Walt Disney Company (NYSE:DIS) shares surged by as much as 10.5% on Feb. 7, marking their most significant intraday gain since December 2020. This boost came after the media giant reported impressive results for its fiscal first quarter. Adjusted earnings surpassed expectations at $1.22 per share, exceeding the 99-cent average of Wall Street estimates. Thanks to effective cost-cutting measures, Disney announced that profits for the year would increase by at least 20% to approximately $4.60 per share, once again surpassing Wall Street estimates of $4.27.

The company revealed that it had reduced expenses by $500 million in the first quarter, and it expects to meet or exceed its target of $7.5 billion in annualized savings for the year. After years of underperformance, is it finally time to consider buying DIS?

Key Highlights from Disney’s Successful Quarter

The most significant achievement for Disney was the substantial reduction in overall losses in its streaming segment (including Hulu, ESPN+, etc.), which decreased to $216 million from $1.05 billion a year ago. This improvement was $300 million lower than the previous quarter, attributed to price increases and higher advertising revenue.

Additionally, Disney anticipates adding up to 6 million core Disney+ subscribers in the current period. The company remains confident that its streaming operations will achieve profitability by the fourth quarter of the current fiscal year.

However, the standout performer for Disney in the last quarter was its international parks, where profit surged by over four times, accompanied by a 35% increase in sales compared to last year. In contrast, the U.S. parks saw only a modest 4% revenue increase and a 2% profit decline, with attendance dropping at Walt Disney World in Florida. Overall, the theme park business’s operating income rose by 8% to $3.1 billion.

On the other hand, Disney’s traditional media businesses continue to struggle, particularly its film studio division, which has faced quarterly losses for most of the past two years. Revenue from content sales and licensing, including the film studio, fell by 38% compared to a year earlier. Sales at Disney’s domestic TV networks also declined by 14% during the quarter, impacted by production shutdowns due to strikes in Hollywood.

Strategic Shifts Under CEO Iger

Recognizing these challenges, Disney is shifting its focus away from traditional media businesses and exploring new avenues for growth. One notable move is its $1.5 billion investment in Epic Games, the company behind the popular video game Fortnite. Disney plans to collaborate with Epic Games to build a “Disney universe” over the next few years, marking its entry into the gaming sector.

CEO Bob Iger stated, “You can imagine the creation of short-form videos, or we may even use the platform to distribute some of our content. There’ll be some opportunities to buy digital goods, maybe even at some point physical goods.”

Additionally, Disney has secured exclusive streaming rights to Taylor Swift’s Eras Tour movie on its flagship streaming service, starting on March 15. The Disney version will feature four additional songs that were not included in the theatrical release, which grossed more than $260 million.

Furthermore, Disney plans to launch a new version of its ESPN streaming service in 2025, offering an immersive app with integrated betting, enhanced statistics, fantasy sports leagues, and e-commerce features.

One of Disney’s most significant recent announcements is a joint venture with ESPN, Fox, and Warner Bros. Discovery (WBD) to combine their sports programming on a new direct-to-consumer video streaming platform. This platform will include most major leagues and a large portion of U.S. sports broadcasting rights, offering a wide range of content to subscribers.

Disney is also taking a page from Netflix’s playbook by cracking down on password sharing for its streaming services. The company will begin contacting account holders suspected of improper sharing later this year, offering them the opportunity to add other accounts for an additional fee. Results from this initiative are not expected until the end of 2024.

Additionally, under pressure from activist shareholders like Nelson Peltz’s Trian Partners and Blackwells Capital, Disney has announced shareholder-friendly measures, including a $3 billion share buyback and a 50% dividend increase.

Why Disney Stock Is a Compelling Buy

Considering these developments, Disney appears to be on the path to recovery, with a renewed focus and improved execution across all its businesses. The company possesses valuable assets and is poised to expand its profit margins and increase free cash flow significantly. This growth is expected to result from the cost-cutting measures implemented in 2022 and more strategic content spending. Disney’s EBITDA margin is projected to rise from approximately 16% in fiscal 2023 to 23% by 2028, potentially reaching levels not seen since 2019.

Disney’s unparalleled collection of iconic characters, franchises, and content library ensures continued high demand for its streaming services. Moreover, its theme parks business remains a significant profit driver with unmatched appeal.

Disney stock currently trades at under $110, presenting a compelling opportunity for investors to consider buying into this iconic brand.

In conclusion, Disney’s recent strategic moves and strong financial performance indicate that the magic is back at the “Magic Kingdom,” making DIS a promising investment opportunity.

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