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The Street
The Street
Martin Baccardax

Disney Stock Surges As Bob Iger Returns As Group CEO, Bob Chapek Ousted

Disney (DIS) shares surged higher Monday following the shock departure of CEO Bob Chapek and the return of former boss Bob Iger to lead the media and entertainment group amid its worst annual stock price decline in five decades.

Iger, 71, served as Disney CEO between 2005 and 2020 and agreed late Sunday to lead the group for another two years as it searches for a permanent replacement for Chapek, whose tenure lasted less than three years. Iger was also given "a mandate from the Board to set the strategic direction for renewed growth."

His first task, however, could be managing the competing interest of activist investors Dan Loeb and Nelson Peltz, each of which has established stakes in the group, and the mounting losses at Disney+, which isn't forecasted to turn a profit until at least late 2023.

Loeb, who runs the  $14 billion Third Point hedge fund, has pushed for the sale of ESPN, Disney's sports-focused network, saying it would alleviate leverage at the parent company while allowing a stand-alone ESPN the flexibility to pursue increasingly expensive sports rights and expand into the lucrative sports betting market. 

Trian, the fund run by Peltz and Peter May, has built an $800 million stake in Disney, the Wall Street Journal reported, and is pushing for a seat on the board and broader company-wide cost cuts.

“We thank Bob Chapek for his service to Disney over his long career, including navigating the company through the unprecedented challenges of the pandemic,” said board chairman Susan Arnold. “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.”

Disney shares were marked 6..1% higher in early Monday afternoon trading to change hands at $97.45 each.

Disney's weaker-than-expected fourth-quarter earnings last month may have cemented the board's decision to oust Chapek, whose career has focused more on theme parks than media deals, alongside a warning that cost cuts and corporate austerity would define the group's ambitions "to be focused largely on profitability" as it rides out losses in its direct-to-consumer division.

Disney added 14.6 million subscribers to its streaming services over the fourth quarter, overtaking Netflix (NFLX) as the world's largest with 235.7 million paying customers. ESPN+ now totals 24.3 million and Hulu has 47.2 million. 

The gains, however, have come at a price: Revenue per user was pegged at $3.91, falling shy of analysts' estimates of around $4.24, suggesting subscriber acquisition costs continue to rise.

The direct-to-consumer business division, in fact, posted a loss of $1.5 billion for the quarter, Disney said, although it expects to be consistently in the green by the start of the next fiscal year as it raises prices, cuts costs, and "optimizes" its content slate.

Disney said the introduction of its Disney+ price hikes, which go into effect later this year, should support revenue per user growth but noted that it won't likely see a bump from its new ad-supported service until later in the year. 

"We believe Iger has a proven track record for growing the Company, and his reappointment as CEO, in our view, will be seen as a positive development for the stock," said KeyBanc Capital Markets analyst Brandon Nispel. 

"Ultimately, we see Bob Iger as a proven leader whose previous tenure included the acquisitions of Pixar, Marvel, and Lucasfilm, and who we believe is viewed as a well-respected and reputable upgrade for the company," he added.

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