold) and while shares of DIS are only up +2% this year the company’s outlook has become more attractive and could be elevated by continued cost-cutting.
In this regard, sustaining Linear Network income appears to be imperative and Disney is working to address the issue while continuing to reduce operating costs among its streaming services and Direct to Consumer segment as well.
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Disney Keeps Lowering Operating Costs but Is It Time to Buy?
Upon CEO Bog Iger’s return last year, Disney (DIS - Free Report) ) continues to focus on lowering operating costs with layoffs at Disney Entertainment’s subsidiary ESPN sending shockwaves throughout the sports world last week.
Many high-profile sports commentators were let go such as Jalen Rose, Jeff Van Gundy, and Keyshawn Johnson. While the move will naturally be criticized by many, the cost-cutting measures may be necessary for the media and entertainment giant to get back to days of sustained growth.
Cost-Cutting Continued
The high-profile layoffs last week follow Disney’s announcement earlier in the year that it would cut thousands of jobs and reduce its capital expenditures by $5.5 billion.
Similarly, Meta Platforms (META - Free Report) ) has sought to decrease its capital expenditures by reducing its staff and scaling back on its expansion into the metaverse.
Shareholders had previously called for Meta to do so and investors appear to be on board with Disney cutting costs as well with the company stating it will help bring back its dividend by the end of the year.
Image Source: Zacks Investment Research
At the start of 2023, Disney had around $203.63 billion in total assets and $104.75 billion in total liabilities. However, total current assets stood at around $29.09 billion and just above its total current liabilities at $29.07 billion.
Cash and equivalents of $11.61 billion decreased -21% from $15.95 billion in 2021 but have still climbed 180% over the last five years at $4.15 billion in 2018.
Image Source: Zacks Investment Research
Effects on Streaming
Wall Street may be monitoring the effects the recent ESPN jobs cuts have on Disney’s ESPN+ streaming subscribers and the company’s Direct to Consumer segment. This is especially true as Disney+ subscribers have dipped for two consecutive quarters representing the only quarterly declines since its launch in 2019.
To that point, the 25.3 million ESPN+ subscribers at the end of Q2 increased by 13.4% from the prior-year quarter. This certainly helps in competing with rival Netflix (NFLX - Free Report) ) in terms of total streaming subscribers but Disney’s Direct to Consumer segment is still not profitable.
Direct to Consumer losses decreased by $200 million during Q2 but still posted an operating loss of -$700 million. Furthermore, Linear Networks are profitable but operating income decreased -35% to $1.8 billion compared to $2.8 billion in Q2 2022.
According to Disney, the lower cable results were largely attributed to higher sports programming and production costs. This was driven by the timing of costs for the College Football Playoffs and the NFL, in addition to NBA contractual rate increases and higher sports production costs which coincide with the recent layoffs.
Image Source: Disney
Disney’s Outlook
According to Zacks estimates, Disney sales are now forecasted to rise 8% in fiscal 2023 and edge up another 5% in FY24 to $93.96 billion.
On the bottom line, earnings are projected to be up 7% this year and soar 34% in FY24 at $5.10 per share. Notably, fiscal 2024 EPS projections would represent 152% growth over the last five years with 2020 earnings at $2.02 per share.
This would also get Disney closer to 2018 and 2019 levels which saw EPS at $7.08 and $5.77 per share respectively, before the continued decline in the company’s bottom line.
Image Source: Zacks Investment Research
Takeaway
Disney stock currently lands a Zacks Rank #3 (Hold) and while shares of DIS are only up +2% this year the company’s outlook has become more attractive and could be elevated by continued cost-cutting.
In this regard, sustaining Linear Network income appears to be imperative and Disney is working to address the issue while continuing to reduce operating costs among its streaming services and Direct to Consumer segment as well.