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The Walt Disney Company (NYSE: DIS ) is on a major transformation path, focusing on strengthening its brands and franchises while reducing operating costs. The ongoing organizational restructuring is also expected to enable the company to effectively address global economic challenges and deliver better value to shareholders going forward.
At the start of 2023, Disney shares made their first gains since losing months ago. The positive momentum continued this week after the Burbank-headquartered entertainment giant posted higher-than-expected revenue and profit for the December quarter. The current valuation can be seen as a good entry point, given the low share price and solid growth prospects.
New Model
Taking a cue from the changing landscape of digital entertainment, Disney is making huge investments in video streaming services under the leadership of CEO Bob Iger who returned to the company recently after retiring in 2021. More than three years after launching Disney +, the company recently launched an ad-supported version with about 100 advertisers to monetize the platform.
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The new business model takes into account the background of customers who move to streaming services and spend less on cable subscriptions. At the same time, the streaming space is getting crowded with the entry of new players like Disney and Apple. For companies, the main challenge is striking the right balance between quality and price as operating costs continue to rise and customers become more cost-conscious.
“I always believe that the best way to encourage good creativity is to make sure that the people who manage the creative process feel empowered. Therefore, our new structure is aimed at generating greater authority to the creative leaders and making them responsible for the performance of the content financially . Our former structure broke that link, and it needs to be restored. Going forward, our creative team will determine what content will be produced, how it will be distributed and monetized, and how it will be marketed,” said Bob during the interaction with analysts.
As part of the reorganization, the company will be split into three separate entities – Disney Entertainment; Disney park, Experience, and Products; and ESPN. It looks to cut costs by $5.5 billion through various initiatives including large-scale workforce reductions.
Mixed Q1
Continued growth in traffic at Disney parks, after recovering from shutdowns caused by the pandemic, increased total revenue by 8% year-on-year to about $24 billion in the December quarter. The core Media and Entertainment division grew modestly, mainly showing higher direct-to-customer revenues.
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Meanwhile, total Disney + subscriptions fell to 161.8 million, which was smaller than expected. Although adjusted earnings, which exclude certain one-time items, fell to $0.99 per share from $1.06 per share last year, the latest numbers beat expectations. In the previous quarter, both top and profit have missed the forecast.
After recovering from the lowest level in several years in the last week of 2022, the value of Disney shares increased and exceeded its long-term average. Stocks traded higher on Thursday, bucking a post-earnings uptrend.
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