Walt Disney Co. (NYSE: DIS) cannot get rid of Nelson Peltz, the famous raider. He tried to get a board seat earlier this year and was rebuffed. Year to date, shares are down 4%, while the S&P 500 is up 12%. This time, his new effort may well work, and Disney may be in danger.
According to The Wall Street Journal, Peltz has bought $2.5 billion of shares.
Why Is Disney in Trouble?
What went wrong at Disney? The first answer is Bob Iger, who returned as CEO after two years of “retirement.” When Iger created the streaming service Disney+ in November 2019, he priced it too low to get market share. Subscribers surged to over 160 million, but Disney lost billions of dollars along the way. (These are America’s most hated companies.)
Second, there is anecdotal evidence that there is trouble at Disney’s huge theme parks, especially those in the United States. Customers claim they are too expensive and too crowded. If Disney loses a portion of its margins at these, Disney has another big problem to solve.
And third, Disney owned what is often called “legacy media.” In this case, the largest pieces are ABC and ESPN. Part of this is the financial support of advertising. Another part is cable fees. Both of these face eroding revenue.
Iger believes that Disney should have sold or downsized some of its divisions. It has discussed finding partners/owners for ESPN and a sale of ABC. Both initiatives are in the earlier stages, and the effort may be too slow.
What Comes Next?
No matter what else happens to Disney+, it will likely drag on earnings. It has too much competition that ranges from Apple to Netflix to Amazon. People will only pay for so many streaming services. Disney+ may be stuck in the second tier of these based on consumer demand.
Disney is in danger, but if Peltz can break Disney apart, investors will be better off.
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