You have to go back 12 months -- to Feb. 9, 2023 -- to find the last time Walt Disney (DIS -0.04%) shares traded as high as they are right now. A blowout fiscal first quarter on Wednesday afternoon got the stock moving, but as with any entertainment production, there were a lot of helping hands to put on a great show.
Disney has been a tough stock to defend in recent years. The shares have lost to the market for three consecutive years. It would have to nearly double from here to take out its all-time high set in early 2021. Hitting a fresh 52-week high on Thursday is still important. Let's go over many of the reasons for its overdue breakout.
The past is pretty encouraging
Let's start with the rearview mirror. It wasn't a perfect quarter for Disney, but a few things did go well for the media giant during the critical holiday quarter.
- Revenue growth was flat from the prior-year quarter, and in line with expectations. The news was better on the other end of the include statement, as adjusted earnings per share rose 23% to $1.22. Analysts were holding out for flat results on both ends.
- A big reason for the bottom-line beat was that the operating loss for its direct-to-consumer segment, helmed by Disney+, contracted from $984 million to $138 million. Disney is well on its way to seeing its streaming business turn profitable by the end of this fiscal year.
- Price increases for the streaming services are working. Domestic Disney+ subscribers dipped 1% sequentially, but that was more than offset by a 9% increase in average monthly revenue per paid account.
- Streaming bundles are also helping. Streaming revenue has risen 15% over the past year.
- ESPN posted an operating profit, reversing a year-ago loss.
- Disney's theme parks, experiences, and consumer products segment came through with a 7% increase in revenue despite another year-over-year decline at Disney World, given the rough comparisons with the resort's 50th-anniversary celebration last year. The segment's operating income rose even faster. Cruise ships and international theme parks saved the day.
Image source: Disney.
Things are about to get even better
The fiscal fourth quarter was decent. The real catalysts pushing the stock higher came largely from many of the announcements that Disney made during its earnings release and subsequent earnings call.
- Disney announced 11 months ago that it was looking to realize $5.5 billion in annualized cost savings by the end of fiscal 2024. The goal was bumped to $7.5 billion in November. It's now on track to "meet or exceed" that $7.5 billion target.
- A $1.5 billion investment in Fortnite developer Epic Games is promising. Fortnite is experiencing a resurgence in popularity, and Disney plans to build out a games and entertainment universe within the online video game. With an estimated 85% of its players younger than 35, this is a great way for Disney to reach young audiences who don't consume traditional marketing missives.
- Disney's board hasn't authorized a buyback since 2018, even with the shares being cut nearly in half since its early 2021 peak. It finally announced plans for up to $3 billion in share repurchases.
- Disney just resumed paying its semiannual dividend, and last week it boosted its next payment by 50%. The stock's still yielding less than 1%, but along with the buyback it's a way to return more money to its shareholdders.
- After a rough year at the multiplex, Disney is tapping iconic franchises for better chances at box-office success. Fresh films for the Deadpool, Inside Out, Planet of the Apes, and Alien franchises have been slated by the end of fiscal 2024. Mufasa: The Lion King is coming in December, technically Disney's fiscal first quarter of 2025. Last week, Disney announced a Moana sequel for November.
- Disney has rarely offered profit guidance, but last week it pulled back the curtain to say that adjusted earnings per share in fiscal 2024 should climb at least 20% to $4.60. Wall Street's consensus was at just $4.27 a share at the time.
It's huge that this media stock hit a new high on its own strengths. It will make it that much harder for activists to win board seats at Disney's annual shareholder meeting in early April. It also gives Disney investors a long overdue victory lap. This is starting to look like the end of a long losing streak.
