Disney (NYSE: DIS) is looking at layoffs and a hiring freeze amid a deepening slowdown in the US. It joins the long list of companies including Meta Platforms, Twitter, and Salesforce which have recently announced massive layoffs.
In an internal employee memo, Disney’s CEO Bob Chapek talked about “cost management efforts” and said that he has formed a “cost structure taskforce.” He listed several steps that the company is taking to ensure it stays nimble and achieves the business targets, including Disney+ profitability by the fiscal year 2024.
He listed several steps that the company is taking to cut costs. Firstly, he said, Disney has done a “rigorous review of the company’s content and marketing spending.” Cutting employee costs is the second step that Disney is looking at.
Chapek said, “we are limiting headcount additions through a targeted hiring freeze. Hiring for the small subset of the most critical, business-driving positions will continue, but all other roles are on hold.”
Disney is also looking to cut its SG&A (selling, general, and administrative) costs and among others, it is limiting business travel. Chapek said, “Our transformation is designed to ensure we thrive not just today, but well into the future—and you will hear more from our taskforce in the weeks and months ahead.”
Disney Plans Job Cuts and Hiring Freeze
Disney stock soared yesterday amid the broad-based market rally but is still down almost 42% for the year. Amid sagging stock prices, companies are under pressure to cut costs. Earlier this week, Meta Platforms also announced that it would lay off 11,000 employees which is 13% of its workforce.
Meta Platforms’ CEO Mark Zuckerburg took responsibility for the troubles and said these are “some of the most difficult changes we’ve made in Meta’s history.” Meta Platforms is also facing shareholder ire over the spiraling losses in the metaverse business.
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Like Meta Platforms, Disney stock too plummeted after releasing the earnings for the September quarter.
Disney Missed Fiscal Q4 Earnings Estimates, Stock Slumped
Disney reported revenues of $20.15 billion in the quarter, a YoY rise of 9%. The metric however fell short of the $21.24 billion that analysts were expecting. The DTC (direct-to-consumer) business lost $1.47 billion in the quarter as the streaming business continues to post losses.
Overall, Disney posted an adjusted EPS of 30 in the quarter which was below the 55 cents that analysts were expecting. One bright spot in Disney’s Q4 fiscal 2022 earnings was the growth in streaming subscribers.
Chapek also said that the operating losses at the DTC business have “peaked” and would decline going forward.
He highlighted three factors to back up his assertion. Firstly, he said that Disney+ would benefit from the price hike and the rollout of an ad-supported platform. Notably, next month, Disney would start offering an ad-supported platform in the US at $7.99 per month.
Chapek listed “realignment of our cost, including meaningful rationalization of our marketing spend” as the second factor he believes the losses at DTC operations have peaked.
Analysts Trimmed DIS Stock’s Target Price after Earnings
After the earnings release, several analysts trimmed DIS stock’s target price. Goldman Sachs reiterated Disney stock as a buy but trimmed its target price from $137 to $118. JPMorgan also maintained its overweight rating on DIS stock but lowered the target price by $10 to $135.
Most analysts see Disney stock as a long-term buy. While the company has a strong moat in its Parks segment, the streaming business would eventually contribute to the bottomline. Currently, the streaming business is posting losses, like most other players.
Netflix however is sustainably profitable. Netflix stock has rebounded from its 2022 lows amid optimism over its ad-supported tier.
Coming back to Disney, the job cuts and hiring freeze are reminiscent of the pain that corporate America is feeling amid the economic slowdown. The Fed’s rate hikes have played a spoilsport with the economy even as they have helped lower inflation.
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