Disney (DIS) will have a lot to prove when it reports earnings in less than two weeks.
The company's parks business is slowing. Its linear TV division is declining, and so are subscribers to its flagship streaming service Disney+. The direct-to-consumer business has yet to hit profitability while the media giant also seems to have lagged competitors at the box office. Advertising has also been a challenge this year.
As of Friday afternoon, the stock was down about 8% since the start of the year, on par with the S&P 500's year-to-date drop.
"I don't know that it's one thing [dragging down the stock price]," Bank of America analyst Jessica Reif Ehrlich told Yahoo Finance Live. "It's just been one thing after another."
Ehrlich, who has a Buy rating on the stock and $110 price target, said although "there's so much to do" to fix the company, she believes the media company is heading in the right direction.
"They've restructured, they're bringing down costs, they're doing what seems to be fixable. The focus now is on improving the content engine that it was and has been. But there's a lot of work to be done. They don't even have a permanent CFO, so Bob Iger needs these extra two years [as CEO] and I think Disney does too."
Iger has attempted to reset the company — from putting Disney's linear assets up for sale and searching for a strategic partner for ESPN's streaming offering to partnering with sports gambling company Penn Entertainment (PENN) and potentially selling off its Star India business.
But all of that doesn't seem to be enough with the stock hitting a nine-year low earlier this month while activist investor Nelson Peltz launches yet another attack on the media giant.
Ehrlich said the company's language surrounding streaming profitability and how quickly it can cut costs will be an important earnings focus this quarter.
The company raised streaming prices for the second time this year, upping the monthly price of its ad-free Disney+ and Hulu plans by more than 20%.
Streaming losses improved to $512 million in Disney's fiscal third quarter results compared to a loss of $1.1 billion in the prior-year period. The company reported a streaming loss of $659 million in Q2 and a $1.1 billion loss in Q1.
Disney+ subscribers, however, came in short of expectations, declining 7.4% from the previous quarter, mostly due to losses from its Indian brand Disney+ Hotstar.
Guidance will also be critical, particularly surrounding its theme parks, which have battled signs of slowing demand as inflation threatens margins.
"What they say on the outlook [regarding] the bookings for theme parks always is of interest," she said, noting theme parks have the highest return on invested capital.
Revenue for the parks division beat expectations of $8.25 billion to hit $8.33 billion in the company's latest quarter. Operating income came in at $2.43 billion, ahead of estimates of $2.39 billion and above Q3 2022's $2.19 billion total.
The company plans to invest $60 billion into its theme parks business over the next 10 years.
"There is some optimism as you look at the year ahead — there are several things that will change for the better," Ehrlich said.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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October 28, 2023 at 01:29AM
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Disney has 'a lot of work' to do but one analyst still sees 'some optimism' ahead - Yahoo Finance
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