Shares of Walt Disney (DIS 0.92%) jumped 4% this week. It wasn't one of the biggest gainers in a busy week during the peak of earnings season, but the performance roughly tripled the S&P 500's 1.3% uptick. Given all that Disney has gone through (the stock hit a nine-year low just last month), shareholders will be happy to take the W even if it's more of a lowercase win.
I kicked off this week by pointing out three ways for Disney stock to move higher this week. My prediction is worth no more than a lowercase pat on the back, but let's break things down and see what I got right, what I got wrong, and what I missed in the forecast.
Sprinkling the pixie dust
Disney scored a strong beat in Wednesday's financial update, the first path that I figured could lead to a market-thumping week for the entertainment giant. Revenue climbing 5% was better than the flat top-line growth that analysts were modeling. Wall Street pros seemed ambitious in targeting a 127% surge in adjusted earnings per share, but the House of Mouse came through with a 173% increase on the bottom line.
- It wasn't just the income statement that delivered a signature Disney happy ending. The media giant had encouraging metrics nearly everywhere the market turned.
- Operating losses for its streaming business contracted 74% for the fiscal fourth quarter, putting Disney comfortably on track to turn the segment that had posted a $4 billion deficit in fiscal 2022 into profitability by the final quarter of the new fiscal year.
- After back-to-back quarters of declines in core Disney+ subscribers, the platform gained 7 million net new additions. Average revenue per user for core subscribers keeps inching higher.
- Disney bumped up its initial goal of shaving $5.5 billion in annual cost savings by the end of next year to $7.5 billion. Growing a business and trimming expenses is a proven recipe for success.
- Free cash flow erupted in the fourth quarter of fiscal 2023, and Disney sees the metric returning to pre-pandemic levels in fiscal 2024.
There wasn't a lot for bears to pounce on in the report. It wasn't perfect, but even the imperfections weren't so bad.
Image source: Disney.
My second route to a strong week for Disney did not pan out. The leading media stock had announced earlier this year that it would bring back its dividend before the end of the calendar year. I figured the board would clear Bob Iger to announce the move in its last financial update of the 2023 calendar year. It didn't happen, but the company did address the inevitable payout return in the earnings call.
"We will be recommending to the board that they declare a dividend by the end of this calendar year," interim chief financial officer Kevin Lansberry said during the call. In short, the semiannual distributions should be back within the next seven weeks.
The third and final way I mentioned for a Disney stock bounce was a strong premiere for The Marvels. There was problematic word-of-mouth from advance screenings and reports of last-minute tweaks, a troublesome cocktail that rarely pays off.
It's too soon to see if this will be the big hit that Disney needs heading into the holiday season, but audiences apparently like the new superhero flick. It has a 61% approval rating from critics polled by Rotten Tomatoes and an even higher 85% score from the audiences that are actually paying for their movie tickets.
I also asked in passing, "Might Disney announce an asset sale, a cease-fire on its latest proxy battle, or an industrywide resolution of the last remaining strike that has halted Hollywood productions."
There were no asset sales, but Disney bumping its expense-shaving goal to $7.5 billion a year should settle down activist investor Nelson Peltz. If not, the rising shares following the encouraging financial update should make him happier than before.
In a case of epic timing, a tentative three-year deal between the actors' union and the studios ended the Hollywood strike just two hours after the end of Disney's conference call.
Bob Iger emphasized that Disney is ready to shift from fixing to building. Investors better hope that the same can be said for the stock itself as it builds on this past week's strong recovery.
