More importantly, does Disney need saving?
In a surprise move this week, CEO Bob Chapek was voted out by the board at Disney and veteran CEO, Bob Iger, was reinstated. Disney’s price popped 8% on the news and not surprisingly.
The move even made me happy. Iger is a legendary CEO. He was at the helm of Disney through the acquisitions of Pixar, Marvel and LucasFilms. To many he’s the hero that revived and transformed the House of Mouse to the massive empire it is today.
We were all a little wary, when Bob Chapek was named as Iger’s successor. No one thought that he would do a good job and not to mention, he had some pretty big shoes to fill. I guess that cloud of skepticism never went away.
But Chapek, didn’t do such a bad job for the most part. He took over in 2020, a time when the company was hardest hit by the pandemic. Parks were close, movie theaters were close and Chapek’s only hope was streaming services. And guess what, all things considered… he delivered.
Streaming numbers were gaining nicely, and with that so was the share price.
But let’s not forget that Chapek also rode the train of easy money. Along with all the other tech and streaming companies, Disney also flourished. For now, unfairly, Disney had become a streaming company, instead of the entertainment giant it once was. Parks were forgotten for a while.
Through this period of transition though, Chapek did make a few missteps. We’ve all read the news so there no need for much details.
He had a “fight” with the Governor of Florida to the point where their parks in Orlando were threatened
He fired a top TV executive and had a very public fight with Scarlett Johansson over her pay
He overspent at ESPN
Finally, and this was bad… he called Disney’s loyal annual pass holders “unfavorable”
The last quarter results certainly wasn’t something that people were expecting. Firstly, parks and theaters are back in full force and then streaming doesn’t seem to be slowing down. Disney raised streaming prices and rolled out in new territories. We also say Netflix beat subscriber acquisitions by a clear mile, achieving 2.4m vs. 1.1m expected.
With all of this, results were still a double miss:
Subscribers came in above estimates at 235.7million but average revenue per user dropped to 3.91 from 4.35
Revenue came in below estimate at $20.15B vs. $21.26B est. and $21.5B for the prior quarter.
EPS came in at $0.09 vs $0.40 est and $0.77 for the last quarter
Most importantly, Direct-to-Consumer losses kept mounting recording a loss of -$1.5B.
Operating income declined to $1.59B during the quarter from $3.56B during the quarter
Obviously, none of this is particularly helpful when the stock price was also down -40% YTD until before Iger stepped in.
So yes, Disney does need some saving.
It therefore, just makes sense that Iger’s first step on the job was to discuss reorganization and cost cutting measures.
In a memo to Disney staff, he discusses major changes for the company and has appointed a team to:
…”work together on the design of a new structure that puts more decision-making back in the hands of our creative teams and rationalizes costs, and this will necessitate a reorganization of Disney Media & Entertainment Distribution.”
But the question remains, can he pull a rabbit out of a hat in 2 years? Disney’s costs have run rampant in the last few quarters and it will be a major task for curb them. But, it’s not Iger’s first time reviving a failing business. And it’s not his first time doing a job he wasn’t ready for. And it’s not his first time taking the reins in the face of adversity.
When he took on the job as CEO the first time, after Michael Eisner was sidelined, he had even bigger challenges and he didn’t exactly have the support of the board. But this time, he will have all the support he needs. Iger is firm but fair, and he will take the decisions needed to turn Disney around. It will be a while before we see the company recover to where we want but, I have faith in Bob Iger.
p.s. If you haven't read Bob Iger's autobiography - Ride of a Lifetime, I'd highly recommend it. It was on of the best books I've read this year.