Disney Chief Executive Officer Bob Iger participated in a question-and-answer session at the Morgan Stanley Technology, Media and Telecom Conference on Tuesday.
The wide-ranging interview touched on multiple topics from across the enterprise, allowing Iger to reinforce that the significant fixing the company underwent following his return as CEO has set the stage for Disney to enter a new era of building to achieve strategic growth in its businesses.
Throughout the conversation, one theme was clear: Iger’s optimism and confidence regarding the company’s positioning for the future. “I feel the momentum,” Iger said.
Iger also used the forum to provide financial guidance, specifically concerning the performance of Disney’s domestic and international Parks & Experiences businesses in the second fiscal quarter, noting, “Trends for the quarter that we’re in right now look like our domestic and our international Parks & Experiences business will probably deliver in the neighborhood of low to mid-teens in terms of [operating income][1] growth [year over year], so great trajectory.”
In addition, with respect to free cash flow,[2] Iger stated “We gave guidance about cash flow generation in fiscal 2024 in our last earnings call.” “We’re actually right now trending to exceed that guidance.”
After Fixing, Building for Growth
Throughout the conversation, Iger touched on his four key building priorities for Disney: achieving significant and sustained profitability in streaming over the long term; building ESPN into the preeminent digital sports platform; improving the output and economics of Disney’s film studios; and turbocharging growth in Disney’s Experiences businesses.
“And when I talk about building, I’m not just talking about building things bigger. I’m talking about growing the company—turning building into real growth. What I mean by that is growth in our organic businesses, looking for growth outside of those businesses, other opportunities—and, of course, growing the capital that we return to shareholders in the form of dividends or stock buybacks.”
Iger also noted that Disney’s strong balance sheet and Disney’s “wherewithal to invest in our businesses to create growth” are all reasons to be optimistic about Disney’s future.
“When I talk about growth, it’s growing ESPN into a digital platform. It’s growing streaming as a business. It’s growing the studio again into great generation of IP and… growing Parks and Resorts beyond where it already is,” Iger continued.
Streaming as a Growth Business
In terms of the future of Disney’s streaming business, Iger spoke about the timeline for achieving profitability and the expectation that streaming will ultimately become a growth business for the company.
“We are on a path to profitability,” Iger said. “I think the results these last two quarters clearly demonstrate that. We’re extremely confident we’re going to get there by the fourth fiscal quarter of this year.”
But it’s “not just about profitability,” added Iger. “I believe that with all of the things that we’ve just discussed, all the steps that we’re taking, it will become a real growth business for us.”
Iger praised the leadership of Alan Bergman and Dana Walden, Co-Chairmen of Disney Entertainment, for their successful management of Disney’s entertainment streaming operations.
Disney expects that making Hulu content available on Disney+ for bundle subscribers will generate positive outcomes for the business, including higher engagement, lower churn, and greater opportunities for advertisers.
“In putting basically Hulu into a Disney+ app experience—which we launched in beta in December and comes out of beta at the end of the month—we are not only increasing the volume of content that we have on the platform, but with that comes significantly more engagement,” he said. “And in bundling Hulu with Disney+, we’re finding wherever we bundle, churn rates are down significantly, so that’s a path to profitability.”
Positioning ESPN for the Future
Turning to ESPN, Iger noted the benefits of being in the sports media business and the tremendous strength of ESPN—both as a trusted sports brand and in terms of its offerings.
“If you look at ESPN’s menu of sports today, it’s about right in terms of what we feel we need to continue to basically grow the business, but also to make the transition to a digital platform,” Iger said.
Even amidst a backdrop of overall declines in the linear television landscape, Iger highlighted that ESPN has shown continued strength as a network and said that Disney will continue to “take advantage of linear in terms of the revenue and the profits that it generates,” while at the same time making the transition to streaming.
“What we’re trying to do is be very, very pro-consumer… and that basically means making ESPN available in multiple ways so the consumer can enjoy the sports they want to watch,” he said. “The joint venture that we created with Fox and Warner Bros. Discovery is an example of that.”
Iger also touted the company’s plans to launch a stand-alone product that features ESPN’s flagship channels as a streaming offering alongside innovative digital integrations and functionality, including sports betting.
“Ultimately, way down the road, ESPN will be a full digital platform,” he said.
Energizing Creativity in Disney’s Film Studios
Foundational to Disney’s success are the company’s film studios, which create the stories and characters that are leveraged in numerous ways across the enterprise. Iger touted the company’s longstanding history of creative excellence, pointing to the fact that Disney led the worldwide box office for seven of the past eight years.
He also spoke about the significant time and energy he has devoted to strengthening the output and the economics of the studios once again, pointing a renewed focus on quality over quantity.
“You have to look at everything you’re making that you do believe in and you have to take a position that good is not good enough,” he said. “You have to basically strive for perfection.” Iger went on to say, “You have to put into the pipeline things you really do believe in.”
Speaking of things in the pipeline, the company has an exciting slate of upcoming box office releases this year, including 20th Century Studios’ Kingdom of the Planet of the Apes, Disney and Pixar’s Inside Out 2, Marvel Studios’ Deadpool and Wolverine, Disney Animation Studios’ Moana 2, and Walt Disney Pictures’ Mufasa: The Lion King.
Meanwhile, Iger also spoke to the positive impact that the company’s recent transformation is having on the film studios overall. “We did make some management changes at the studio. I feel good about those. We’re also managing our costs more aggressively,” he said. “Most importantly in all of this discussion is focus. And that’s not just focus of management, it’s focus of your creative team.”
He added, “I feel that we will return the studio to not only excellence creatively but excellence in terms of the bottom line,” noting, “The impact of that on our streaming globally is also significant.”
Turbocharging Experiences
In terms of the big opportunities for expanding Disney’s Experiences business, Iger pointed to the company’s plan to turbocharge growth with a roughly $60 billion investment over the next decade in expanding its domestic and international parks and Disney Cruise Line.
Iger noted the businesses’ strong track record and said, “We have thousands of acres of land still to develop. We could actually build seven new full lands if we wanted to around the world, including the ability to increase the size of Disneyland in California—which everybody thinks is kind of landlocked—by 50%. So, you look at the returns and where you’re going to place your bets in terms of capital to deliver value to shareholders.”
On Disney’s vast library of stories and characters that have yet to be meaningfully brought to life in its Parks, Iger noted that Disney has “so much IP to mine that there’s opportunity there to create experiences that we know people would love to have in our parks.”
Iger referenced the excitement about plans to develop an Avatar experience at Disneyland in California and acknowledged the prospect of other properties where the franchise might also be successful, noting the popularity of Pandora – The World of Avatar at Walt Disney World in Florida. Iger said that if you “build it right, build it with excellence,” guests will come.
“We opened up the Zootopia land [in Shanghai], which… is one of the most successful animated films we’ve ever released in China, and it’s phenomenal there. And success in terms of visitation is tremendous,” he said.
There’s also Disney’s investment in digital experiences such as the newly announced collaboration with Epic Games to create an all-new games and entertainment universe within Fortnite that will further expand the reach of beloved Disney stories.
“We were really impressed with what Epic had been able to accomplish with Fortnite,” Iger said. “This will be a deep, rich, fully immersive, engaging experience for consumers… And I think not only does it speak to how young consumers are spending their time, but it speaks to basically how much more we can leverage our IP in a completely different medium.”
Confidence in Disney’s Future
Looking to the future, Iger voiced strong confidence grounded in the progress the company has made over the past year.
“It’s important when you lead any organization, you need to be an optimist,” Iger said. “But I also think it’s important that optimism is based on fact or reality. And I think I’ve cited a number of reasons why I should be optimistic. So, I am very optimistic.”
He went on to talk about the strength of the company’s leadership, noting, “We have great people running our four key businesses and we’ve strengthened our executive team significantly.”
When asked about activist investors, Iger said, “This discussion I think demonstrates or illustrates that this is a very complex company to run. There are many moving parts. There are different markets. There are different industries that we’re in—cruise ships and streaming and movies and TV and theme parks and you name it. There are different dynamics.”
He went on to say of the industry, “It’s one that takes not only a significant amount of knowledge, but a tremendous amount of time and focus. And I’m not talking about just me, I’m talking about me and the entire senior management team of the company. We’re at this hard every day. And when you go from fixing—which was significant and heavy lifting—to building, to really creating meaningful growth for our shareholders, the only way you achieve that is by focus.”
Iger also noted, “I am working really hard to not let [activist investors] distract me because when I get distracted, everybody who works for me is distracted, and that’s not a good thing.”
At the conclusion of the event, Iger reinforced his confidence and optimism in the state of the company, even amidst a period of significant industry disruption.
“We’re in a business that is serving a global population in a very important and a very valuable way,” he said. “I don’t get daunted by disruption. I believe the best way to contend with disruption is to embrace it [and] actually become a disruptor.”
[1] “Domestic and International Parks & Experiences operating income” is a non-GAAP financial measure. The most comparable GAAP measure is Experiences segment operating income. See the discussion below under “Non-GAAP Financial Measures” for additional information concerning these measures.
[2] “Free cash flow” is a non-GAAP financial measure. The most comparable GAAP measure is cash provided by operations. See the discussion below under “Non-GAAP Financial Measures” for additional information concerning these measures.
Non-GAAP Financial Measures
Free Cash Flow
“Free cash flow” is a non-GAAP measure and is calculated as cash provided by operations less investments in parks, resorts and other property. Cash provided by operations, which is the most directly comparable GAAP measure, for the full fiscal year is currently trending slightly higher than our expectations at the time Disney provided its free cash flow guide in its first quarter fiscal 2024 earnings release. Quantitative reconciliation of estimated measures of forward-looking free cash flow to cash provided by operations for the fiscal year 2024 is provided below.
The following table reconciles cash provided by operations to free cash flow:
| ($ in billions) | FY2024E |
| Cash provided by operations | ~$14 |
| (-) Investments in parks, resorts and other property | (~6) |
| Free cash flow | ~$8 |
Domestic and International Parks & Experiences Operating Income
“Domestic and International Parks & Experiences operating income” is a non-GAAP financial measure and is calculated as Experiences segment operating income less Consumer Products operating income. Disney estimates year over year growth in Experiences segment operating income, which is the most directly comparable GAAP measure, in the second fiscal quarter fiscal 2024 to be approximately in the low teens. Disney is unable to provide without unreasonable efforts a quantitative reconciliation for forward-looking Domestic and International Parks & Experiences operating income to that most directly comparable GAAP measure because Disney is unable to predict information which is in certain cases out of Disney’s control and could have a potentially significant impact on future GAAP and non-GAAP financial results.
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