The Walt Disney Co. (NYSE:DIS) stock actually represents three companies, each with unique problems and opportunities. There’s the entertainment division, the ESPN division, and the parks division, which must maintain a pristine reputation to deliver long-term profits.
In the long term, this can be managed, but CEO Bob Iger looks like he’s out of time. Short-term activists demand a profit now, and if you buy the stock today, you’re buying what they’re selling.
The Activist View on DIS Stock
Activists Ancora and Trian, who have launched a proxy fight against the board, don’t care where DIS stock is 5 or 10 years from now. They want to make money right away.
The addition of ValueAct to the challengers’ team is already giving them a small victory. Since Trian said it had a $2.5 billion stake, and began pushing Nelson Peltz toward a board seat, Disney stock is up almost 10%.
Disney responded Nov. 30 by bringing back its 30 cent/share dividend. That’s unlikely to satisfy the activists.
What would cheer the activists is the sale of Disney assets, maybe the whole company. In the present business environment, Disney looks like a set of mismatched parts.
Las Vegas gamblers and Saudi oil tycoons are taking over sports. That makes ESPN a bad fit for a family entertainment operation.
The ABC broadcast network is losing value daily, and Byron Allen has offered $10 billion for it. A higher price, after a bidding war, might be enough to buy back the activists’ stake. It would also give Disney a better growth profile.
If Disney can’t generate bigger profits right away, the analysts aren’t averse to a complete breakup. Spin-out ESPN and its sports betting. Sell the entertainment division Apple (NASDAQ:AAPL) and license that content for a profitable parks company. Whether it works or not is less important than the cash and optimism such moves would bring to the analysts’ bottom lines.
The Disney View
Iger’s view is that many of today’s problems will fix themselves.
Both broadcast and cable are sinking. Ads aren’t as “addressable” as on a streaming service, which can target individuals and small groups, not just broad demographics.
So, Iger thinks, move the content to streaming. By cutting budgets and raising prices, Disney feels streaming profits become inevitable. Buying the rest of Hulu from Comcast (NASDAQ:CMCSA) adds even more addressable ad inventory.
Problems at the U.S. theme parks are also temporary. That’s one reason TV’s Jim Cramer wants investors to buy Disney now. Disney is still a big time global brand. Its parks in Hong Kong and Shanghai saved the most recent quarter. Better results from the U.S. parks could take earnings much higher.
Bulls also like the potential of ESPN. Penn Entertainment’s (NASDAQ:PENN) online betting platform, with ESPN’s name on it, has lower customer acquisition costs than competitors. This could give Disney 20% of a growing market.
The Bottom Line on DIS Stock
Bob Iger still has a great hand to play.
The streaming unit should be competitive with Netflix (NASDAQ:NFLX). That stock is up 53% in 2023 and is worth $30 billion than all of Disney right now. A growing U.S. economy bodes well for the parks. ESPN is a worthwhile asset no matter who owns it.
The question is whether Iger will get a chance to play that hand. Trian doesn’t want to wait the year or two it will take to prove the value of Disney assets. The rhetoric around the proxy fight is growing personal. That’s never a good sign.
You can buy Disney here but be wary. Big egos can turn big potential into small beer.
As of this writing, Dana Blankenhorn had a LONG position in AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
