Disney Lowers Content Spending Estimate by $1B for This Year

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Following the unveiling of Disney‘s fiscal first quarter 2025 earnings, showcasing a year-over-year increase in entertainment revenues, a predicted dip in Disney+ subscribers, and ESPN revenue on the rise – I found myself slightly concerned despite five Wall Street analysts penning optimistic post-earnings reports.

In a filing on February 5th, the entertainment conglomerate based in Burbank adjusted its projected spending on content for this fiscal year. Initially, the company led by Bob Iger had anticipated a budget of $24 billion. However, in its most recent disclosure, it revised this estimate to approximately $23 billion for both newly produced and licensed content, as well as sports rights. For the following fiscal year, Disney’s spending on content was $23.4 billion.

The company’s stock was trading around $110 per share as of Thursday.

Regarding cost reduction, our company is always on the lookout for places where we might be overspending, and we’re seeking ways to make those areas more economical,” stated CFO Hugh Johnston during a conference call with analysts, in response to questions about the adjustment in content spending.

By December 2024, the number of core subscribers on Disney+ had reached 124.6 million, while Hulu counted 53.6 million. Over the course of the year, Disney+ gained approximately 10 million subscribers, and Hulu saw an increase of around 4 million during the same period.

During the call, Iger expressed satisfaction with our current status in terms of Disney+ and Hulu subscribers. Although there was a minor dip in Disney+ subscribers from one quarter to the next, he noted that we raised prices not long ago and anticipated a higher rate of cancellations (churn). However, the actual figures were better than what we forecasted.

Wall Street analysts’ research reports presented cautiously optimistic views about the fiscal quarter, as evidenced by titles such as “Calm Waters on the Horizon?”, “Ticking All the Boxes”, “The Winter Soldier Emerges” and “Setting Sail for a Promising Start”.

In simpler terms, according to the Bank of America team led by Jessica Reif Ehrlich, this could be seen as a year for investments. They anticipate some flexibility in spending levels, but believe that Disney+ may gain from stricter enforcement against password sharing, recent price hikes, and robust advertising. The bank’s team has given a “buy” recommendation and set a price target of $140 for Disney.

Benjamin Swinburne from Morgan Stanley adjusted his price prediction for the company from $125 to $130, acknowledging that the company needs to demonstrate growth in its direct-to-consumer sector. Despite Disney showing an increase in DTC subscribers in the first quarter and lower losses than expected on Disney Plus, investor worries have been sparked by the company’s forecast of a ‘modest’ decline in Disney Plus subscribers for the second quarter. The analyst believes that Disney is planning to boost customer growth through strategic investments in products, technology, and content, such as implementing paid sharing, enhancing recommendation engines, personalization, integrating ESPN flagship in August, among other initiatives. However, the market is anticipating these strategies to result in a greater number of new subscribers.

As a gamer, I’m all eyes on the upcoming launch of ESPN’s flagship streaming service this year-end. Company execs are positioning it as a possible package deal alongside Disney+ and Hulu, making for an exciting triple play in the world of sports streaming!

According to a MoffettNathanson team, headed by Robert Fishman, it’s expected that Disney will eventually develop a more unified Direct-to-Consumer (DTC) strategy and this could potentially become a significant revenue generator. However, they caution that this is a ‘show-me’ scenario, meaning the results need to be seen first. The firm currently rates Disney as a ‘buy’ with a target price of $140.

According to Michael Morris from Guggenheim, the results mark a robust commencement to the fiscal year. He maintains a ‘buy’ recommendation for the company, with a projected price of $130. This target is based on their belief in the long-term power and expansion potential of the Parks division, as well as the revived emphasis on profitable growth within the media and entertainment resources. However, they express some apprehension regarding consumer demand and the speed at which linear networks are declining.

The income generated from content/sales and licensing increased compared to the same time last year, as Moana 2 and Mufasa: The Lion King were in cinemas instead of The Marvels and Wish. However, despite this promising quarter, there are still some unanswered questions that could impact the company’s stock performance for the next two quarters. These queries, as pointed out by a team from Bernstein, led by Laurent Yoon, who maintain an “outperform” rating and a price target of $120 on the company.

In his post from February 5th, Yoon remarked, “Should Disney prioritize rapid subscriber growth or adopt a cautious strategy while increasing profits? The answer is to do both. Finding the right balance in this equation can be tricky, even impossible, but the relatively modest market response – despite a solid financial report – suggests that investors are seeking evidence of both strategies being implemented.

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2025-02-06 19:25