Mickey Mouse once said, ‘All you need in life is a little bit of magic’, and Disney might have just found some after a long period in the doldrums.
Significantly better than expected first-quarter earnings have caught the market by surprise and put a rocket under the company’s share price. Bob Iger may have more than his fair share of critics, but the latest results confirm the business has not been completely derailed.
CEO Bob Iger has been under pressure to make significant changes to Disney amid fears the business had lost its way. The streaming platform is loss-making and a lot of its recent films and TV shows have been commercial and critical flops. Activist investors believe the company is capable of making a lot more money by doing things differently.
Dan Coatsworth, investment analyst at AJ Bell, comments: “The new strategic initiatives unveiled by Disney in its latest results make sense but there is a big difference between laying out plans and successful execution that translates into greater customer numbers, greater profit and putting the share price back to the lofty levels seen in 2021. One could say this is Iger’s last roll of the dice – he needs to deliver otherwise someone else will have to come in and draw up a new plan to revive the House of Mouse.
“At the heart of Disney’s strength is its intellectual property – an army of characters that have evergreen appeal across multiple channels. A single character provides endless opportunities to make money, whether that’s in a starring role in a cartoon or a film, the centrepiece for merchandise, people in costumes interacting with customers in theme parks as they bring characters to life, or in digital format via computer games. The acquisition of Lucasfilm in 2012 took this IP strength to another level via the Star Wars franchise.
“Disney is spinning many plates at the same time and its challenge is to keep them all moving and not let any crash to the ground.
“The planned launch of a new sports streaming service in a joint venture with Fox and Warner Bros. Discovery has broad appeal and could be a good way to increase Disney+ subscriber numbers by bundling the two streaming platforms together as a package. Netflix recognises the value of bundles and uses partners such as mobile phone companies to help bring in more customers.
“An investment in Epic Games comes at an interesting time. The gaming sector is going through a tough period with mass layoffs and fears that soaring demand during the pandemic cannot be sustained. That might simply be a short-term problem as gaming is only going to grow with improvements to technology.
“For Disney, it comes back to the point about sweating its assets. Doing more in the gaming sector provides the opportunity to populate titles and platforms such as Fortnite with its IP – i.e., the chance for gaming fans to take characters from The Avengers or Toy Story and play with them in a virtual environment.
“Disney has learned a lot of lessons about over-milking assets in recent years, as illustrated by some of the Marvel and Star Wars productions failing to draw in punters. If anything, Disney needs to focus on quality rather than quantity. We’re already seeing a shift in thinking as Iger talked about focusing on some of the stronger assets within franchises like Marvel, rather than a scattergun approach by doing something with everything.”