Shares of Walt Disney Co. jumped more than 9% in premarket action on Monday after the weekend’s surprise announcement that former chief executive Bob Iger was returning to lead the media giant following the ousting. by Bob Chapek.
Chapek had succeeded Iger in February 2020, having brought his experience to the head of the parks, experiences and products activities of the company. But some analysts questioned his ability to handle the company’s media operations, as the wider streaming industry ultimately seemed to require a more rational mindset.
Disney shares DIS,
had fallen more than 28% from the time Chapek took over as CEO through Friday’s close, while the S&P 500 SPX,
increased by almost 27% during this period.
“With limited experience on the media side of Disney, Mr. Chapek had done an expert job of managing Disney Parks through the challenges created by the COVID-19 pandemic, but he seemed anchored to the broadcast strategy. streaming presented at the December 2020 Investor Day. which we believe had created unrealistic subscriber targets without an understanding of the underlying ROI,” wrote MoffettNathanson analyst Michael Nathanson, who added that Disney “had barely strayed from these goals until recently”.
Nathanson upgraded Disney shares to outperform the market on news of Iger’s return for a two-year stint. He noted that Iger had experience turning around Disney’s movie business by reorienting it after the company got too deep into general entertainment movies.
“We hope and expect Mr. Iger to review Disney+’s investment plans and refocus their investments toward areas of franchise strength and away from broader general entertainment content,” Nathanson wrote. “In other words, Disney+ – and Disney shareholders – could probably do better with fewer end 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 may have a less “bloodthirsty” view of ESPN than Chapek, given that Iger recently said mainstream media is “heading a distinct precipice.”
Such a comment told Nathanson that Iger could now undertake “a deep cost-cutting at ESPN, which should include a review of all upcoming sports rights in order to adapt more adroitly to these new times.”
Wells Fargo’s Steven Cahall also thought the “surprise” announcement of Iger’s return would be welcomed as he is “perhaps the best leader in the media” and has a “mandate to make things happen”.
“The street will see him as a stable leader in uncertain times,” Cahall wrote. “It’s equally important that Iger be seen as popular among the creative ranks of DIS and Hollywood – an area where Chapek has not been embraced. Chapek was considered an ace in park operations, while Iger is the content guru, and we believe content is considered the lifeblood of the business.
Cahall expects to see changes at Disney, especially as Iger takes a closer look at the company’s streaming strategy.
“Since Investor Day at the end of 2020, investors have been concerned that DTC [direct-to-consumer] is too extensive between the intellectual property of the franchise [intellectual property], general entertainment and sports,” Cahall wrote. “We expect Iger’s first agenda to be a clear blueprint for how DIS’s streaming services shape over time, which could reopen the discussion on whether Disney+ must be a franchise IP content hub or broader entertainment platform.”
He has an overweight rating and a price target of $125 on Disney stock.
Michael Antonelli, a market strategist for Baird, said on Twitter that the announcement was “new TITANIC” that was “probably the most significant corporate shake-up since [Steve] Jobs are returned to $AAPL.
He added that he was “so optimistic about the future of this great company now”.
Needham’s Laura Martin added that “Iger’s performance contributes to shareholder value in many ways”.
She wrote that Iger will “reinstate accountability for profits, undermined when ex-CEO Chapek separated content from distribution.” Additionally, she believed that Iger’s presence could stop “the exodus of capable people” from Disney since he is “a well-respected strategic and executive executive.”
Martin has a holding rating on the stock, which was down 41% so far in 2022, through Friday’s close, as the Dow Jones Industrial Average DJIA,
had lost 7%.
