Disney Finally Pays for the Sins of 2023
Early in the morning on May 7th, Disney CFO Hugh Johnston appeared on CNBC.
The executive’s upbeat mood contrasted with the storm of red that was about to befall him.
The Chief Financial Officer at Disney, someone who would know, believed that he was presenting great news to investors.
In real time, we could watch the stock drop while Johnston spoke.
For Futurama fans, it was this meme playing out in real life:
Why was Johnston so misguided about The Walt Disney Company’s fate?
Disney finally paid for sins committed in 2023. Here’s what just happened.
A Plan Gone Awry
Several weeks ago, Disney quietly dropped the news that it’d hold its fiscal quarterly earnings call in the morning.
That’s a recent first for Disney, although far from unprecedented on Wall Street.
Many companies prefer pre-market updates, as they believe such moves prevent fluctuation in the stock price.
If anything negative occurs, the stock should recover during the day as bargain buyers recognize an undervalued asset.
That’s the theory anyway. For Johnston, a morning earnings report circled back to his tenure at PepsiCo.
The executive regularly reported earnings before the market opened rather than after it closed, as has been Disney’s practice.
In this specific scenario, Disney had good reason to adopt this approach.
Later today, DisneylandForward officials will attempt to win the final vote of approval from Anaheim’s City Council.
That’s a three-year negotiation that should wrap up by the close of business today.
If Disney had spoken until 5:30 EST, as has been its practice with earnings calls, some negative news items might have gone viral.
If so, Disney would have accidentally provided Anaheim politicians with a reason to delay the vote.
But a morning call wasn’t an ideal solution, either.
As a reminder, the last time that Bob Iger spoke this early in the morning – and the call happened at 5:30 a.m. PST – he…messed up.
Ten months ago, the cranky Iger spoke a bit too honestly about striking Hollywood performers, thereby infuriating Hollywood.
So, Disney chose to perform a morning news drop to prevent Anaheim from stalling on DisneylandForward.
Then, Johnston spoke so as to protect Iger from saying the wrong thing early in the morning, thereby disrupting the market.
Alas, sometimes, you can employ the right logic and still receive the unexpected outcome.
Disney stock plummeted this morning!
Disney Tries a New Tactic…That Doesn’t Work
Disney miscalculated a couple of things, one of them being how much some people hate the company.
Over the past four months, Iger and his staff have lined up allies to stave off Nelson Peltz, an activist investor seeking a spot on Disney’s Board of Directors.
Iger won that battle rather dramatically, but we learned along the way that some sources will never report Disney fairly.
To Disney’s misfortune, those people were the only ones awake and motivated to say anything when the company reported earnings.
Disney performed its news drop in the 6:30-6:45 a.m. range, and the story garnered so little attention that I was baffled.
I woke up at 7:15 a.m. and immediately noticed several messages regarding Disney’s revenue and its primarily great news.
As is my practice, I searched around to read how others were reporting the story.
Many business sites hadn’t even covered Disney yet and wouldn’t for another hour.
However, the anti-Disney side was falsely claiming all sorts of nonsense regarding subscription shortfalls and other nonsense.
The stock moved based on that news, and the dull earnings report call did nothing to dissuade anyone.
That strange start to the day has led to this somehow dated clip of Johnston on CNBC:
Is there anything about this person’s behavior that would indicate to you that he has just presented bad news?
Either Johnston is the greatest poker player since the late Doyle Brunson, or he’s happy with the current state of Disney.
Ninety minutes after the market had opened, Disney stock was down $12.
If I were Johnston, I wouldn’t answer Bob Iger’s calls today. Those conversations won’t be pleasant.
Why Did the Stock Drop?
That’s an excellent question, and there isn’t any single answer that would explain what just happened.
Sometimes, Wall Street is gonna Wall Street. This morning definitely seemed like one of those days.
You didn’t come here for glib “I dunno” hand wavery, though.
So, here’s something you can sink your teeth into that explains at least some of what we’re witnessing.
While Disney’s overall revenue picture is bright, one of its three cores, Entertainment, missed by half a billion dollars. That’s a lot.
Why did Disney face such a financial shortfall with its most storied division?
Remember how many problems Disney faced with its theatrical unit in 2023?
Much of what went wrong has finally shown up on the balance sheet. And Wall Street noticed.
Specifically, one line item, “Content Sales/Licensing and Other,” showed a loss of $18 million.
That’s a stark change from the same time in 2023, when Disney earned $83 million thanks largely to Avatar: The Way of Water.
Is that change enough to justify a $20 billion shave in Disney’s market cap, which is what happened this morning? Of course not!
Still, people took note of that drop as a sign that Disney’s 2023 content won’t generate as much licensing revenue.
Disney Finally Pays the Price for 2023
Wall Street believes there won’t be as much future demand for titles like The Marvels, Wish, and Indiana Jones and the Dial of Destiny.
Investors have adjusted the value of the stock based on lingering concerns about Disney’s bread and butter.
That’s the passive income the company generates from its back catalog. Sadly, many 2023 titles didn’t stock the cupboard, so to speak.
Now, we’re getting the data that underscores how big a hit Disney is taking from those losses.
For that reason, CEO Bob Iger and Johnston both laid out the company’s strategies for upcoming film titles.
Alas, those releases won’t impact the bottom line for two more quarters.
Analysts know this and realize Disney’s Entertainment core is weaker than usual at the moment.
Ergo, an $18 million loss in one division somehow counterbalances the otherwise amazing news Disney presented.
For the past two years, the company has lived in the shadow of Wall Street’s concerns about streaming revenue.
The latest numbers show that Disney has mostly solved that problem…but Wall Street has moved the goalposts to another area.
Thus, Hugh Johnston’s CNBC appearance has aged like milk, and I’m saying that roughly five hours later.
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