Pull up a stock chart for Walt Disney (DIS -0.04%). Go back nearly six months to May 10, 2023. It's the last time that shares of the media giant traded in the triple digits. It's been a frustrating last few months to be a shareholder, but it seems as if Disney is finally turning the corner.
CEO Bob Iger seems to think so. The initially well-received fiscal fourth-quarter report on Wednesday afternoon had the boomerang helmsman talking about Disney moving away from fixing to building at this phase in its turnaround. There were also some pretty impressive numbers in the financial results. It wasn't a perfect report, but it's hard to believe that this is the same company that was trading at a nine-year low -- yes, even lower than the initial pandemic-related sell-off of early 2020 -- just a few weeks ago.
A recovery is a wish your heart makes
Disney exceeded expectations on both ends of the income statement. Revenue rose 5% to $21.2 billion, as strength at its streaming business, cruise lines, and theme parks outside of Florida were more than enough to offset weakness at its linear networks, its movie studio, and to a lesser extent its Walt Disney World resort in Florida. A 5% move higher on the top line may not seem like much, but analysts were holding out for flat revenue growth for the fiscal fourth quarter, which ended in September.
Adjusted earnings more than doubled to $0.82 a share, also comfortably above the $0.68-a-share profit that Wall Street pros were targeting. All three of Disney's business segments reported improvement in operating income.
Disney's streaming business was a bright spot on the bottom line for a change, even if it's still losing money. Its operating loss contracted by 74% for the quarter and 35% for all of fiscal 2023. Its goal of turning a profit by the fourth quarter of the new fiscal year is no longer Fantasyland. The shock here would now be if it does not succeed in its goal by the end of fiscal 2024.
Image source: Disney.
Disney+ added 7 million largely international core subscribers during the quarter. The recovery follows back-to-back quarters of declines, and average revenue per user continues ticking higher. It's a sharp contrast to the report that sent shares of Warner Bros. Discovery (WBD -2.17%) plummeting 19% earlier in the day. Its streaming business lost subscribers in the same three-month period, warning that it may fall short of its earlier financial leverage goal for 2024.
Disney actually went the other way, bumping its goal for annual cost savings from $5.5 billion to $7.5 billion by the end of next year. If activist investor Nelson Peltz was satisfied earlier this year with Disney's expense-trimming effort, this enhanced plan could be enough to avert a proxy battle in the coming weeks.
There are areas for improvement. Its Florida resort continues to suffer from challenging comparisons to the 18-month celebration of Disney World turning 50 that ended in March, holding back the top line, while wage inflation is gnawing away at the bottom line. It's not just a Disney thing, as its two largest rivals in Central Florida also experienced a dip for the same quarter. The tough comps are expected to continue until the second half of the new fiscal year. Its movie studio is not the hit factory that it was before the pandemic. Its linear networks experienced a 9% stateside decline in revenue, as the soft ad market and Hollywood strike weighed on that problematic business. In a stroke of luck, Hollywood studios struck a tentative three-year deal to resolve the dispute with the actors guild, paving the way for refreshing the thin pipeline of content for media networks and the multiplex.
The media stock bellwether is definitely taking steps in the right direction. Fiscal 2023 saw a strong surge in free cash flow, and Disney expects another big jump in the new fiscal year that will take free cash flow back to pre-pandemic levels. Iger argues that Disney no longer needs fixing, implying that it's no longer broken. He's not wrong, even if challenges and storm clouds remain. The upticks should continue over the long run now, and getting the shares back into the triple digits seems a lot easier than it did before Wednesday's strong financial update.
