Disney (DIS -0.83%) just joined the list of high-profile companies letting workers go.
In conjunction with the company's quarterly financial report released Wednesday afternoon, recently reinstated CEO Bob Iger said Disney plans to reduce its staff by 7,000, or roughly 3.6% of its worldwide workforce. The move is part of a broad-based, companywide strategic reorganization designed to "address the challenges [Disney] is facing today," according to Iger.
Disney is just the latest in a growing list of companies cutting staff levels in the face of economic uncertainty, joining other tech and big media players, including Netflix and Warner Bros. Discovery.
The move is just one piece of a multipart plan to get the House of Mouse back on track.
Image source: Disney.
Iger makes his mark
Iger detailed sweeping changes to the company's organizational structure, with creativity at its center, as well as a renewed focus on growth and profitability. "We believe the work we are doing to reshape our company around creativity, while reducing expenses, will lead to sustained growth and profitability for our streaming business, better position us to weather future disruption and global economic challenges, and deliver value for our shareholders," Iger said in a press release.
The movie studios, broadcast television and cable networks, and streaming video segment will be reorganized under the newly created Disney Entertainment banner, joining the existing ESPN and parks, experiences, and products segments. The company will begin reporting under the new organizational structure by year-end.
The reorganization is meant to empower creative executives, giving them more responsibility and control. This will include decisions regarding content, marketing, and distribution.
The chopping block
Disney has other plans to slash its expenses, particularly as it looks to reach profitability for its streaming business.
The company plans to cut roughly $2.5 billion in sales, general, and administrative (SG&A) expenses and other operating costs over the next couple of years, according to Iger. CFO Christine McCarthy said 50% would come from marketing, 30% from labor, and 20% from technology.
Another $3 billion (annualized) will come from slashing non-sports-related content spending, though Disney executives provided few specific details. One idea being considered is the licensing of programming and movies to outside parties to help defray content costs.
In all, Disney is eyeing roughly $5.5 billion in cost savings, which will, in turn, boost profitability.
Reasons to be optimistic
Iger is already making his mark since the CEO returned to Disney in late November. For the fiscal first quarter (which ended Dec. 31), Disney reported revenue that grew 8% year over year to $23.5 billion. Excluding certain items, diluted adjusted earnings per share (EPS) slipped 7% to $0.99. Both numbers exceeded analysts' consensus estimates, which were calling for revenue of $23.4 billion and EPS of $0.78.
The results were fueled by Disney's parks, experiences, and products segment, which grew 21% year over year to $8.7 billion, while the media and entertainment distribution segment edged 1% higher to $14.8 billion.
Iger had previously signaled that Disney would no longer chase subscribers at any cost but rather focus on profitability, which was evident in the first report since his return. Disney+ subscribers grew 25% year over year, down from 39% gains last quarter.
Furthermore, Disney pared the losses from its direct-to-consumer (DTC) segment with a loss of roughly $1 billion, an improvement compared to a loss of $1.68 billion in the previous quarter.
Iger said Disney plans to reinstate its dividend by the end of the calendar year. The dividend will initially be "modest," according to Iger, but will grow over time. The company suspended the dividend at the height of the pandemic to preserve cash.
The company also reaffirmed its view that Disney+ will be profitable by 2024.
The bottom line for investors
Disney has an unrivaled treasure trove of intellectual property and a track record of navigating challenges that goes back nearly 100 years.
Additionally, it was Iger that led the media giant's first transformation beginning in 2005; he's credited with reinvigorating Disney animation, spending heavily to boost attendance at the company's theme parks, and acquiring Pixar, Marvel, and Lucasfilm. Iger also engineered the company's second successful transition, which included the acquisition of assets from Fox, streaming technology from MLB, and a controlling interest in Hulu -- all ahead of ushering in the successful debut of Disney+.
In a very short time back at the helm, Iger has made a number of sweeping changes, with an eye toward putting creativity at the heart of everything Disney does and increasing profits in the months and years to come. Given Iger's long track record of success and these broad initial steps, it isn't surprising that Disney's stock is rising in response.
