Disney’s stocks soared by as much as 11.9% in after-hours trading, after announcing a major shakeup:

• 7,000 jobs to be cut
• US$ 5.5 billion in cost savings, including slashing US$ 3 billion from its budget for movies and TV shows.
• company to be reorganized into 3 divisions: Entertainment (TV, film, streaming), ESPN sports networks, and Theme Park (including cruise ships and consumer products)

Why does a company’s stock rise when job cuts are announced?

A company’s share prices tend to rise following job cuts because the layoffs are intended to lower costs, which in turn help protect its earnings.

Investors are then enticed to buy the company’s shares given the prospects of better earnings ahead, due in part to the lower costs, which then sends the stocks higher.

The latest measures were announced by CEO Bob Iger, who returned to the helm back in November after his successor Bob Chapek was let go amid sinking profits and share prices.

Recent Disney CEOs:

• Bob Iger = November 2022 till present
• Bob Chapek = February 2020 – November 2022
• Bob Iger = October 2005 - February 2020

What else did Disney announce overnight?

Iger made those announcements during its latest earnings release for its fiscal Q1 period (ending January 2^nd, 2023), which also featured these key items:

• Disney+ subscribers saw their first-ever decline. At 161.8 million, that’s lower than the estimated 168 million and also 1% lower compared to the prior quarter.
• Losses from its streaming services more than doubled from the same quarter in the previous year, now exceeding US$ 1 billion.
• Fiscal Q1 revenue came in at US$ 23.51 billion (up 7.8% year-on-year), which is above the market-estimated US$23.39 billion figure.
• Adjusted earnings per share (EPS) of US$ 0.99 beat the market forecast of US$0.74

This earnings beat was large because of its theme-parks division's better-than-expected performance:

• 21% y/y increase in revenue (US$8.74 billion)

• 25% y/y climb in operating income (US$3.05 billion)

Besides shoring up its financial fundamentals, investors were also given another treat:

Disney is considering to restore its dividend programme later in 2023, with its last payout occurring back in January 2020.

Hence, with all the above in mind, no surprise if Disney’s stocks see a pop when the US markets open on Thursday, Feb 9^th.

Looking at its shares …

Disney has had a rip-roaring start to 2023.

This stock has surged by 28.66% so far this year, which is almost four times more than the S&P 500’s 7.25% year-to-date ascent.

From a technical perspective, if today’s expected pop indeed materializes, that should allow Disney’s share prices to break above the 23.6% Fibonacci retracement from its all-time high back in March 2021 down to its end-December 2022 trough – its lowest since the onset of the Covid-19 pandemic.

This 23.6% Fibonacci area has been a key resistance area of late, while also alternating between support and resistance levels on several occasions between May and September last year.

A 5% pop at today’s open would put this stock within touching distance of its mid-September cycle high of $117.45.

From a fundamental perspective, as long as Iger’s latest shakeup continues paying dividends (in every sense of the word), that should go a long way in returning Disney’s share prices to its former glories.

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