The Challenges Facing Walt Disney Co.
The Decline of ESPN
The future of Walt Disney Co. hangs in the balance as it prepares to disclose its fiscal third-quarter results. One of the greatest challenges faced by the company is the decline of its cable sports network, ESPN. Once a profitable asset, ESPN has now become a victim of cord-cutting, as more and more people cancel their cable subscriptions. Additionally, the rising costs of sports-broadcasting rights have further added to ESPN's troubles. In light of this, Disney's CEO Robert Iger recently stated that ESPN is actively seeking a strategic partner and is even open to selling an equity stake. Discussions have taken place with Major League Baseball, the National Football League, the National Basketball Association, and the National Hockey League.
Additional Setbacks for Disney
Concerns over Advertising Trends
Industry analysts are expressing growing worries about advertising trends at Disney. Viewership trends have been consistently negative, with an average year-over-year decline of around 10%. According to Atlantic Equities analyst Hamilton Faber, this does not bode well for forthcoming advertising revenues. In fact, Faber recently slashed his price target for Disney stock from $113 to $76 due to these concerns.
As a result of these challenges, Disney's stock price has dropped 22% to $86.28 over the past six months.
Disney Faces Near-Term Obstacles, According to Senior Media Tech Analyst
In a recent report, Tim Nollen, Macquarie's senior media tech analyst, downgraded Disney shares to neutral and trimmed his price target by 9% to $94. Nollen expressed concerns about "too many near-term issues" affecting the company, including weak TV ad sales, declines in its direct-to-consumer segment, softening trends in the parks division, and ongoing Hollywood strikes. The Wall Street Journal reported that the July 4 weekend marked the slowest period at Walt Disney World in nearly a decade.
While Disney's cost-cutting measures could protect earnings, Nollen emphasized that the company's top-line issues are worrisome. Of particular concern is the direct-to-consumer segment, which includes Disney+. According to analyst Dave Novosel from Gimme Credit, this segment incurred losses of $1.7 billion in fiscal year 2021 and over $4 billion in fiscal year 2022. It is expected to lose around $3 billion this year. Disney now finds itself in a tough competition with Netflix Inc., Apple Inc., Amazon.com Inc., Warner Bros. Discovery Inc., Comcast Corp., and other major players.
The future of Disney is closely tied to its CEO, Iger, who recently extended his contract through 2026. Iger's plan to slash $5.5 billion in costs, which includes cutting 7,000 jobs, and his extensive knowledge of Disney's operations give analysts hope for a turnaround. In a CNBC interview, Iger even mentioned potentially selling Disney's ABC broadcast stations, FX, and National Geographic as part of the restructuring plan.
According to Needham analyst Laura Martin, Iger's continued leadership until late 2026 provides investors with higher confidence in Disney's direction over the next 3.5 years – a reasonable investment time frame.
All Rights Reserved © 2024
Post a comment