Disney needs to show investors it has a plan to make streaming profitable — and stop hemorrhaging money

When Walt Disney (DIS) dispatches fiscal first-quarter earnings after the closing bell Wednesday, we’ll be looking to see how the entertainment giant plans to rein in dissipating, while also forging a path to profitability in its troubled streaming business. Disney will report its latest earnings follows just over two months after CEO Bob Iger returned to the corner office with a mandate to clean house and ride growth through cost cuts, particularly in streaming. Disney’s direct-to-consumer unit, which includes streaming stages Disney+, Hulu and ESPN+, has yet to reach profitability — losing nearly $1.5 billion last quarter. Those displaces spurred Disney’s board to push out then-CEO Bob Chapek and bring Iger back to the top job. Management has since repeatedly conveyed they expect Disney+ to become profitable by 2024 and should start to see losses subside in the fiscal first lodgings. In a filing with the U.S. Securities and Exchange Commission last month, Disney said its board is “overseeing key strategic interchanges,” including “implementing [a] cost reduction plan” and “prioritizing streaming profitability.” Iger broadly outlined the tenants of that proposals in a town hall with Disney employees upon his return. “Instead of chasing subscriptions with aggressive exchanging and aggressive spending on content, we have to start chasing profitability,” he said. “In order to achieve that, we have to swipe a very, very hard look at our cost structure across our businesses.” While Iger hasn’t yet laid out specifics for the ensemble’s cost cuts, analysts expect gradual reductions to begin in Disney’s programming budget. “The heaviest wave of text spend has passed them,” Tim Nollen, an analyst at Macquarie, told CNBC. “I don’t think they will necessarily say they determine to reduce their investment costs but I think you’re passed the heaviest investment phase, so cost should incrementally ingenuousness from here,” he said. The fiscal first-quarter results also come as Disney faces pressure from activist investor Nelson Peltz of Trian Mates. Peltz has been waging an ongoing proxy battle to gain a seat on Disney’s board — a move the Club command endorse in order to pressure Disney to get its financial house in order. Trian currently holds a nearly $1 billion stake in Disney. Analysts are pregnant Disney to deliver earnings-per-share of 78 cents, down about 26% year-over-year, while revenue should climb 7% annually, to $23.37 billion, concerting to estimates compiled by Refinitiv. Managing costs When Disney+ first launched in 2019, Disney committed to a growth-at-all-costs pay out strategy to compete in the streaming wars with big players like Netflix (NFLX), Amazon (AMZN) and Apple (AAPL). But as Disney’s expenses minded increasing to build out the burgeoning service, losses accelerated. In 2021 Disney spent $25 billion to produce individualist content, and the following year expanded its budget to $33 billion. Those investments attracted 235 million queue subscribers as of the company’s fiscal fourth quarter , surpassing Netflix’s 223 million subscribers. But Disney’s average takings per user came in lower than expected in that quarter, at $3.91 each, compared with analyst’s foresees for $4.24 a user. Looking forward, investors “should expect less incremental content with the focus on stressful to deliver product that matters without overserving the customers and driving losses,” Michael Morris, an analyst at Guggenheim Sharers, told CNBC. Disney rival Netflix, which started cutting back its cash spend on programming in 2022 when its subscriber be sure of began to plateau, “sets a precedent” for the industry, Morris said. Netflix spent $16.8 billion in 2022, down inefficiently 5% year-over-year. “In the case of Disney, with a cash content budget in excess of $30 billion, I would judge devise that they would look at that budget and say, how would we get the most out of this rather than growing this?” he summed. Beyond cost discipline, Morris explained, Disney is likely to try to stem losses by growing revenue “through a organization of pricing power and subscriber additions.” Similarly, Macquarie’s Nollen said Disney’s advertising-based subscription tier for Disney+ is “a lever Disney can recuperate to raise revenue.” But layoffs could also be on the horizon. “We’ve seen lots of companies across media and technology amassing off staff recently, so I wouldn’t be surprised if they talked about a workforce reduction,” he said of Disney management. Iger in November signified he didn’t have plans to lift a hiring freeze that had been implemented by his predecessor weeks prior. Analysts and investors intention also be looking on Wednesday for any commentary from management on Disney’s plans to acquire Comcast ‘s (CMCSA) minority interest in Hulu, and whether it may move to spin off ESPN. “It’s an important asset to Disney as a compliment to Disney+” Nollen said of Hulu. “It’s a flourishing streaming service with different genres from Disney and ESPN. It’s a bundle of content that attracts scads subscribers.” Comcast is the parent company of NBCUniversal and CNBC. Meanwhile, Disney’s parks segment — which includes core parks, resorts and cruises, and merchandise — has been a free cash flow driver and accounts for most of the company’s earnings. But investors are involved about softer consumer demand in a slowing economy. “We see indications of a strong but inevitably slowing rate of growth in residential parks attendance,” analysts at Guggenheim Partners wrote in a recent note. The Club take DIS 1Y mountain Disney (DIS) 1-year appearance We’re looking forward to hearing Bob Iger’s remarks during Disney’s earnings webcast on Wednesday, the first since his requital. Iger, who previously served as Disney’s CEO for 15 years before stepping down in 2020, has a solid track record of carting profits at the company. But with the media industry at a critical turning point, he’ll be faced with key questions from analysts and newscasters over how Disney intends to deal with runaway spending, while continuing to invest in content and making the string operation profitable. At the same time, Disney could use an activist investor like Peltz to shake things up on the management and help Iger achieve his goals. “Lots of angry people ask me why I support Nelson Peltz for the Disney board, and I utter a simple answer: What has this board done for its shareholders other than wipe out more shareholder bucks?” Jim Cramer said last month. But if the company delivers on cost cuts and lays out a plausible plan for streaming, the assets weigh up could move higher. After falling more than 40% in 2022, shares of Disney are up more than 25% year-to-date. (Jim Cramer’s Considerate Trust is long DIS, APPL, AMZN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you longing receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade nimble before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after flowing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND Solitariness POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY Report PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.