The Happiest Place On Earth? Not For 7,000 Disney Employees As They Begin First Round Of Layoffs

Key takeaways

  • An internal memo revealed Disney’s three-stage plan for implementing 7,000-strong job cuts announced in February
  • The layoffs are part of Disney’s $5.5 billion restructuring plan to cut costs and boost its ailing streaming services
  • Some glimmers of hope for Disney stock investors as its parks show a strong performance

Disney is in the doldrums. With a less-than-stellar earnings call last month and mass layoffs planned, CEO Bob Iger has a big job on his hands before a new chief executive is appointed in 2025.

The embattled House of Mouse shared an internal memo this week detailing how the job cuts would pan out across the business, with the metaverse team being one of the first casualties. But the move and Disney’s planned $5.5 billion cost-savings plan might not be enough to sway Wall Street.

While Disney’s short-term future looks bleak, it’s not necessarily out for the count. We’ve gone into what the company faces and whether it can pull off the epic turnaround needed to gain back investor confidence.

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A reminder of Disney’s layoffs announcement

Companies must make difficult decisions around jobs and restructuring in a challenging economic climate. Disney has had to make more than others thanks to subscriber losses on its streaming services and expensive purchase of Marvel, Pixar and Lucasfilm.

Back in February when returning CEO Bob Iger had only been back at the helm for three months, he announced a 7,000-strong layoffs round. The total will come to 3% of Disney’s global workforce.

At the time, Disney was facing a tough challenge. Activist investors were chomping at the bit to get a seat on the board and Disney+ had lost 2.4 million subscribers after raising its prices.

The 7,000 job losses were part of Iger’s grand plan to make $5.5bn in cost-saving measures, including restoring its regular dividend to investors and three new divisions as part of a significant restructuring effort.

Wall Street took the move well, rewarding the most valuable companies making efficiency restructures with a bump in share prices. Disney stock was up 8.5% at the string of measures announced.

What’s happened this week?

A new memo to staff has revealed the layoffs will happen in three stages, beginning this week, with a larger stage in April involving “several thousand staff reductions” and concluding in the summer. Disney currently has around 220,000 workers worldwide.

In the memo, Iger focused on DIsney’s long-term future. “In tough moments, we must always do what is required to ensure Disney can continue delivering exceptional entertainment to audiences and guests around the world – now, and long into the future,” he said.

According to reports, the 50-strong metaverse unit at Disney has been dismantled as part of the first wave of layoffs. The department was the brainchild of ousted CEO Bob Chapek, who called the metaverse “the next great storytelling frontier”.

The only remaining metaverse employee is executive Michael White who headed up the team.

Other impacted departments allegedly include Disney Parks, Disney Entertainment and Experiences and Products. There’s no further news on which divisions may be hit in the two upcoming rounds.

Are any other companies making layoffs?

The layoffs picture still isn’t a pretty one. GitHub has laid off over 140 of its India-based engineering team, while US electric vehicle manufacturer Lucid Group slashed 18% of its workforce or 1,300 jobs. The stock price dropped 7% at the news.

Job-hunting platform Indeed laid off 2,200 workers last week, translating to 15% of its total headcount. The CEO, Chris Hyams, who will take a 25% pay cut, said the market had shifted: “With future job openings at or below pre-pandemic levels, our organization is simply too big for what lies ahead”.

Computer accessories maker Logitech is the last big player to announce job cuts in the last week. It’s reducing its workforce by 300 in a global restructuring for the company after its revenue tumbled to $1.3 billion, down 22% from the year earlier, in its fiscal Q3. Logitech stock has been down 15% since the start of the year.

The future of Disney: bullish or bearish?

Disney stock price was flat on pre-trading and dipped slightly to 0.72% on Tuesday, dipping to a low of $94.63. While Disney made a gain on its original layoffs announcement, the share price has dropped 15% in the weeks since. Disney stock is trading at less than half its all-time high.

There could be a few reasons for this, and there’s no denying Disney’s uphill battle to turn its fortunes around. Let’s look at the two cases for the House of Mouse.

Bearish

An embattled Disney brought Iger back to turn its streaming woes around. Earlier this year, he said the “current forecasts indicate Disney+ will hit profitability by the end of fiscal 2024, and achieving that remains our goal.” That timing ties up with the end of his two-year contract.

The lion’s share of Iger’s $5.5 billion cost-saving measures plan rests on making $3 billion in content cuts for its streaming services, which include Disney+, Hulu and ESPN+ but there will still be money pumping into Disney+’s flagship shows. The direct-to-consumer umbrella these services fall under made an operating loss of $1.1bn in the latest quarter.

Iger is therefore racing against time to fix Disney’s streaming services. If he can’t do it before his contract runs out, we could see Disney stock prices tumble amid increased competition from other streaming platforms and a continued slump in consumer demand.

Bullish

It’s worth noting that while making content for streaming services is expensive, and Disney+ may not be profitable right now, Disney may claw back some losses from its theme parks.

Disney’s latest fiscal Q1 earnings call revealed its parks division had climbed 21% in revenue as more people returned to cruises and holidays, particularly in China, taking the total figure to $7.4 billion.

Disney’s had to negotiate with its unions recently, the outcome being a minimum pay rise for 32,000 park workers, but the savings made across other divisions and the predicted increase in park attendance for 2023 offsets the cost.

The beloved media company is also celebrating 100 years of Disney this year. Without straying too far into the realm of crystal ball-gazing, Disney could see an uplift across its parks and content services that could prove to investors Disney is on the right path.

The bottom line

There’s no denying that the road ahead for Disney is tough amid a troubling economic environment and some questionable decisions by former CEO Bob Chapek.

The drastic measures are necessary for Disney to ensure the survival of its streaming services, but investors will be keeping a close eye on the next earnings call to see if the job losses and restructuring are paying off.

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Source: https://www.forbes.com/sites/qai/2023/03/29/the-happiest-place-on-earth-not-for-7000-disney-employees-as-they-begin-first-round-of-layoffs/