Activist Loeb Urges Disney To Use Dividend Funds For Streaming Content

Activist investor Dan Loeb urged Walt Disney Co. to forego its $3 billion annual dividends permanently and channelize those funds to bring more content for its Disney+ streaming service. Loeb, the CEO of the hedge fund Third Point and major shareholder of Disney, said the company could more than double its programming budget for Disney+ by reallocating its dividends. Disney’s shares closed 1.6% higher on Wednesday.

Loeb sent a letter to Disney’s (DIS) CEO Bob Chapek on Wednesday, saying that the company’s DTC [direct-to-consumer] business “could meaningfully accelerate growth for the company” if the company invests aggressively. He added “Beyond bringing additional subscribers onto the platform, increased velocity of dedicated content production will deliver several knock-on benefits spread across your existing base including elevated engagement, lower churn, and increased pricing power.”

Loeb said that “meaningfully accelerating DTC content spend will further broaden the divide between Disney and its traditional media peers – AT&T’s WarnerMedia, Discovery, ViacomCBS, Comcast’s NBCUniversal and Fox.” The move will also help the media company to compete with streaming rivals like Netflix and Amazon. (See DIS stock analysis on TipRanks).

On Oct. 2, J.P. Morgan analyst Alexia Quadrani raised Disney’s price target to $155 (26.1% upside potential) from $135 and maintained a Buy rating, saying that the stock has “retreated a bit” from early September rebound, thus creating a more attractive entry point. Quadrani is encouraged by the progress of recovery in each of Disney’s businesses.

Currently, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 11 Buys, 6 Holds and 1 Sell. The average price target of $136 implies upside potential of about 10.7% to current levels. Shares are down about 15% year-to-date.