Disney in my book
In my book “The Rules of Super Growth Stocks Investing“:
- Sections 2-3, pages 111-113
Bring back the ex-CEO to put out the fire
Replaced the CEO in office for 2+ years
On the evening of November 20, 2022, Disney’s board of directors announced without warning that the CEO Bob Chapek, who took office in February 2020, would be replaced, and the former director Bob Iger, who had just stepped down at the end of 2021, would return to the role. The sudden move also foretells that the entertainment giant is about to usher in a period of turmoil. Iger, who has put on his battle uniform again, shoulders the heavy responsibility of rectifying and making the streaming business show a surplus, so as to boost investor confidence. Stimulated by the news of Iger’s return to the pot, Disney’s stock price immediately jumped by nearly 9% in early trading the next day.
In July 2023, the board of directors further extended Iger’s term as CEO to 2026 to ensure the completion of transformation goals and find a successor.
Iger is a legendary executive
With a suave appearance, Iger is not only loved for his funny personality, but also because he successfully completed 4 major acquisitions during his tenure, which made Disney’s market value 5 times, and became the leader of the intellectual property (IP) kingdom in one fell swoop. Legendary Executive.
From 2005 to 2020, Iger led Disney to successively acquire Pixar, Marvel, Lucasfilm and 20th Century Fox, which greatly enhanced the ability to create original content, opened up huge Chinese and Asian markets, and created a global In the media entertainment empire, the company’s market value has also increased by more than five times, and once exceeded 300 billion US dollars.
As early as 2013, Iger began to express his intention to retire, but every time he continued to extend the contract because of the retention of the Disney board of directors. It was not until the end of 2021, when he was about to turn 71, that he completely resigned from office, but he was asked to go out to fight the fire again within a year after he retired and returned home.
Failed successor
Because Bob Chapek has never produced a film, but he wants to be in charge of a media company that conquers the world with film and television intellectual property rights, almost no one is optimistic about it from the beginning.
But Iger chose an outsider in the film and television industry to take over, precisely because Disney is not just a production company, but has spread to music, parks, video games, TV, and the Internet through successful film and television intellectual property rights. Businesses derived from intellectual property rights such as roads and consumer products. Judging from the financial report, the derivative business has accounted for more than 30% of the revenue and contributed more than 60% of the operating profit.
Unstable management team
Lost good executives
Bob Chapek made two major moves to reorganize the company’s structure, and the departure of two senior executives also caused commotion. At the end of April 2022, Geoff Morrell, the director of public relations who had only joined Disney for three months, resigned. Disney TV content executive Peter Rice clashed with other executives and was fired by Bob Chapek in June.
Losing the game
Chief financial officer Christine McCarthy is also stepping down in June 2023, taking responsibility for the company’s dismal financial results over the past few years. During McCarthy’s tenure, Disney’s streaming spending soared and free cash flow fell. In the fiscal second quarter of 2023, Disney reported an operating loss of $659 million in its direct-to-consumer segment.
In March 2023, Disney announced the launch of a plan to lay off 7,000 employees, and cut down the Metaverse department, which was previously favored by the company, in order to control costs and create a more streamlined business. On the 29th, it was reported that Disney fired Isaac Ike Perlmutter, chairman of its superhero comic film branch Marvel Entertainment.
The main business is in a mess
Streaming business continues to lose money
Although the three major audio-visual streaming platforms, Diney+, Hulu, and ESPN+, are growing strongly, with a total of 235.7 million subscribers and a loss of US$1.5 billion, Bob Chapek said that Disney+ is not expected to achieve profitability until fiscal year 2024. profit.
Since 2019, the business unit where the streaming media is located has accumulated a loss of 10 billion US dollars, becoming the largest blood loss in Disney’s financial report. The loss of the streaming video business was as high as US$1.47 billion, and the loss in the third quarter of 2022 was more than double that of the same period last year.
Bob Chapek set the goal of reaching 230 million to 260 million Disney+ subscribers by 2024, and the direct-to-consumer streaming business will be profitable by September 2024. But Wall Street’s enthusiasm for the streaming video business has faded, and Disney’s stock price has plummeted by nearly 40% in the first seven months of 2022.
What’s more deadly is that the number of subscribers to Disney’s streaming media family consisting of Disney+, Hulu, and EEPN+ has either stagnated for a long time, or has begun to decline like Disney+. This forced Disney to adjust subscription prices in the third quarter of 2023 to make up for the loss of subscribers and rising costs, otherwise it would be impossible to turn Disney’s streaming media into a profit.
Regarding Disney’s streaming media business, please refer to my previous article : “The global streaming video throne is replaced“
Disneyland’s Glamor Is Fading
During the COVID-19 epidemic, the two major Disneylands in the United States lost 200 million U.S. dollars in half a month after closing their doors. Adding in the four Disneylands in China, Japan, and France, it is calculated that the park business will lose at least 1.3 billion U.S. dollars. In order to reduce expenses, during the COVID-19 epidemic, more than 70,000 employees at the two major Disney parks in the United States will be suspended without pay, and only a few hundred people will be responsible for maintaining the park. If the four overseas parks are counted, there will be more than 100,000 Disney employees around the world without work.
After the epidemic, Disney’s theme park business in many places has also declined. During the peak tourist period of the National Day holiday in the United States, the passenger flow of Disney’s two major theme parks in the United States, especially the Florida theme park, has declined significantly, and theme park hotels have even started discounts to attract tourists.
According to data from the market research company Touring Plan, during the National Day holiday in 2023, the waiting time for facilities in Disney’s major theme parks will be around 25 minutes, or even less than 20 minutes. Wait times at Florida’s Magic World park were just 27 minutes this year, down from 47 minutes in 2019 and 31 minutes last year.
The parks are Disney’s largest business unit, with more than $26 billion in annual revenue.
The cruise business has been greatly affected
During the COVID-19 epidemic, four Disney cruise ships have also announced their suspension for two months, and there are still three new cruise ships under construction. However, the tragedy of the Diamond Princess makes the future of the entire cruise industry bleak in the next two to three years.
Unable to return to pre-pandemic levels
During the tenure of executive director Bob Chapek, the outbreak of the new crown epidemic forced the closure of its theaters, theme parks and other entertainment businesses. The COVID-19 epidemic caused operating losses to Disney, and was forced to temporarily close theme parks and cruise ships, and almost stopped Production of all films and series. Bob Chapek then sprinted into the streaming service Disney+ with all his strength.
Reorganize the company
Refocus on content
The Disney under Bob Chapek’s leadership is most criticized for not putting content production at the core. His restructuring of Disney’s management has forced away several executives who may threaten him and weakened the budget of the content department. Decide on permissions. Iger, who has retired, also criticized this point several times without naming him.
After Iger’s return, he first re-established the absolute core position of creative production in Disney. On the first day of his return, he fired Bob Chapek’s confidant, the head of the content distribution department, and gave the content production department enough budgetary power to speak again.
Lack of international content
The sluggish performance of its international business is the main reason for Disney’s lackluster growth. The streaming media market in the United States and Canada is almost saturated. While Netflix (US stock code: NFLX) is investing heavily in Asia-Pacific (especially Korean dramas) and Latin American content, attracting international users to promote the growth of platform users, Disney has been slow to launch localization content, unable to break through the Indian and Latin American markets.
Retreat from non-key countries
In India’s most popular cricket league streaming bid, Disney also lost to Viacom18, a streaming platform jointly established by Paramount (US stock code: PARA) and India, which is the direct cause of the massive loss of Disney’s Indian users. Disney had to consider selling Star India, the Indian media arm.
Not only that, in order to save costs, Disney has announced the end of the paper version of National Geographic; it has even withdrawn from many non-major countries (such as Taiwan) business.
Asset disposal
Should it take the 33% stake in Hulu held by the cable leader Comcast? The rapid expansion of Hulu in recent years may make it more difficult for Disney to make a decision.
It is worth noting that Iger admitted in an interview in July 2023 that cable TV is no longer the core of Disney’s development, suggesting that it may sell cable TV assets such as ABC and FX, and retain EPSN, which has a stable audience.
Disney is facing numerous challenges, which cannot be resolved in the short term. The company still faces many thorny issues. The executive of Disney recently revealed that it intends to sell TV assets. Although this may be a favorable strategy for Disney, the question is who will buy it. Even if a buyer appears, it is difficult to say whether the price will be attractive.
Important controversy damages image
Hit hollywood
Scarlett Johansson, the heroine of the Marvel movie “Black Widow”, also hit Disney. She was dissatisfied that “Black Widow” was released in theaters and streaming platform Disney+ at the same time, which affected the actors’ profits. She sued court.
Although the number of members of the streaming platform Disney +, which was launched not long ago, has increased, it has affected Qiao Hansen’s box office share. Although the problem was quickly resolved afterwards, it caused criticism that it did not respect talents enough.
Union and Shareholder Challenges
In the summer of 2022, activist investor Daniel Loeb’s hedge fund Third Point also pressured Disney to spin off the sports channel ESPN, adjust the composition of the board of directors, and cut expenses.
Most importantly, Disney also canceled the semi-annual dividends that represent the most important interests of minority shareholders, angering long-term investors.
Bob Chapek has only been in office for two years, but he was called out by Disney employees, which shows how unpopular he is.
Get involved in sensitive political issues
Executive Director Bob Chapek also opposed the “Parents’ Educational Rights Act” passed by the Florida government during his tenure. Say Gay Act, which offended Ron DeSantis of Florida. The Florida government was annoyed by the loss of autonomy; the state mobilized Republican congressmen to quickly revoke the autonomy of the Disney Kingdom in the “Reed Creek Improvement Area” for more than half a century.
Since Disney World settled in Florida, USA in 1967, it has enjoyed exclusive local “autonomy” for more than half a century, but it was abolished overnight by the state government on April 22, 2022. Not only did Disney lose its jurisdiction in the hinterland of Orlando, the world’s largest theme park, it also no longer enjoyed tax exemptions, and many preferential incentives were cancelled.
In May 2023, Disney announced the cancellation of a $1 billion office park construction plan in Florida, and sued each other with the Florida Republican government. Threatening to cancel a $17 billion theme park expansion project in Florida over the next decade that would create 13,000 jobs. It seems that until the end of Iger’s term, the relationship between Disney and the Florida government will hardly be effectively improved.
Disney stocks become hot potato
Share price reflects company overall performance
The capital market is extremely sensitive to the performance of listed companies, that is, the overall performance of listed companies will be directly reflected in the company’s stock price, which cannot be fooled.
Stock prices hit new lows again and again
If Disney’s stock price has fallen by 59% compared to its all-time high of $201.91 in March 2021, it has also fallen by 7.3% from 2023 to the end of August. Throughout August, Disney’s stock price has repeatedly reached new lows! 24) closed down 3.9 percent at $82.47, the lowest price since October 2014.
Since Iger’s return to the pot, Disney’s stock price has fallen by more than 17%.
How so?
The consensus on Wall Street is: Disney’s current stock price is still relatively high compared to its peers.
Disney has problems in nearly every line of business: declining cable TV, streaming challenges, underperforming movie studios, and weak performance at Disneyland are just some of the current challenges.
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