The clock is ticking for Disney (DIS -0.04%) CEO Bob Iger, and investors are watching every minute. The longtime Disney leader has until 2026 to bring the magic back to the iconic company. Iger jumped back into his role a year ago to cut expenses, boost profit, and set the entertainment giant on the path to growth. Disney's board brought him in for two years -- but later extended the assignment to total four.
The Disney of today is dealing with multiple problems. Its linear networks business is suffering as people cancel their cable subscriptions and switch to streaming. And Disney's investment in its own streaming service has brought subscriber growth but hurt earnings.
As a result, the stock has stagnated, falling about 2% this year, and not even the strong performance of Disney's parks business has been enough to lift it. Where will Disney be three years from now after Iger tackles the trouble spots? Let's find out.
Image source: Disney.
Disney's $5.5 billion cost savings goal
First, let's talk about Iger's progress so far. In the most recent earnings call, the CEO said Disney is set to beat his goal of $5.5 billion in cost savings. Iger's doing this through job cuts, reducing marketing expenses, and cutting spending on produced and licensed content. He also reorganized business segments and management to favor creativity -- and give those who create content the opportunity to see it through and take responsibility for its performance.
These efforts have helped Iger stem losses at the streaming service, which reported an operating loss that widened to $4 billion from $1.6 billion in the last fiscal year. In the most recent quarter, the business -- known as direct-to-consumer -- reported a narrowing of its operating loss to about $500 million from more than $1 billion.
Now, let's look ahead to what Iger hopes to accomplish by 2026. As mentioned above, one element holding Disney back is that consumers are ending their cable subscriptions. And that's hurting Disney's television networks, including sports giant ESPN and ABC Television Network. Disney doesn't rule out the idea of selling its TV networks because they might not be "core" to the company, Iger said in an interview with CNBC back in July.
The CEO favors the idea of keeping a majority stake in ESPN and finding investors to take a minority stake. He's also said the question of shifting ESPN to streaming is more of a when than an if.
Meanwhile, Disney raised prices for its streaming services both last year and this year, an effort to move the direct-to-consumer segment closer to profitability. The company still stands by its goal of profitability for the business by the end of fiscal 2024.
Investing $60 billion
As for the parks and experiences business, Iger has particularly big plans. The company recently announced in a filing that it would invest $60 billion in the segment in the coming 10 years -- almost double its investment in that area over the past decade.
Heavily investing in this segment is wise since, historically, it's been such a strong business for the company. The parks business's revenue and operating income have expanded at compound annual growth rates of 6% and 8%, respectively, from 2017 through today (excluding 2020, when parks were closed due to the pandemic). Operating margin has steadily grown, reaching 28% today.
It's also important to remember that Disney's parks top the list of the world's most visited theme parks every year. Even considering this, Disney says there's room to grow: "For every 1 park guest today, there are 10+ consumers with Disney affinity who do not visit the parks," the company says.
A look into Disney's future
So, let's get back to our question: Where will Disney be three years from now? By then, Iger may have sold off TV assets, found a partnership for ESPN, and shifted the sports giant to streaming. These moves could pave the way to growth. The direct-to-consumer business may also be profitable by that time, another important growth driver moving forward.
As for the parks and experiences unit, we might start to see some of the efforts of increased investment bear fruit. For example, the company aims to bring two new cruise ships to its fleet in fiscal 2025, adding capacity and revenue potential.
Overall, by 2026, Disney will still be in the middle of a major investment phase, but we should start to see big results from Iger's recovery plan -- if all goes smoothly. And that could result in a win for patient investors who got in on the shares when times were tough.
