It’s been a year since Robert Iger returned as the CEO of the Walt Disney Company (NYSE:DIS). And in that time, the lights of the Magic Kingdom dimmed considerably.
In the 12 months since Iger’s return to the helm of the Mouse House, DIS stock is flat (up a slight 0.39%). However, the share price of the world’s most extensive entertainment company is 17% lower than where it traded five years ago and is at the same level it was nearly a decade ago. This begs the question of whether it was worth it for Iger to return to the company he first led for 15 years between 2005 and 2020.
DIS Stock: Diminishing Returns
Disney’s latest film to hit theaters and its tentpole release of the fall, “The Marvels,” posted the lowest opening weekend box office ever for a movie based on a Marvel comic book. The latest entrant in the Marvel Cinematic Universe (MCU) earned $47 million in the U.S. and Canada over its debut weekend, the lowest gross among more than 30 Marvel movies made to date. Box office analysts had expected the film’s opening to be as much as $80 million domestically. Internationally, the film did just as poorly.
After a decade of smashing box office records, Disney has struggled with its Marvel comic-based films since the movie “Avengers: Endgame” in 2019 concluded the storylines of several popular characters such as Captain America and Iron Man. Iger has acknowledged the problems with both the Marvel and Star Wars franchises that Disney owns, saying they have gotten played out, and he is considering scaling back. This is indicative of the entire Disney brand, which looks to be out of gas.
What To Sell First?
Disney is also struggling with several legacy issues that have weighed on the company and its share price. Chief among these is what to do with its traditional television assets, including the ABC network and its affiliates, as well as the National Geographic specialty channel, all of which have suffered from a decline in viewers and advertising dollars as consumers migrate to streaming platforms. In September, there were rumors that Disney was close to selling its TV unit for $10 billion.
Reports surfaced that entrepreneur Byron Allen was close to buying Disney’s TV assets, including the FX cable channel, and that the Mouse House was talking about selling its TV operations to Nexstar Media (NASDAQ:NXST). ABC remains one of the big four national TV networks in the U.S., and Disney bought the network and its 240 local affiliates for $19 billion in 1995. There are also rumors that Disney is considering selling its specialty sports network, ESPN, which some analysts say will fetch more than $20 billion through a sale. But, so far, no sales have been announced.
Questions Around Streaming
Another legacy issue hanging over Disney has been what to do about the streaming service Hulu. The company faced a choice of either buying the one-third stake in Hulu owned by rival Comcast (NASDAQ:CMCSA) or offloading its entire position. Disney chose to purchase and has agreed to pay Comcast $8.61 billion by Dec. 1 to take 100% ownership of Hulu, whose properties include popular shows such as “The Bear” and “Only Murders In The Building.” Hulu currently has 48.3 million monthly subscribers.
While the buyout of Hulu gives Disney complete control of the streaming service, which it currently offers to subscribers as part of a bundle that includes Disney+ and ESPN+, it does not resolve some more significant questions facing the company’s streaming offerings. Namely profitability. In its latest earnings report, Disney reiterated that it expects its combined streaming businesses to reach profitability in the final quarter of 2024. However, getting there will require some tough measures.
To achieve profitability, Disney announced that it plans to aggressively manage costs moving forward, increasing the total amount of cost reductions undertaken this year to $7.5 billion. Additionally, Disney has begun cracking down on password sharing, added a new advertising-supported streaming tier, and raised prices as much as 27% for the ad-free version of its streaming services. Disney+ currently has 150 million subscribers compared with 247 million at the profitable Netflix (NASDAQ:NFLX).
Activists and Actors
Two other issues that have afflicted the Walt Disney Co. since Iger’s return in November 2022 have been the strike by Hollywood actors and writers, which has been resolved but shutdown film and TV production for nearly five months, and an ongoing assault by activist shareholder Nelson Peltz, who continues to agitate for seats on the company’s board of directors. By some estimates, the new Hollywood labor agreement will cost the studios, including Disney, an additional $600 million a year.
In response to the strike, Disney has said that it will reduce its content spending in 2024 by $2 billion, taking its entire spending for the year ahead down to $25 billion. Beyond the strike, Disney is also dealing with activist Peltz, who in October increased his holding of DIS stock to more than $2.5 billion and is demanding multiple board seats at the company. Peltz first targeted Disney in January of this year and shows no signs of going away.
Iger has tried to placate Peltz, announcing the aforementioned cost cuts and 7,000 layoffs at the company. But with Disney stock continuing to perform poorly, Peltz is stepping up his efforts to hold Iger and the senior leadership accountable and trying to push his way onto the board. Peltz has said that DIS stock is undervalued and needs a more focused and determined board. The activist investor now owns more than 30 million shares of Disney.
Don’t Buy DIS Stock
There was a time when Disney was the shining light of the entertainment industry and corporate America. Given the company’s strong brand and stable properties, including Pixar animation and Mickey Mouse, as well as its popular theme parks, there may come a time when DIS stock again shines. But not now. The problems at Disney are so great that they have overshadowed the fact that this year marks the company’s 100th anniversary. In good times, such an anniversary would be cause for much celebration. Sadly, the event has barely been noticed. DIS stock is not a buy.
On the date of publication, Joel Baglole held a long position in DIS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
