In its obsession over the “Magnificent Seven” technology stocks, the market has largely ignored legacy companies like Disney (NYSE:DIS). Also, some people are concerned about the aggressive pursuits of an activist investor who has his sights set on Disney. Nonetheless, there are solid reasons to buy DIS stock and hold it for the long term.
We know Disney as a place where magic happens at its theme parks. However, in the 2020s, Disney is working hard to build up its streaming service revenue. That’s a challenge, but after looking at Disney’s results, skeptical investors should be ready to give this iconic entertainment giant a chance.
Disney Cuts Costs and Improves Its Streaming-Business Results
Even while financial traders have paid little attention to Disney in 2023, they shouldn’t ignore the company’s mainly positive fourth-quarter fiscal 2023 results. First and foremost, Disney’s total Disney+ streaming content service subscribers increased 7% to 112.6 million. This result beat Wall Street’s forecast by roughly three million subscribers.
Not only that, but Disney expects its streaming business to achieve profitability in fiscal 2024’s fourth quarter. So, while Disney isn’t necessarily the king of streaming content in the U.S., at least the company is showing progress in this area.
Now, let’s get down to the bottom line. In Q4 FY2023, Disney earned 82 per share, which is a vast improvement over the 30 cents per share from the year-earlier quarter. Furthermore, this result exceeded the analysts’ consensus earnings estimate of 71 cents per share.
Additionally, Disney made a commitment to “aggressively manage” the company’s “cost base.” To that end, Disney increased its “annualized efficiency” (i.e., cost-cutting) target from $5.5 billion previously to $7.5 billion currently.
DIS Stock Investors Might Worry About This Activist Investor
A leaner Disney might impress investors in 2023 and 2024. However, there’s one influential shareholder that’s not so easy to impress.
Activist investor Nelson Peltz and his investment firm, Trian Fund Management, have reportedly launched a campaign against Disney. Moreoever, Peltz and Trian have Isaac “Ike” Perlmutter, a former Marvel executive, on their side.
“While I was a Disney employee, I was not comfortable publicly stating my views on the company and its performance,” Perlmutter stated. He added, “I believe Nelson and Trian can help Disney’s leadership better navigate the company’s challenges and opportunities.”
Peltz may have been satisfied before, but won’t be placated now.
“Keep in mind that when Peltz was charging last winter, DIS ran the same play,”Gordon Haskett analyst Don Bilson said. “Those gains quickly disappeared but that came after Peltz had backed off, and it bought the company some time.”
Investors might speculate that, with Perlmutter backing him up, Peltz might seek more than one board seat at Disney.
DIS Stock: Weigh the Challenges, Then Consider a Position
Peltz and Bilson present challenges to Disney’s status quo, but that might not be a bad thing. Only time will tell whether the activist investor’s influence over Disney will help or hinder the company.
Investors should definitely think about Disney’s obstacles, including the company’s difficult path to streaming-segment profitability. At the same time, Disney is demonstrating progress. Therefore, if you agree with me that Disney can provide value to the shareholders in 2024, feel free to consider a small position in DIS stock.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
