Disney earnings vibe check: Wall Street upbeat on momentous cost-cutting efforts

In After the Call, Yahoo Finance’s Seana Smith and Brad Smith discuss top takeaways from Disney’s earnings call as CEO Bob Iger announced the company would lay off 7,000 workers, initiate $5.5 billion in cost savings, and restructure the business. Disney stock jumped after hours on news of the cost-cutting efforts, narrowing streaming losses, and strong park demand.

Video transcript

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BRAD SMITH: "After the Call" on Yahoo Finance starts right now. Brad Smith here alongside the pro you know, the illustrious Seana Smith. And Seana, we just got off the Disney earnings call. We've been tracking shares in after-hours trading of Disney throughout the call, which has had no shortage of information fireworks. Here was one of those big moments that we have to play for our viewers that had the stock jumping.

BOB IGER: In general, the savings will come from reductions in SG&A and other operating costs across the company. To help achieve this, we will be reducing our workforce by approximately 7,000 jobs. While this is necessary to address the challenges we're facing today, I do not make this decision lightly.

BRAD SMITH: OK, so our viewers heard there-- and my goodness, Seana, on the call, we heard serious business Bob. There is no easy way to go out on an earnings call and announce a massive restructuring, slash headcount by 7,000, and allude to the very asks that we had heard from one activist investor in Nelson Peltz. You got all of that in this earnings call, Seana.

SEANA SMITH: You do, and I think that the Street is very happy with what they heard from CEO Bob Iger. You can see that in the after-hours action here with the stock. But when you take into account some of the changes that were announced, the reorganization structure, the fact that it's going to be broken down into three different divisions-- we've got entertainment, parks, ESPN-- I think that brings up the question about what exactly Disney is going to look like not today, not tomorrow, but really, three to five, 10 years from now because we know one of their core business is streaming, linear TV obviously huge here.

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--company, that landscape is significantly changing, has significantly changed. Iger talked about that a couple of times on this earnings call, saying streaming is important for the future. This is how we are adjusting. And at least from the initial reaction right now, the Street is very happy with Iger's first return on the earnings call.

BRAD SMITH: Yeah, that's right. We had taken a look at shares here. We've got this pulled up on our Yahoo Finance, the YFi Interactive. And just for kind of a metric or at least a level check here, we had seen shares immediately after the report before the call, they were up by about 2%, a little bit more than that.

They were as high as 8%, 8% higher in a move once the earnings call began and once they got to that pivotal moment where they began laying out what that restructuring would look like, some of the cost cutting measures, what the pathway to profitability for Disney+ by the end of 2024 would look like, and then even the reinstatement of the dividend by the end of the calendar year as well.

So all of these factors considered, you saw a move in an extreme reaction to everything that we heard here. And I know there was another clip that you had flagged as well for our team that we wanted to give to our viewers, too.

SEANA SMITH: Yeah, there certainly is, Brad. When we're talking about streaming, the future there, we heard a couple of comments from, obviously, Bob Iger, but also from CFO Christine McCarthy. And she was talking about what they are seeing now from Disney+, also what she expects to see from the ad tier division. So let's take a listen to that.

CHRISTINE MCCARTHY: The Disney+ domestic price increase has been playing out as expected with only modestly higher churn, which may also negatively impact the fiscal second quarter, given the timing of the December price increase. That impact, in addition to slower than previously expected growth in some international markets, suggests core Disney+ subs may grow only modestly in Q2.

SEANA SMITH: That modest growth there, I think that's one thing that maybe the Street wasn't initially too pleased with. We saw some of the after-hours gains pull back just a bit after we got a little bit more clarity, a little bit more information when it comes to their Disney+ division and the growth that we may or may not see over the next couple of quarters. It is interesting to know and I want to point out just some of the losses that we are expected to see.

Disney saying that they do expect DTC losses to improve by about $200 million in that second quarter. And when you take a look at the Disney subscriber numbers for the last quarter that we just got, it was the first drop that we've seen in Disney+ subscribers here, dropping by about 2.4 million. So this is a concern for the company. They're saying that the ad tier, that growth there might not happen until the end of the year. But certainly, I think that was one thing that maybe the Street wasn't too excited about in this earnings call.

BRAD SMITH: All right, we've got to get to our vibe checks here. And Seana, I want to know what vibe you're giving this call after listening to this. I mean, this is exactly what we ask for in an earnings call. We ask for the fireworks like this, the transparency. But I got to know what your take on it is.

SEANA SMITH: It is exactly what we asked for. This was a much more exciting earnings call than you can really compare to most of the ones that have taken place. We've had 70% of the S&P already reporting. And this was one of the most exciting, if not the most exciting, so far this earnings season. But my vibe is it's good. It's really, really good for Disney, for investors, for shareholders. Obviously, not good for some employees of the company the fact that they are cutting 7,000 jobs.

But they did need to pivot. They did need to adjust. They did need to change their strategy going forward. Like you said, this is exactly what the Street wanted to hear. And we're seeing that reflected in the stock after-hours and I think also, just in terms of the next couple of quarters, as they do adjust their business, thumbs up from me. What about you?

BRAD SMITH: I'm in the same camp as you, honestly. And this is one of the best grades that I've given to an earnings call thus far and after the call. And I'll lay out the reasons why, but I essentially gave this a good rating. If we're going by numbers, I gave it an 8 out of 10. But here's why. This was an incredibly tough task.

And Bob Iger started off the call basically saying not just the rest of the executive team, but to the Street and investors that, look, my trade-- my track record for transformation, it speaks for itself. He ran through all of the big deals that he's made in the past. Of course, the transformations that they've had to lead companies through, previous recessions-- that's where you started to get the inkling that they were really going to deliver some material changes that can change the course of how some of the investors evaluate this business, but also how they intend to improve margin and returns.

Also, increasing accountability, increasing that accountability across this new reporting structure, something that's extremely critical to the business here in order to hit some of those profitability goals. And ultimately, they are reassessing all markets. They even acknowledge that they may have gotten the pricing strategy wrong on the streaming side of the business, too, which I think was a huge acknowledgment here.

So I gave it an 8 out of 10. It was transparency. It was ripping the Band-Aid off. And as tough as it is to hear about some of the layoffs that we've continued to hear about over the course of earnings, let's also remember that for this company, we had seen them add on to that figure year over year. And so now this is kind of a resetting or normalization versus I believe the 2020 level of where that headcount was at. So that's something to kind of keep in context here, too, but for a business, that's vastly different from when Bob Iger left it. But we'll see how his reset starts to take place over there at Disney.