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Former CEO’s return to the hot seat is a positive catalyst for for the ‘House of Mouse’
Thursday 24 Nov 2022 Author: James Crux

Walt Disney Co (DIS:NYSE) $97.78

Loss to date: 43%


Shares highlighted the compelling case for buying Walt Disney (DIS:NYSE) in January 2021 at $171.82, but after generating early gains, the shares have drifted lower to leave the shares 43% on our entry point.

But there is hope at hand, as former boss Bob Iger is back as CEO for the next two years and customers, staff and shareholders believe he can bring some of the magic back to the ‘House of Mouse’, since Disney’s shares did exceptionally well during his first period in the hot seat.



WHAT HAS HAPPENED SINCE WE SAID BUY?

Disney has parted ways with CEO Bob Chapek after a lacklustre tenure since his February 2020 appointment. Staff morale appears to have got worse, and customers are angry at large price hikes and constant disruption to rides in its theme parks. Chapek also riled those working for the company by getting rid of well-respected TV content executive Peter Rice.

But it was the recent fourth quarter results (8 November) that proved the final straw for Chapek, as the numbers fell short of expectations for sales and profits. Direct-to-consumer revenues for the quarter increased 8% to $4.9 billion, yet the operating loss increased by $0.8 billion to $1.5 billion due to a higher loss at Disney+ and disappointing results at Hulu, partially offset by improved results at ESPN+.

WHAT SHOULD INVESTORS DO NOW?

Disney is worth sticking with for the long run. Iger was the driving force behind the launch of the streaming strategy in 2019 and he should reassure investors that the streaming business is on the right track.

We’d also expect Iger to devote attention to the profitability of the domestic parks, a very important part of the Disney investment case alongside the streaming service.

However, not everyone is welcoming Iger back with open arms. The Wall Street Journal has reported that activist investor Nelson Peltz opposes his rehiring and wants a seat at the board to push for more cost cuts.

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