Feb 7, 2024 - Business

Disney shares spike on higher guidance, Epic Games partnership

The "Partners" statue of Walt Disney and Mickey Mouse, at Cinderella Castle at the Magic Kingdom, at Walt Disney World, in Lake Buena Vista, Florida, photographed Saturday, June 3, 2023.

The Magic Kingdom, at Walt Disney World, in Lake Buena Vista, Florida, in 2023. Photo: Joe Burbank/Orlando Sentinel via Getty Images

Shares in Disney spiked more than 7% in post-close trading after lifting its fiscal year 2024 earnings guidance and announcing a strategic partnership with Epic Games that will supercharge its foray into gaming.

Why it matters: Disney is under enormous pressure to prove to investors that its strategy is working.

  • Wednesday's results are the last public disclosure of the company's performance before a critical shareholder vote that will dictate the future of Disney's board and strategy.
  • The company is currently facing messy proxy battles with several activist investors, namely activist hedge fund Trian Partners and its co-founder Nelson Peltz, who wants a seat on Disney's board.
  • "The last thing that we need right now is to be distracted in terms of our time and our energy by an activist or activists that, frankly, have a completely different agenda, and don't understand our company as assets, even the essence of the Disney brand," CEO Bob Iger told CNBC in an interview.

Details: The company said it now expects earnings for the 2024 fiscal year to come in at $4.60 per share, up 20% from last year.

  • It confirmed that it's on target to achieve or even surpass its previously announced target of $7.5 billion in synergies through various cost-cutting measures, which included sweeping layoffs last year.

The new partnership includes a $1.5 billion equity stake in Epic, Iger said. The two companies will work together to build new intellectual property.

  • The deal "is primarily driven by the fact that we think we can turn this into a good solid business in terms of the bottom line," he added.

Between the lines: Disney is doing more to prove to investors that it can be disciplined around costs and boost profits.

Be smart: Disney is pushing to prove to investors that its streaming bets will pay off.

  • The company reaffirmed Wednesday that it expects its streaming division to become profitable by the fourth quarter of this year.
  • Last quarter, Disney's direct-to-consumer unit lost $138 million, down from a loss of $347 million the prior quarter and $1.05 billion during the same quarter the year prior.
  • Eventually, the company said, it expects its streaming division to "be a key earnings growth driver for the Company."

The big picture: Investors are anxiously awaiting new details around Disney's broader strategic vision.

  • Ahead of earnings on Tuesday, Disney's ESPN announced a joint venture with Fox Corp. and Warner Bros. Discovery to create a new subscription streaming service that will include all of their combined linear sports TV content.
  • Iger said those changes, as well as Disney's acquisition of the remainder of Hulu last year, "are preparing for us to pivot as well as the world changes as the world is disrupted."

What to watch: Asked by CNBC for any updated guidance on Iger's succession plan, the chief executive said, "It is the board's number one priority. I'm confident we're going to find the successor to me in due time and the right time."

Go deeper: Disney earnings from the past year:

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