Shares of The Walt Disney Co. (NYSE: DIS) jumped about 4% yesterday after hedge fund Third Point LLC disclosed a new stake in the entertainment giant. As per a WSJ report, Daniel Loeb-led Third Point now has a close to 1% stake in DIS stock valued roughly at $1 billion.
Previously, Third Point held 4.1 million shares of Disney, which it offloaded earlier this year. At that time, the activist hedge fund investor thought it would be difficult for the streaming giant to bolster its subscriber base amid growing macroeconomic concerns. But Loeb seems to have regained trust in the stock. The fact that Disney reported solid third-quarter results and grew its subscriber base significantly definitely helps Disney’s case.
Third Point Wants Disney to Spin-off ESPN
In a letter to Disney CEO Bob Chapek, Loeb wrote that it would be in the best interest of the company to spin off its sports network ESPN. The segment generates huge cash flows for Disney, and Loeb suggests that Disney could have a contractual agreement with ESPN even post the spin-off.
Loeb added, “ESPN would have greater flexibility to pursue business initiatives that may be more difficult as part of Disney, such as sports betting.” Starting August 23, ESPN and ESPN2 will charge $9.99 per month for a subscription, and Disney includes ESPN streaming in its most popular cable packages. As per the latest filing, ESPN+ has 22.8 million subscribers, representing a whopping 53% growth compared to the same period last year.
Third Point Pushes Disney to Buy Hulu from Comcast
Secondly, Loeb suggests that Disney should complete its remaining buyout of streaming service Hulu from Comcast Corp. (CMCSA). In 2019, Disney and Comcast agreed to buy a one-third stake in Hulu for $9 billion. Since then, both companies have been at loggerheads over the value of Hulu.
Moreover, Comcast has also started altering some of its content-sharing agreements with Disney. Some of the content which would be aired on Hulu post its airing on NBC and NBC-owned cable channels is discontinued. Instead, it now goes to Peacock, NBCU’s streaming service.
According to Third Point, it is imperative that Disney buy the remaining minority stake in Hulu as the latter boasts a strong content slate and loyal viewership. As per Disney’s third quarter filing, Hulu has 46.2 million subscribers (8% year-over-year growth).
Regarding Disney’s buyout of Hulu, Loeb added, “We believe that it would even be prudent for Disney to pay a modest premium to accelerate the integration but are cognizant that the seller may have an unreasonable price expectation at this time.”
Third Point Wants to Refurbish Disney’s Board
Third Point has compiled a list of new Board candidates for Disney. Loeb urges Disney to refurbish its Board of Directors to include experts from digital advertising and consumer data businesses. Moreover, Loeb also suggests Disney undertake company-wide cost-cutting initiatives and continue with its cash dividend suspension strategy.
In response to Third Point’s suggestions, Disney replied “We welcome the views of all our investors.” Further, it added that the company’s board is continuously refreshed “with an average tenure of four years.”
What is a Good Price for Disney Stock?
Disney stock is currently trading almost 51% below its 52-week high of $187.58. Thus, implying that the stock is relatively cheap at current levels.
On TipRanks, DIS stock commands a Strong Buy consensus rating based on 17 Buys and four Holds. The average Walt Disney price target of $138.80 implies 11.7% upside potential to current levels. Meanwhile, the stock has lost 20.7% so far this year.
Is Disney a Good Stock to Buy?
As per Disney’s latest results, its total subscriber base of 221.1 million has surpassed rival Netflix’s (NFLX) subscriber count of 220.67 million. This signals that the company’s viewership is increasing despite the current macroeconomic headwinds. Moreover, Third Point’s reinvestment in Disney shows that “The House of Mouse” company is up for some serious growth potential in the future.
Plus, as per TipRanks Smart Score, Disney scores an eight, meaning that the stock is likely to outperform expectations. Bloggers are bullish on the stock, and retail investors have increased their exposure to DIS stock by 2% in the last 30 days.