Dan Loeb buys new stake in Disney, lays out key initiatives ‘to unlock further value’

by Eren Rosa
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Dan Loeb is once again bullish on Disney (DIS).

According to a letter the activist investor sent to CEO Bob Chapek, Loeb’s Third Point has repurchased “a significant stake” in the media giant, causing shares to rise 2%.

Loeb, who previously held a stake in the company from 2020 to early 2022, praised Disney’s positive Q3 earnings results, citing strength in Disney’s streaming business.

“We’re particularly pleased to see the strength in DTC subscriber growth, the key driver of Disney’s long-term transformation towards less volatile, ultimately higher margin cashflows with a greater return on invested capital,” the note read.

The activist investor laid out several suggestions for the company “to unlock further value in the near-term.”

One plan includes spinning off its popular sports network ESPN, which “currently generates significant free cash flow.” According to the letter:

ESPN would have greater flexibility to pursue business initiatives that may be more difficult as part of Disney, such as sports betting. Customers of ESPN and sports leagues would be better served by a focused management team driving a leadership position in sports distribution. We believe that most arrangements between the two companies can be replicated contractually, in the way eBay spun PayPal while continuing to utilize the product to process payments.

On the earnings call, Chapek revealed that the company is “still bullish on sports” and is working hard to announce something on sports betting, but investors and analysts have long questioned the future of ESPN+.

“When does Disney go all out with ESPN+? When does it take some of those marquee pieces of content and place them onto ESPN+?” Geetha Ranganathan, Bloomberg Intelligence senior media analyst, posed to Yahoo Finance, citing the platform’s recent 40% price hike.

“Disney indicated that they are ready to do it when the time is right, so the biggest question out there is just timing. When are they going to pull that plug?” she continued.

Other suggestions Loeb laid out in the letter included cutting costs, suspending payment of its cash dividend, refreshing the Disney board, and buying out Comcast’s 33% stake in Hulu prior to the early 2024 contractual deadline.

“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 stated.

Gaining full ownership of Hulu has long been a missing piece for investors, with Loeb pushing the integration sooner than later.

“We believe that it would even be prudent for Disney to pay a modest premium to accelerate the integration…We know this is a priority for you and hope there is a deal to be had before Comcast is contractually obligated to do so in about 18 months.”

Walt Disney Company CEO Bob Chapek attends the Boston College Chief Executives Club luncheon in Boston, Massachusetts, U.S., November 15, 2021. REUTERS/Katherine TaylorWalt Disney Company CEO Bob Chapek attends the Boston College Chief Executives Club luncheon in Boston, Massachusetts, U.S., November 15, 2021. REUTERS/Katherine Taylor

Walt Disney Company CEO Bob Chapek attends the Boston College Chief Executives Club luncheon in Boston, Massachusetts, U.S., November 15, 2021. REUTERS/Katherine Taylor

Disney posted quarterly earnings last week that crushed expectations with Disney+ subscribers jumping 14.4 million.

Despite the beat, Disney did lower its 2024 subscriber guidance. The media giant now sees 215 million to 245 million subscribers by 2024 — down from the prior 230 million to 260 million. The company anticipates 135 million to 165 million “core” Disney+ subs with its Indian brand Disney+ Hotstar‘s subscriber forecast set at 80 million.

Disney+, Hulu and ESPN+ lost a combined $1.1 billion in the third quarter, although the company maintained its goal of reaching streaming profitability by 2024, driven by price hikes across its various streaming services.

Disney’s stock has fallen more than 20% year-to-date.

Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com

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