At this point in the economic cycle, investors are rewarding companies that are getting lean and mean. Disney (NYSE:DIS) is among the media giants that has been among the most aggressive in terms of cutting costs, with recent Disney layoffs at the company’s Pixar division affecting roughly 175 employees at the firm.
This move to cut 14% of Pixar’s staff is significant, especially when one considers the demand for content production still remains high. Coming off the pandemic, when many movies were halted, as well as a number of strikes in the sector, one would think that now would be the time to hire, not fire, employees.
But this is the world we live in now. Let’s examine what this may mean for Disney and its stock in the future.
Disney Layoffs Met With Mixed Reaction From the Market
Recent reports from The Hollywood Reporter highlight that this move for Pixar to cut staff comes at a time when the content provider is shifting its focus away from Disney+. These cuts will be made at the movie studio level, meaning expectations appear to be that fewer blockbusters are on the horizon. That’s my read into this situation, at least.
Accordingly, it’s not surprising to see DIS stock move lower into afternoon trading on this news. Now, it’s also true that these cuts are part of a broader plan from parent Disney to cut more than 7,000 jobs and trim $7.5 billion in annual expenditures for the firm. If successful, that’s a lot of efficiency that may be created — though the question remains as to whether revenue growth may slow as a result.
Disney’s so-called strategic realignment is becoming more commonplace among large-cap companies across many sectors that may have added employees too aggressively following the pandemic. With labor dynamics shifting rapidly, Disney will be one of the companies investors point to as examples of whether these cuts are ultimately favorable or not. Indeed, it will likely take a few quarters, or even years, to see the full effects of these moves.
Right now, I’m not so sure this is the right move for Disney, given the content race that’s still ongoing. We’ll have to see how Disney stock performs relative to rivals like Netflix (NASDAQ:NFLX) in the coming quarters to see the market’s opinion.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
