Disney Won its Proxy Fight but the Stock Rejects Critical Tech Levels

Disney Analysis

Disney had a rough couple of years as its linear networks took a hit from soft advertising environment and cord cutting trends, its studios division did not perform well at the box office and MCU fatigue settled in. At the same time, its streaming business lost subscribers and handed the crown back to Netflix. The challenges weighed on the stock, which in October dropped to the lowest levels in nine years.

These adversities made the entertainment giant vulnerable to hostile investors and faced proxy fights, from Trian Partners and Blackwells, which pushed to put their candidates on the board. Disney however emerged victorious from this battle this week, as shareholders reelected the full board. CEO Bob Iger was pleased that this "distracting" proxy contest is over and vowed to "focus 100%" on the most important priorities. ^[1]

Shareholders likely appreciated the CEO's turnaround efforts that already appear to bear fruit and the investor-friendly measures announced in February's impressive quarterly results. After reinstating dividend payments, the firm announced a 50% hike and new share buyback program to the tune of $3 billion. Moreover, earnings/share and operating income increased. ^[2]

Crucially, its streaming userbase expanded and the financials of the segment continued to improve, as execs reaffirmed their goal to turn it profitable before the end of the year. Furthermore, Disney goes all-in on the digital sports arena, an increasingly important market. It already announced a sports streaming super-app with WarnerBros.Discovery and Fox ^[3], while pushing forward with the plan to turn ESPN to a standalone direct-to-consumer service. The entertainment behemoth also appears to be finding its creative mojo, with a strong showing at this year's Oscars ceremony.

The turnaround efforts have helped the stock to a significant recovery from the October multi-year lows and a stellar first quarter, with a nearly 40% relief-rally. Mr Iger's plans and the victory in the proxy fight can drive further gains. On the technical front, the recent Golden Cross (EMA50>EMA200) is also supportive. DIS.us tries to take out the 38.2% Fibonacci of the slump from the 2021 record highs, which would open the door to a greater advance.

On the other hand, the move appears stretched and the stock slides this week, despite the proxy victory. The firm still has to navigate a challenging environment and generational transformations in the media industry, while having to get Mr iger's succession right, which it botched the last time. DIS.us rejected the pivotal 38.2% Fibonacci which creates scope for a correction towards the EMA200 (at around 98.70). Daily closes below it that would shift bias to the downside seem hard under current conditions though and the daily Ichimoku Cloud can provide support before that.