After a long and illustrious career, Bob Iger stepped down as Walt Disney Co.'s (NYSE:DIS) CEO two years ago, but, in an unexpected turn of events, has agreed to resume the role once more after Bob Chapek's sudden departure.
The markets are abuzz in response to the appointment as shares of the entertainment giant shot up almost 10% following the announcement.
The news of Iger's return has been met with praise and celebration from analysts and industry professionals alike. Several analysts from MoffettNathanson, Needham, Bank of America and Wells Fargo have even commented on how the balance of power is shifting, and they all agree that it benefits Disney and its shareholders.
Iger previously served as the CEO of Disney from 2005 to 2020, during which time the company grew steadily. He facilitated several key mergers and acquisitions that resulted in the entertainment giant owning Pixar, Marvel and Lucasfilm. He also spearheaded the creation of its streaming platform, Disney+.
Now he is expected to set the company up with a strategy for renewed growth, while also finding and training a successor before he eventually decides to retire for good.
All in all, the announcement has been really good for Disney and was just the thing it needed after months of seeing its stock fall.
Disney gets the shot in the arm it needs
The company, which was founded by Walt Disney in 1923, has become one of the biggest names in the mass media and entertainment industries. With a diverse number of businesses, including streaming services, film production and even theme parks and cruise lines, it is one of the most recognized brands in the world.
However, in recent months, Disney has been in a bind. The stock has taken a hit as investors grow increasingly pessimistic about the company's prospects.
Their concerns are not unfounded, however.
In the fourth quarter, Disney disclosed it added 12.1 million net subscribers. This included new subscribers for Hulu and ESPN+, bringing the total to 71.5 million users. Despite adding new subscribers, revenue per user of $3.91 was below analysts estimates of $4.24. Revenue of $20.5 billion also failed to meet expectations, while the operating income of $1.6 billion was 55% lower than the previous quarter. Additionally, theme park revenue of $7.42 billion, which represented a 36% year-over-year increase, did not beat Wall Street's forecasts.
Meanwhile, the direct-to-consumer business is generating losses with its content spending spree. Disney lost $1.5 billion last quarter and is estimated to have lost a total of $4 billion in fiscal 2022.
Trying to shake things up
The financial results compounded an already tricky situation for the entertainment giant. Over the last several months, activist investors have encircled the company, with some big names in the mix.
Daniel Loeb (Trades, Portfolio) of Third Point, with a stake worth nearly $1 billion, recently stopped pushing the company to sell off ESPN to make a profit. However, he is still advocating for Disney to freshen up the board and find ways to cut costs.
Another activist investor, Nelson Peltz (Trades, Portfolio) of Trian Fund Management, is asking Disney to improve its operations while reducing costs. Moreover, it was reported that the investor, who has a stake valued at more than $800 million, is unhappy with the decision to bring back Iger.
Disney itself has been busy recently, announcing plans to increase prices for some of its Disney+ packages. While this decision may be unpopular with some customers, it is still one of the more affordable entertainment options available. Further, the streaming service will soon introduce an ad-supported subscription tier, allowing customers to save money on their accounts. While the company is not expecting a bump in revenue until later in the year, this is still good news as it will eventually see an increase from its Disney+ subscribers.
The company also recently raised prices at its Walt Disney World park in Orlando, but this price hike is still absorbable considering its brand value.
Disney is a large and diversified company with a long history of success. While the current situation may be challenging, there is no reason to believe the company will not eventually bounce back. In the meantime, investors would be wise to keep a close eye on the entertainment giant's progress.
Undoubtedly, Disney is on a path of change under the leadership of Iger. Despite the mixed fiscal fourth-quarter earnings, many analysts have kept a buy rating on the companys shares due to changes like the improvement of streaming operations, the booming success of Marvel films, the advertising power of ESPN and more. The company is on the right path as Iger begins to focus on restructuring operations.
This article first appeared on GuruFocus.