Tuesday's Headlines: Will Disney Spin Off ESPN?

Tuesday's Headlines: Will Disney Spin Off ESPN?

Here were the biggest movers in the MyWallSt shortlist yesterday:

Moving Up ⬆️

Bumble (BMBL) +7.4%

Take-Two Interactive (TTWO) +3.5%

Zoom Communications (ZM) +3.4%

Tesla Motors (TSLA) +3.1%

Lululemon (LULU) +2.7%

Moving Down ⬇️

Redfin (RDFN) -6.8%

Upstart Holdings (UPST) -4.8%

Lemonade (LMND) -3.5%

Stitch Fix (SFIX) -3.3%

Duolingo (DUOL) -3.1%

Here are the stories that you need to know ahead of market-open today, Tuesday the 16th of August.

Activist Calls for Disney to Spin Off ESPN 🏈

Activist Investor Dan Loeb has called on Disney (DIS) to spin off ESPN into a separate company. Loeb’s Third Point LLC announced on Monday that it had acquired a stake in the media giant having liquidated its holdings earlier this year. The hedge fund’s new stake amounts to less than 1% of Disney’s outstanding shares — valued at around $1 billion.

Loeb is also asking that Disney buy out the remaining stake in Hulu, one-third of which is still owned by media rival Comcast.

The news comes just a week after Disney announced strong earnings, bolstered by continued growth in its Disney+ streaming service. The company added 14.4 million new subscribers in the quarter and announced price increases. Those new additions mean that Disney now has over 221 million subscribers across all its services, which include Hulu and ESPN+. That puts it slightly ahead of steaming pioneer Netflix, whose latest figures show just over 220 million subscribers.

In a letter to management, Loeb said there was “a strong case to be made” for Disney to spin off ESPN and that synergies that currently exist could easily be replicated with contractual agreements. He said this would result in a business that is “no longer haunted by the specter of cord-cutting”.

ESPN was once the jewel in the crown of Disney’s cable business, but has suffered in recent years as customers migrate to over-the-top streaming.

Disney has responded to Mr. Loeb’s letter saying, “We welcome the views of all our investors”. However, they didn’t comment on his proposals and noted that the company’s board is regularly refreshed, with an average tenure of four years.

Snap Finds a Glimmer of Hope 👻

Snap Inc. is up slightly in pre-market trading after the company announced that its premium service, Snapchat Plus, has already amassed 1 million paid subscribers since its launch in June 2022.

The service, which costs $3.99, allows users to change their app icon, see who re-watched their story, and use Snapchat on desktop. The announcement on Monday also detailed four new features, including priority story replies, which makes Plus subscribers’ responses more visible when replying to verified Snapchat users (often celebrities or known creators).

So far, the service is only available in the United States but will soon expand into more countries including Saudi Arabia, India, and Egypt, for a total of 25 markets.

The news is a glimmer of hope for Snap, which has struggled in the wake of iOS 14.5 and the tough macro-economic environment. The instant messaging app generates more than two-thirds of its revenue from North American advertising which has become a fairly competitive space. According to CEO Evan Spiegel, money from this advertising segment is “growing more slowly” causing Snap to have “substantially slowed” revenue growth.

Following its latest earnings report, Snap fell more than 25% after it failed to meet revenue expectations and declined to give guidance for the rest of the year. Snapchat Plus is the first of many attempts to create new revenue streams for the company in the hopes of reigniting growth.

Unity Rejects AppLovin Acquisition Attempt 🚫

Shares in video game software developer Unity fell following news that a recent acquisition attempt has been rejected by the firm. AppLovin, a technology company centered around mobile apps, offered to purchase Unity for $58.85 a share. This would have seen the company bought at an 18% premium on its closing price that day.

Unity clarified on Monday that this deal was “not in the best interests of Unity shareholders” and instead proposed that its shareholders back its plans to acquire ad-tech firm ironSource. CEO John Riccitiello was adamant that this is the correct course of action, stating that:

“The Board continues to believe that the ironSource transaction is compelling and will deliver an opportunity to generate long-term value through the creation of a unique end-to-end platform that allows creators to develop, publish, run, monetize, and grow live games and real-time 3D content seamlessly. We remain committed to and enthusiastic about Unity’s agreement with ironSource and the substantial benefits it will create for our shareholders and Unity creators.”

Unity Software is a cross-platform game engine that operates as a development platform rather than as a developer. It facilitates the creation, operation, and monetization of video games with a mission to enable everyone to create content. The company was founded in Denmark in 2004 as Over the Edge Entertainment before changing its name in 2007.

Unity’s stock is down 60% year-to-date and over 70% from all-time highs seen in late 2021. However, a recent solid earnings report renewed some faith in the company as it continues to grow revenue and appears to be emerging from one of the more difficult periods the firm has had to endure.