Disney to invest $1.5B in collab with Cary-based Epic Games
Bob Iger has insisted for months that his turnaround plan for Disney was working. But distinct proof has largely been elusive, and investors, as evidenced by the company’s underperforming stock price and multiple proxy campaigns by activists for board seats, have been hesitant to buy in.
On Wednesday, Iger delivered proof.
Disney’s per-share earnings for the most recent quarter totaled $1.22, or 23% more than Wall Street had expected. Breaking from a long practice of not providing guidance about profit, Disney said per-share earnings for its full fiscal year would increase by at least 20% compared with 2023, in part because of record highs in revenue, profit and operating margins at its theme parks.
Iger, Disney’s CEO, announced a $3 billion stock buyback plan, the company’s first since 2018, and a cash dividend of 45 cents a share, a 50% increase compared with the previous dividend, which was paid in January.
He also announced a $1.5 billion investment in Epic Games, the Fortnite maker based in Cary.
According to a Disney announcement, Epic's Unreal Engine will power "an all-new games and entertainment universe" where players and gamers can interact with characters from Disney-owned intellectual properties like Marvel, Star Wars and more.
"This marks Disney’s biggest entry ever into the world of games and offers significant opportunities for growth and expansion. We can’t wait for fans to experience the Disney stories and worlds they love in groundbreaking new ways.” Iger said.
Disney’s streaming service had been expected to lose $400 million in the quarter. Instead, losses were trimmed to $138 million, as Iger reiterated that streaming would be profitable by the fall. Disney+ subscribers dipped 1.3 million in the quarter, as expected given a monthly price increase. But Disney said the service was on track to add at least 5.5 million subscribers in the current quarter.
Some investors have been worried about Disney’s ability to generate free cash flow, a closely followed measure of financial health, at a time when its television business has been undercut by streaming services. Disney, however, said it was on track to deliver $8 billion in free cash flow this year, nearing prepandemic levels.
“Just one year ago, we outlined an ambitious plan to return the Walt Disney Co. to a period of sustained growth and shareholder value creation,” Iger said in a statement. “Our strong performance this past quarter demonstrates we have turned the corner.”
The results come amid severe pressure on Disney from activist investors, including Trian Fund Management, which is seeking multiple board seats as it pushes for streaming profitability and a clear plan for CEO succession, something that has bedeviled Disney. Trian, founded by Nelson Peltz, has cited Disney’s depressed stock price as its motivation, along with poor results at the box office for Marvel, Lucasfilm and Disney Animation movies.
Disney sees a revenge story: Peltz is aligned with Ike Perlmutter, who was ousted from an executive job at Disney, and Jay Rasulo, a former Disney executive who was passed over for CEO in 2015 and resigned. Disney has asked shareholders to reject Trian and another activist investor, Blackwells Capital, arguing that giving them board seats would slow the company’s turnaround effort. (Peltz waged an unsuccessful campaign for a Disney shake-up last year.)
This article originally appeared in The New York Times.
