With its theme parks, studios, TV networks, and streaming platforms, Walt Disney (DIS -1.01%) is a powerhouse entertainment company. But with its stock currently trading about 25% down from where it was in August 2022, some investors might question what to do with its shares. Let's explore.
A more ad-focused Disney+
Management revealed during its fiscal 2023 second-quarter report that its Disney+ streaming service had just shy of 158 million customers, down from almost 162 million in the first quarter. The company noted that price increases helped soften the impact of the lost subscribers, but it was the second consecutive quarterly dip -- and the second quarter under returning CEO Bob Iger.
Iger addressed the situation during the second-quarter investor call, saying the company had managed to reduce its streaming losses. He also suggested Walt Disney had identified "clear opportunities" for long-term success -- including reshaping Disney+.
Iger said: "[W]e will soon begin offering a one-app experience domestically that incorporates our Hulu content via Disney+. We will begin to roll out this one-app offering by the end of the calendar year."
He said the bundled experience could help with ad targeting: "Over 40% of our domestic advertising portfolio is addressable, including streaming. We're also focused on the growth opportunity in programmatic advertising, and we are well positioned to scale as the market improves and audiences continue to grow."
The move to fold Hulu content into Disney+ has promise, but as things stand, the House of Mouse only controls two-thirds of the company, with the rest owned by Comcast. And though many expect Disney to buy out Comcast's stake in 2024, there is still some consternation about whether the company can make that deal.
"[I]t's not really been fully determined what will happen in that regard," Iger said.
Weakness in linear TV
Walt Disney's focus on building up its streaming-ads business comes as the company is seeing a decline in linear TV; the unit generated $6.6 billion in revenue in the second quarter, down 7% year on year.
Christine McCarthy, Disney's chief financial officer, said on the quarterly call that the company was seeing a decline in subscriber rates along with an increase in sports acquisition costs. McCarthy also noted a weakness in the ad market, suggesting that some "softness" will likely continue through the remainder of fiscal 2023.
Parks success and the Florida issue
Walt Disney's Parks, Experiences, and Products segment continued to perform well in the second quarter, generating $7.7 billion in revenue, a 17% increase year over year. And Iger made clear the company still sees opportunities for long-term growth in the segment.
"We have several international expansions underway that will allow our parks to continue to build capacity," he said. "And we have a number of other growth and expansion opportunities at our parks, and we're closely evaluating where it makes the most sense to direct future investments."
Iger's pronouncements follow a statement last month that the House of Mouse plans to invest $17 billion in Walt Disney World over the coming decade. He said the investment will generate 13,000 new jobs, further solidifying Walt Disney's position as one of the biggest employers in Florida.
Of course, one issue hanging over all of this is Disney's ongoing legal dispute with the Florida Legislature over the company's special-district status and how that might affect its operations.
In response to an investor question asking what stakeholders should make of the situation, Iger was direct: "Does the state want us to invest more, employ more people, and pay more taxes or not?"
Problems vs. prospects
For those considering what to do with Walt Disney stock, it's clear Iger has firm plans to build more shareholder value, but a dip in subscriber numbers, a weakened ad market, and ongoing political wranglings could make some investors cautious. And considering Iger has about 18 months left on his two-year contract with the company, there's a chance that his successor could inherit some of these problems.
With all that said, Walt Disney is still a seasoned company, now in its 100th year of operation. And considering many of its most profitable years occurred during Iger's first stint as CEO, stakeholders might want to hold on to their stock to see where he takes the company this time.
Investors should certainly pay attention to how the Disney-Florida situation plays out over the coming months -- particularly if there's a chance the company's regional investment might be scuppered. But for the most part, the focus will likely remain on Iger and his ability to chart Walt Disney's course until it's time for him to move on once again.
