Dan Loeb is bullish on Disney again (DIS).
According to a a letter activist investor sent to CEO Bob Chapek Loeb’s Third Point bought back a “significant stake” in the media giant, sending shares up 2%.
Loeb, who previously held a stake in the company from 2020 to early 2022, praised Disney’s positive earnings results for the third quarterciting the strength of Disney’s streaming business.
“We are particularly pleased to see the strength of DTC subscriber growth, the key driver of Disney’s long-term transformation to less volatile, ultimately higher margin cash flows with greater return on invested capital,” it said the note.
The activist investor laid out several proposals for the company “to unlock additional value in the near term.”
One plan includes spinning off popular sports network ESPN, which “currently generates significant free cash flow.” According to the letter:
ESPN would have more flexibility to pursue business initiatives that might be more difficult as part of Disney, such as sports betting. ESPN’s customers and sports leagues would be better served by a focused management team managing a leadership position in sports distribution. We believe most agreements between the two companies can be contractually replicated, the way eBay spun off PayPal while continuing to use the payment processing product.
During the earnings call, Chapek revealed that the company is “still bullish on sports” and is working hard to announce something about sports betting, but investors and analysts have long questioned the future of ESPN+.
“When Disney Goes All Out With ESPN+? When do I take some of these branded pieces of content and put them on ESPN+?” Geeta Ranganathan, senior media analyst at Bloomberg Intelligence, posed with Yahoo Finance, citing the platform’s recent 40% price increase.
“Disney has indicated that they are ready to do it when the time is right, so the biggest question is just the timing. When are they going to pull the plug on that?” she continued.
Other proposals laid out by Loeb in the letter include cutting costs, suspending the payment of a cash dividend, revamping Disney’s board of directors and buying out Comcast’s 33% stake in Hulu before the contract expires in 2024.
“We believe that integrating Hulu directly into the Disney+ DTC platform will provide significant cost and revenue synergies, ultimately reigniting growth in the domestic market,” the letter said.
Gaining full ownership of Hulu has long been a missing piece for investors, with Loeb pushing for the integration sooner rather than later.
“We believe it would even be reasonable for Disney to pay a modest premium to expedite the integration…We know this is a priority for you, and we hope a deal must be struck before Comcast is contractually obligated to do so about 18 months.”
Disney posted quarterly earnings last week crushed expectations with Disney+ subscribers jumping by 14.4 million.
Despite the beat, Disney cut its guidance to 2,024 subscribers. The media giant now sees 215 million to 245 million subscribers by 2024, down from the previous 230 million to 260 million. The company expects 135 million to 165 million “core” Disney+ subscribers with its Indian brand Disney+ Hotstarthe subscriber forecast at 80 million.
Disney+, Hulu and ESPN+ lost a combined $1.1 billion in the third quarter, though the company maintained its goal of reaching streaming profitability by 2024, driven by price spikes across its various streaming services.
Disney shares have fallen more than 20% since the start of the year.