Just this past Sunday, The Walt Disney Company (NYSE: DIS) announced that it has brought Bob Iger, the company’s prior CEO, back into the fold. He replaces current CEO Bob Chapek, effective immediately.
Investors are loving the major leadership shake-up, as seen by the surge in Disney’s share price.
The market reaction was perhaps due to the return of Bob Iger, who is widely seen as one of the most successful CEOs Disney has ever had.
This was a sudden development and came only around two years after Bob Iger left Disney.
Prior to that, Bob Iger was the CEO for Disney from 2005 until February 2020 when he stepped down, with retirement in mind.
High expectations from Disney investors
The expectation from investors is high for Bob Iger to bring back the magic to Disney.
During Iger’s tenure as CEO, Disney’s market cap jumped from US$48 billion to US$257 billion, driven by a continued expansion of theme parks and multiple acquisitions.
Disney acquired Pixar for US$7.4 billion, Marvel Entertainment for US$4 billion and Lucasfilm for US$4.1 billion.
The most recent acquisition was that of 21st Century Fox, which Disney acquired for US$71.3 billion.
During this time, the Walt Disney company also penetrated into the streaming business with its partnership with Hulu and the launch of Disney+.
Poor performance under Bob Chapek
Disney’s poor performance under Bob Chapek has been blamed on factors ranging from an unsuccessful pivot to the streaming business with Disney+.
His hesitance to speak out against a Florida bill that banned LGBTQ discussions for students younger than 10 also had some doubting him.
The disappointing financial results and rising ticket prices for theme parks led many to accuse Disney of ripping off loyal customers in order to bolster their bottom line.
The power struggle at Disney is also another issue under Bob Chapek as he consolidated the responsibilities of many of Bob Iger’s veteran division leaders under his right-hand man, Kareem Daniel.
The move by Bob Chapek to streamline the responsibilities under Kareem Daniel backfired by angering heads previously responsible for those decisions.
The increase in theme park prices led to a plunge of 17% in visitor numbers although Disney’s profit increased by 17% on the back of the higher ticket prices.
Bob Iger to reverse unpopular cost-cutting focus at Disney
In a new memo from Bob Iger, he stressed his plans to move away from Bob Chapek’s cost-cutting moves and refocus the company around its creative teams.
This includes moving away from data-driven decision-making and handing more control over to creatives.
I believe these measures will bring the best out of Disney, which has always been known for its strong content and brand power.
Disney is showing sign of positive progress
Even before the return of Bob Iger, Disney was already showing sign of positive progress.
One of the problems that I highlighted in my previous article on Disney was Bob Chapek’s inability to communicate effectively to the investor community.
The return of Bob Iger to Disney will boost investors’ confidence in the Mickey Mouse company’s potential success in its streaming business.
With the reopening of the economy and the rejig of the internal organisation of Disney, I believe it is only a matter of time before the magic returns.
Looking at the consensus rating of Walt Disney, there aren’t many changes as compared to three months ago but at least 22 analysts have a buy recommendation on the stock with an average target price of US$120, representing an increase of 21.4%.
Source: WSJ, ProsperUs
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
