When the House of Mouse, aka the Walt Disney Co. (NYSE: DIS), reported quarterly earnings late Wednesday, the company said it was increasing planned spending cuts from $5.5 billion to $7.5 billion. Along with an announced increase of almost 7 million subscribers to its Disney+ streaming service, Disney stock got an after-hours boost of more than 3% that rose to about 4.4% in premarket trading Thursday morning, topping 6% shortly after the opening bell.

Third-quarter numbers

Disney reported fiscal fourth-quarter revenue of $21.24 billion, missing the consensus estimate of $21.37 billion by less than 1%. Revenue rose 5.4% year over year. Earnings per share came in at $0.82, 11 cents better than consensus, up from $0.30 in the fourth quarter of last year.

Revenue from the company’s linear networks (cable, satellite, and broadcast) came in at $2.63 billion, down 9% year over year. Streaming revenue rose 12% to $5.04 billion, and licensing and other revenue dipped by 3% to $1.86 billion.

The company now has 112 paid subscribers to Disney+, including nearly 7 million new subscribers who signed up in the fourth quarter. Subscribers to Hulu rose slightly to 48.5 million. (The most valuable movie franchises of all time.)

Operating income for ESPN rose by 15% to $935 million, while revenue rose by just 1% to $3.78 billion.

The Experiences division (parks and cruises) reported revenue of $8.16 billion, up 13% year over year, and operating income rose 31% to $1.76 billion.

Disney recorded charges totaling $1.02 billion in the quarter.

What Iger had to say

In comments on Disney’s conference call, CEO Robert Iger said the company was focused on four “key building opportunities that will be central to our success.” These are:

• Achieving significant and sustained profitability in the streaming business
• Building ESPN into the preeminent digital sports platform
• Improving the output and economics of the film studios
• Turbocharging growth in the Experiences business

The reported settlement of the actors’ and writers’ strike will contribute to improving the quality of the studio’s output. But the big savings are likely coming from a 90% reduction in the cost of creating animated movies. Industry executive and DreamWorks co-founder, Jeffrey Katzenberg, made that prediction about the impact of AI on moviemaking at a Bloomberg forum on Wednesday. Here’s how he sees it:

I don’t know of an industry that will be more impacted than any aspect of media, entertainment, and creation. In the good old days, you might need 500 artists and years to make a world-class animated movie. I don’t think it will take 10% of that three years from now.

Is that how Iger sees Disney’s animated production? Almost certainly. Those savings may not be priced in yet, but only a fool would ignore them, especially if he were depending on them to regain profitability.

What can investors look forward to

A resumption of dividend payments has to be among the top two things on any Disney investor’s wish list. The company reported free cash flow for the just-completed 2023 fiscal year and is on track to rise to $8 billion in 2024. This is what Disney’s cost-cutting is all about.

The other top thing investors are looking for is a decision on what to do with its ABC linear network. ESPN is going digital, so its future, even if it is sold, is settled. ABC may get to stick around through the 2024 election cycle when advertising revenue is likely to go through the roof. After that, Disney has been closemouthed, except to note that ad revenue continues to decline at ABC and the broadcast TV stations Disney owns.

Shortly after Thursday’s opening bell, Disney stock traded up 6.1% at $89.62 in a 52-week range of $78.73 to $118.18. The average 12-month price target from 32 analysts is $104.17, an implied gain of around 18% from the current stock price.

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