It's a good bet that we won't be seeing Dan Loeb at a Walt Disney (DIS 0.92%) theme park anytime soon. The financier's large and influential hedge fund operator, Third Point Management, revealed through a regulatory filing last month that it has fully exited its once sizable position in The House of Mouse.
We should never blindly follow a big-pocketed investor into or out of any asset. But Third Point has been right in several moves, so perhaps it was wise to pull the trigger here. Let's investigate.
Image source: Getty Images.
A tasty business
The recently unloaded Disney holding wasn't in Third Point's portfolio for very long. It was first revealed slightly over two years ago, not long after the coronavirus pandemic really started to bite. Loeb and his team were most excited about the company's Disney+ streaming service, particularly in the wake of the shut-ins and cinema closures necessitated by the pandemic.
Although the well-known hedge fund manager praised Disney and CEO Bob Chapek's efforts with Disney+, he wrote in one of Third Point's quarterly letters to investors that "While the progress thus far has been commendable, even more can be done to realize Disney's full potential in streaming."
Never shy to express an opinion, Loeb added that Disney+ should broaden into an "all-you-can-eat" streaming platform. This monster buffet would include all theatrical content from the company's busy film studio, made available on the date of release to all subscribers. That, of course, would fly in the face of the movie industry's traditional cycle of theatrical release and eventual downstream push to home video and streaming.
Disney is tossing Loeb's suggestion to the wind and instead going in the opposite direction. After trying the same day-on-Disney+ release for some of its tentpole movies in the thick of the pandemic, last September the company reverted to the standard model of "only in theaters" cinema debuts. One can imagine that this strategic shift didn't please the Third Point folks.
Subscriber shock
If this shift was a -- or, rather, the -- reason for the hedge fund to exit the stock, it's certainly a valid one. After all, as my fellow Fool James Brumley points out, Disney continues to lose money in the direct-to-consumer (DTC) business, of which Disney+ is a part. Even worse, the company is being tight-lipped about its reasons why.
Generally speaking, streaming services are not the flavor of the moment for investors. Current bellwether Netflix notoriously suffered its first sequential decline in the all-important subscriber count since 2011 in its first quarter. Even before that, the drop in that figure's growth rate rang alarm bells for many investors. Cue lights, camera -- share price tumble.
Yet, as a Disney shareholder, I'm hanging on to my stock. I feel the company has more than enough financial padding to keep absorbing losses from Disney+, at least for some time, and it's doing better than many give it credit for in its other business segments.
The company's ever-critical media and entertainment distribution arm grew a respectable 9% year over year in the second quarter. This was fueled by both its sturdy TV operations and the occasional crowd-attracting blockbuster (like the latest Marvel Cinematic Universe offering Doctor Strange in the Multiverse of Madness, currently the top-grossing film of 2022 in this country).
Meanwhile, now that they're no longer subject to shutdowns and closures, Disney's theme parks are going gangbusters. That's sure to continue, as this summer tourism season is expected to be thick and heavy with travelers that haven't taken serious trips since the pandemic reared its ugly head.
As for streaming, I don't like those losses any more than Loeb probably does. But let's remember that Disney+ is a relatively young offering in the grand scheme of things, and since it remains highly popular with the public, there are numerous levers the company can pull to drag it out of the red. Earlier this year, for example, it announced it would be launching an ad-supported budget tier for Disney+.
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Buy the ticket, take the ride
Again, no investor should blindly follow another's lead, whether that investor is a high-flying hedge fund guy such as Loeb or a humble Fool like the writer of this article.
But I think Disney still has vast potential in front of it despite the recent hiccups and the losses from its DTC offerings. So at least for myself, I'll remain in the Mouse House for now.
