Disney shares rise on Iger’s return

Shares in Walt Disney have risen 13% in the past week, boosted by the company’s replacement of former chairman and chief executive Bob Chapek with his predecessor Bob Iger.

Chapek was ousted following disappointing fourth-quarter results, while Iger previously led the studios provider and streamer from 2005 to 2020. While revenues rose 9% in the fourth-quarter to $20.2 billion ($18.5 billion) and by 23% for the full-year to $82.7 billion ($67.4 billion), net income in the period rose just 1% to $162 million ($160 million), coming in below analyst expectations.

Under Chapek, the company saw losses at its streaming services, including Disney+, Hulu and ESPN, more than double to $1.5 billion in fourth-quarter, from $630 million during the same period last year.

This was due to increased losses at Disney+ and higher programming and production costs at Hulu, which produces Only Murders in the Building, among other shows. However, this was partially offset by increased subscription income at ESPN, while subscriber numbers rose overall by 39% to 164 million. Meanwhile, free cash flow decreased by 47% to $1.1 billion ($2 billion) over the full-year.

While Disney’s chairman of the board Susan Arnold thanked Chapek for “navigating the company through the unprecedented challenges of the pandemic,” she told investors that as Disney “embarks on an increasingly complex period of industry transformation,” the board believes Bob Iger is “uniquely situated” to lead it. Iger is credited with the acquisitions of Pixar, Lucas Film, Marvel and Fox during his previous tenure at the company.

Trian takes Disney stake

Activist investor Trian, led by Nelson Peltz, also bought up a $800 million stake in Disney post the results and is seeking a seat on the board. Trian was opposed to the reinstatement of Iger, however, analysts think the rest of Wall Street may feel differently.

"The Street will see [Iger] as a steady leader in uncertain times," Steven Cahall, analyst at Wells Fargo, wrote in a recent research note. "Chapek was seen as an ace on park ops, whereas Iger is the content guru, and we think content is believed to be the lifeblood of the company."

Disney shares have had a rough ride this year and are down 32% to $97.87. The streaming industry is becoming increasingly crowded as more broadcasters and production houses launch their own streaming products. With consumers feeling the pinch financially, many may be reluctant to add new subscriptions or continue existing ones.

Could Disney be a recovery stock?

However, the streaming service has seen strong subscriber growth, while with the Covid-19 pandemic receding, Disney’s parks and hotels business is also enjoying a recovery. Revenues in the fourth-quarter rose to $7.4 billion from $5.5 billion in the same period the previous year.

Plus, with Iger back at the helm and activist investor interest, the shares could be a recovery play. Analysts at Tigress Financial recently cut their target on the shares to $177 from $229, but this still implies considerable upside potential.

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