For Disney, ESPN's next play not so easy
CEO Bob Iger has set the stage for a slimmer Disney
What does the future hold for Disney and ESPN's financials?
Barron's deputy editor Ben Levisohn, markets reporter Jacob Sonenshine and reporter Carleton English discuss growing intrigue ahead of Disney's earnings next week and Meta's growing market share on 'Barron's Roundtable.'
Disney CEO Bob Iger may give more insight Wednesday on what he's thinking for the media giant's lucrative television properties, specifically ESPN, after hinting they may not be "core to Disney" earlier this year.
"While we are open to considering a variety of strategic options for our linear businesses, at this time The Walt Disney Company has made no decision with respect to the divestiture of ABC or any other property and any report to that effect is unfounded," the company said in a September statement. This came after Iger's original comments during an interview with CNBC in July.
Regarding sports giant ESPN, Bank of America analyst Jessica Reif Cohen weighed in, ahead of Disney's quarterly results.
Disney Executive Chairman Bob Iger attends the exclusive 100-minute sneak peek of Peter Jackson's "The Beatles: Get Back" at El Capitan Theatre in Hollywood, California, on Nov. 18, 2021. (Charley Gallay/Getty Images for Disney / Getty Images)
"ESPN standalone financials show a company fighting to stay in its place, given a backdrop of declining linear subs and higher sports costs," said Reif Cohen in a recent research note. "While we believe a potential transaction would be positive for DIS, and ESPN remains a premiere sports asset, the benefit to prospective buyers appears nebulous," she noted.
From left: Desmond Howard, Rece Davis, Lee Corso and Kirk Herbstreit appear on the set of College GameDay Built by the Home Depot on Sept. 11, 2021. (Allen Kee / ESPN Images)
A potential, minority strategic investor could be in the cards for ESPN, which has an estimated enterprise value of $24 billion, per Reif Cohen.
"If DIS intends to retain a 51% majority stake, given Hearst's current 20% stake, this implies an ESPN sale of up to a ~36% equity stake across a single or several different buyers (diluting Hearst's stake down to ~13%). We note this represents one potential structure out of several possible combinations," she outlined.
Through the end of fiscal 2022, ESPN earned $16 billion in revenue and $2.9 billion in profits, according to an October SEC filing that provided a deeper look at the company's financials.
A view of the ESPN logo on a camera after the game between the Baltimore Orioles and the New York Yankees at Oriole Park at Camden Yards in Baltimore on July 30, 2023. (G Fiume/Getty Images / Getty Images)
DISNEY FACING ACTIVIST INVESTOR NELSON PELTZ AGAIN
The field is wide open for potential partners, according to Reif Cohen.
"In our view, these buyers could be comprised of three different groups including: 1) the major sports leagues (e.g. NBA/NFL), 2) technology partners (e.g. Amazon/Apple/Google) and 3) distribution partners (e.g. Comcast/Verizon)," she detailed.
Inquiries to Disney were not immediately returned.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| AMZN | AMAZON.COM INC. | 202.88 | -1.73 | -0.85% |
| AAPL | APPLE INC. | 229.00 | +0.72 | +0.32% |
| GOOGL | ALPHABET INC. | 175.98 | -2.14 | -1.20% |
| CMSCA | NO DATA AVAILABLE | - | - | - |
| VZ | VERIZON COMMUNICATIONS INC. | 42.22 | +0.30 | +0.72% |
DISNEY TO BUY REMAINING HULU STAKE FROM COMCAST
Disney is expected to report a sharp jump in profits with earnings of $0.70 per share vs. $0.30 during the same period a year ago. Revenue is expected to rise 6% to $21.35, according to Refinitiv estimates.
Investors will be listening to Iger for updates not only on ESPN and other TV properties, but also on theme park attendance and its film business, including Marvel and Hulu. Disney recently confirmed it will buy the remaining stake in Hulu from Comcast in a deal worth about $8 billion.
Additionally, activist Nelson Peltz is reportedly seeking more board seats at Disney, according to The Wall Street Journal.
Nelson Peltz, founder and CEO of Trian Fund Management. (Marco Bello/Bloomberg via Getty Images / Getty Images)
NELSON PELTZ TO SEEK MORE DISNEY BOARD SEATS
Disney shares have slipped 3% this year, compared to the S&P 500's 14% rise.
Disney
Disney announced Monday that it hired PepsiCo executive Hugh Johnston to replace Christine McCarthy as chief financial officer. McCarthy stepped down earlier this year. Johnston will take over on Dec. 4.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| PEP | PEPSICO INC. | 158.74 | +2.02 | +1.29% |