In Bob Iger’s first earnings report since his recent return to Walt Disney Co. he gave Wall Street exactly what it wanted: layoffs, corporate restructuring and a move to reinstate the entertainment giant’s dividend.
Iger’s return in November was heralded by many on Wall Street, who are hoping he will mirror Steve Jobs’s triumphant return to Apple Computer in 1997. Already though, the company has been targeted by an activist investor, Nelson Peltz of Trian Partners, who wants a seat on the board and has argued that Disney needed better cost discipline, that it has failed at succession planning, uses its theme-parks business to fund its streaming business, and needs to restore its dividend.
Peltz got some of what he wanted Wednesday, with Iger announcing 7,000 layoffs, a restructuring that creates three core segments and a plan that will cut costs in the non-content part of the business by $5.5 billion. Iger added that while he is recommending to the board to restore the dividend, it will be modest. “We hope to build upon it over time,” he said.
He also admitted that Disney’s cost-cutting initiatives will make it possible to pay for the dividend, a strategy Intel Corp. is using to keep paying its dividend, as well as Meta Platforms Inc. for its massive stock buyback.
So far, investors seem to be pleased with Iger’s big news, sending Disney’s shares up at one point nearly 10% in after-hours trading on Wednesday, in the hopes that he is “restoring the magic.” (Shares ended the extended session up 5.4%.) But the company still is averse to having Peltz join the board, as it advised shareholders in its most recent proxy filing earlier this week not to vote for any representatives of the Trian Group to the company’s board.
Iger spent a bit of time on the company’s call with analysts Wednesday detailing the issues with the Disney+ streaming service, which lost subscribers last quarter after raising the price of its ad-free tier, noting that the company had been in a “global arms race for subscribers.”
“I think we might have gotten a bit too aggressive in terms of our promotion, and we’re going to take a look at that. I listed a number of things on the call. That’s one of them. I talked about pricing as well,” he said.
Peltz has some solid points in his analysis of Disney’s current issues. The streaming business — a unit it refers to as direct-to-consumer in its earnings release — reported a whopping operating loss of $1 billion, while Disney’s theme parks had an operating profit of $3.05 billion. Third Bridge analyst Jamie Lumley noted that along with the first loss of subscribers at Disney + in a quarter, there remain many challenges for Iger.
Disney is clearly hoping Peltz and Co. will go away, now that some of his demands have been met. That seems unlikely, but Iger can continue to hope. It may still be up to the shareholders to decide if Peltz gets on the company’s board. And if he does, Iger may regret his return to the Magic Kingdom.