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Walt Disney Co. shares were surging Monday after the surprise weekend announcement that former chief executive Bob Iger was returning to lead the media giant after Bob Chapek’s ouster.
Chapek had taken over for Iger in February 2020, having brought experience as the head of the company’s parks, experiences, and products business. But some analysts questioned his ability to manage the company’s media operations as the broader streaming industry eventually seemed to necessitate a more rational mindset.
Disney shares
DIS,
rallied 7.1% in morning trading, enough to pace the Dow Jones Industrial Average’s
DJIA,
and S&P 500 index’s
SPX,
gainers. The media and entertainment giant’s stock had fallen more than 28% from the time that Chapek took over as CEO through Friday’s close, while the S&P 500 rose almost 27% during that stretch.
“With limited experience on the media side of Disney, Mr. Chapek had done an expert job in managing Disney’s Parks through the challenges created by the COVID-19 pandemic, but he appeared anchored to the streaming strategy laid out in the December 2020 Investor Day which had created, we felt, unrealistically high subscriber targets without a grasp for the underlying return on investment,” wrote MoffettNathanson analyst Michael Nathanson, who added that Disney “barely wavered from these goals until recently.”
Nathanson upgraded Disney’s stock to outperform from market perform upon the news of Iger’s return for a two-year stint. He noted that Iger has experience turning around Disney’s film business by reorienting it after the company had waded too deep into general-entertainment films.
“We would hope and expect that Mr. Iger examines the investment plans at Disney+ and re-focuses their investment on areas of franchise strength and away from broader general entertainment content,” Nathanson wrote. “In other words, Disney+—and Disney’s shareholders—could probably do better with fewer end-state subscribers made up of super fans willing to pay high RPU [revenue per user], which would generate much higher margins.”
He also offered that Iger could have a less “sanguine” view of ESPN than Chapek, given that Iger recently commented that traditional media was “marching to a distinct precipice.”
Such commentary indicated to Nathanson that Iger could now undertake “deep cost-cutting at ESPN, which should include a review of all the upcoming sports rights in order to more adroitly adapt to these new times.”
Wells Fargo’s Steven Cahall also thought that the “surprise” announcement of Iger’s return would be well received as he’s “perhaps the best leader in media” and has “a mandate to shake things up.”
“The Street will see him as a steady leader in uncertain times,” Cahall wrote. “Equally important is that Iger is considered popular among the creative ranks within DIS and Hollywood — an area where Chapek was not embraced. Chapek was seen as an ace on park ops, whereas Iger is the content guru, and we think content is believed to be the lifeblood of the company.”
Cahall expects to see changes at Disney, particularly as Iger takes a closer look at the company’s streaming strategy.
“Since the late 2020 investor day, investors have worried that DTC [direct-to-consumer] is over-extended between franchise IP [intellectual property], general entertainment and sports,” Cahall wrote. “We expect Iger’s first order of business to be a clear plan as to how DIS’s streaming services shape up over time, which could reopen discussion about whether Disney+ is to be a franchise IP content hub or a broader entertainment platform.”
He has an overweight rating and $125 price target on Disney’s stock.
Michael Antonelli, a market strategist for Baird, said on Twitter that the announcement was “TITANIC news” that was “probably the most significant piece of corporate upheaval since [Steve] Jobs went back to $AAPL.”
He added that he was “so optimistic about the future for this great company now.”
Needham’s Laura Martin chimed in that “Iger’s return aids shareholder value in many ways.”
She wrote that Iger will “reestablish profit accountability, undermined when now ex-CEO Chapek separated content from distribution.” Additionally, she thought Iger’s presence could stop “the exodus of competent people” from Disney since he’s “a highly respected strategy & execution executive.”
Martin has a hold rating on the stock, which had declined 36.5% so far in 2022, through Friday’s close, as the Dow had lost 7.2%.
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