The Walt Disney Company, in a surprise announcement, announced late Sunday (11/20) that Robert A. Iger is returning to lead the fiscally bruised entertainment and media giant as Chief Executive Officer.
Iger succeeds Bob Chapek, who has stepped down from his position. And, for MoffettNathanson, the news couldn’t be better.
Iger, who spent more than four decades at the company, including 15 years as its CEO, has agreed to serve as Disney’s CEO for two years.
His return comes with a mandate from the Board to set the strategic direction “for renewed growth” and to work closely with the Board in developing a successor to lead the company at the completion of his term.
“We thank Bob Chapek for his service to Disney over his long career, including navigating the company through the unprecedented challenges of the pandemic,” Susan Arnold, Chairman of the Board, said in a statement released shortly before 7pm Pacific. “The Board has concluded that as Disney embarks on an increasingly complex period of industry transformation, Bob Iger is uniquely situated to lead the company through this pivotal period.”
Arnold added that Iger has the deep respect of Disney’s senior leadership team, most of whom he worked closely with until his departure as executive chairman 11 months ago, and he is “greatly admired by Disney employees worldwide—all of which will allow for a seamless transition of leadership.”
The position of Chairman of the Board remains unchanged, with Ms. Arnold serving in that capacity.
“I am extremely optimistic for the future of this great company and thrilled to be asked by the Board to return as its CEO,” Iger said. “Disney and its incomparable brands and franchises hold a special place in the hearts of so many people around the globe—most especially in the hearts of our employees, whose dedication to this company and its mission is an inspiration. I am deeply honored to be asked to again lead this remarkable team, with a clear mission focused on creative excellence to inspire generations through unrivaled, bold storytelling.”
During his 15 years as CEO, from 2005 to 2020, Iger helped build Disney into one of the world’s most successful and admired media and entertainment companies. This legacy crumbled under the tenure of Chapek, with share values until Friday in the low-$90 range after dipping to $86.75 in early November. On August 15, DIS was priced at nearly $125.
That’s right above where Michael Nathanson, a Senior Analyst at MoffettNathanson, believes Disney shares should be.
In an investor note released early Monday (11/21), Mr. Nathanson writes, “We are upgrading The Walt Disney Company to ‘Outperform’ with a $120 price target on the news that Disney is bringing back former CEO Bob Iger for a two-year term to help guide the company through this period of massive secular change. We applaud Disney’s Board for the courage to make this change.”
Nathanson added, “We have never hidden our affection Mr. Iger and the job that he did in building Disney into the global powerhouse that it has become. We have not recommended the shares since May 2020 for multiple reasons.”
This, Nathanson, includes “concern” that Chapek “had become wedded to a streaming strategy that did not make sense given today’s reality.”
“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.” — Michael Nathanson, MoffettNathanson
Mr. Nathanson continues, “With limited experience on the media side of Disney, 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. Although the initial Disney+ subscriber targets of 230 million to 260 million were established during the heart of the pandemic, the company, despite ample opportunities to revisit their assumptions, barely wavered from these goals until recently. In contrast, we had believed that the broader shift at Disney+ from Disney-themed family and branded content into a general entertainment fare was a poor decision that would hurt return on investment.”
Meanwhile, Nathanson pulled no punches in sharing that MoffettNathanson has also been worried “that the restructuring of the company with a new DMED (Disney Media and Entertainment Distribution) division has hurt the morale of the creative leadership and has created more bureaucracy, which has slowed decision-making.”
“Over the many years, Mr. Iger’s decision-making and strategic positioning – which ignored the Street’s often incorrect short-term focus – would ultimately separate Disney from the media pack,” Nathanson concluded. “In addition, his communications skills and his ability to stay focused and honestly optimistic in the face of structural challenges provided a constant ballast in the roughest of media waters. We believe investors will value the transparency and return Disney some of its long-lost magic with a stronger narrative driving the stock higher again. Putting it all together, we expect the new CEO to re-examine and re-direct Disney’s current streaming strategy, honestly deal with the challenges confronting its linear networks by cutting back on non-essential sports, change the centralized approach to content procurement established under former CEO Chapek and manage the company forward with discipline, sound strategy and flawless execution. In our opinion, Disney’s multiple will likely move higher as these new changes are implemented.”
