Disney’s Streaming Success Attracts Investment From This Major Hedge Fund

Ryan Troup August 16, 2022Last Updated: August 18, 2022

0 3 minutes read

COVID-19 Has Taken a Toll on Disney and its Stock

With the pandemic shuttering theme parks and movie theatres, Disney was deprived of its primary revenue generators, but the situation appears to be quickly changing, with the company recently attracting the attention of this large hedge fund.

While most of the Walt Disney Company (NYSE: DIS) parks are now open and movie theatres are again showing films, the success of their streaming services, Disney+ and ESPN+, has drawn the most attention in the last few years.

Chock-full of hit franchises like Star Wars and the Marvel Cinematic Universe, Disney+ has quickly become one of the most popular streaming services in the U.S. Meanwhile, ESPN+ has become the go-to for sports enthusiasts. The sports streamer hosts a wide variety of live sports and sports-related programming, including being the exclusive home for major brands like the UFC.

Disney’s success in the so-called streaming wars has drawn the attention of significant investors worldwide, including Daniel Loeb. Loeb heads up Third Point, a hedge fund with nearly $15 billion in assets under management. Third Point focuses on value investing and event-driven decision-making.

The fall in Disney’s stock price (-53% at its low) has caused it to enter value stock territory. Coupled with significant positive events (higher than expected subscriber growth, well-received programming, etc.), the valuation of Disney made it an opportunity that Third Point could not pass up.

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After investing $1 billion in Disney, Loeb sent the Disney CEO a letter expressing his desire to see ESPN spun off into its own company. Loeb believes ESPN would be more able to utilize its significant free cash flows to grow its business organically if it did not have to funnel that cash up to Disney.

In the letter, Loeb stated:

“ESPN would have greater flexibility to pursue business initiatives that may be more difficult as part of Disney, such as sports betting…We believe that most arrangements between the two companies can be replicated contractually, in the way eBay spun PayPal while continuing to utilize the product to process payments.”

Free cash flow is vital to companies, so Disney would surely miss ESPN’s contribution in that regard. However, an ESPN IPO would likely generate billions of dollars for Disney. We’ll have to wait and see how Disney handles the situation, but investors stand to benefit whether ESPN is spun off or if it continues to generate cash for Disney’s other pursuits.

Shares of Disney closed trading today at $124.96 per share, up +0.56% on the day. YTD DIS stock is down -20.29%.

Learn more about Disney: Website | Investor Deck | DIS Chart

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