Bob Chapek’s Honeymoon Is Over. How Has He Done?
Two years ago this week, Bob Iger suddenly announced his intention to retire from The Walt Disney Company.
At the time, Bob Chapek qualified as both the predictable AND surprising choice.
Chapek had been the leader in the clubhouse for a while, but Kevin Mayer had seemingly surpassed him.
On that fateful day of February 25th, Disney stock started the day at $128.19 but would quickly crater to $113.21 in less than 48 hours.
Wall Street despises uncertainty, and nothing is as mysterious as a new CEO.
Less than two weeks later, the world fell apart with the onset of COVID-19, and we’ve never really looked back.
Now that Bob Chapek’s honeymoon period is over, we probably should. How has Chapek performed as CEO of Disney? Let’s try to evaluate him fairly.
Please hold all pitchforks and torches until the end of the conversation.
Disney Stock Price
Okay, let’s start with the two aspects of the business that matter most to Disney investors.
As mentioned, Disney stock fell to the $113 range soon after Chapek’s promotion. However, that wasn’t any reflection on his ability.
Instead, the steep decline signified the tumultuous change in leadership. Many analysts deduced that Iger had gotten out while the getting was good.
As the conspiracy theory/logical inference went, Iger’s contacts in China had warned him that Coronavirus could ruin his legacy. And Bob Iger cares about his legacy.
So, some believe that he left Chapek holding the bag for a series of unavoidable, impossible circumstances.
As discussed countless times, COVID-19 seemingly targeted Disney with its impact. It forced the closure of theme parks, movie theaters, cruises, and sports events.
I’ve just listed many of Disney’s most lucrative sources of revenue. If Iger really was leaving anyway, he couldn’t have timed his absence any worse…or better for the sake of his legacy.
As for Chapek, the nightmares were only beginning. A Jungle Cruise boat sank, two PeopleMover vehicles crashed, and a SWAT team stormed a Disney resort.
I called him the unluckiest CEO ever, and I still kind of think that’s true. But he somehow weathered this storm.
At the start of the pandemic, Disney stock crashed to a low of $85.76 before it recovered.
By the time Walt Disney World reopened, the stock price had circled back to $119.34. It wasn’t quite up to pre-pandemic levels, but Chapek had earned some respect.
Disney Revenue
That’s only half the story, though. The only one is revenue, and that’s where Chapek deserves credit.
During Chapek’s first quarter on the job, Disney earned less than $11.8 billion, down 42 percent (!) due to the pandemic.
Contrast that to two weeks ago. Then, Disney reported quarterly revenue of $21.8 billion. That’s $3.8 billion more than Iger’s last full quarter as CEO.
Now, Chapek only deserves partial credit here in that he owes much of it to Iger.
Before Iger retired, he acquired nearly all of Fox’s significant media assets.
At the time, I mentioned that this move would lead to higher annual revenue, albeit at the high cost of $71.3 billion. That’s how much Fox cost to buy.
Thankfully, Chapek and CFO Christine McCarthy had managed the budget admirably.
At one point during the pandemic, Disney’s net debt was over $45 billion. The current total is right at $30 billion.
Chapek reportedly despises the notion that he’s a bean counter, but accountants and investors LOVE bean counters.
Under Chapek’s stewardship, Disney is earning more money while vastly reducing its debt obligations.
Nobody could argue sincerely that Disney’s finances have grown worse under Chapek. Balancing budgets might be his one particular skill.
Disney As a Streaming Business
Perhaps Chapek’s most dramatic change thus far also hearkens back to an Iger decision.
The former CEO’s greatest mistake occurred when he chose not to purchase Netflix at a low price.
Later, Iger determined that Disney needed to compete in the streaming service industry and lined up several methods to do so.
Under Iger’s tenure, Disney acquired BAMTech, THE best streaming architecture in the business.
Not coincidentally, Disney+, Hulu+, and ESPN+ work flawlessly, whereas HBO Max, Paramount+, and Peacock users complain frequently.
Chapek benefits from Iger’s machinations. He now operates three different services, each of which comes with its own unique selling points.
Sports lovers can get their fix via ESPN+, while cord-cutter television fans can catch many cable and network programs for free on Hulu+.
Then, there’s the crown jewel of Disney’s streaming lineup, Disney+. This service didn’t even exist until November of 2019, yet it already claims 129 million subscribers.
Netflix needed nearly six years to reach the same level.
Speaking of which, Disney’s trifecta of streaming services is pacing to surpass Netflix in subscribers this year, 2023 at the latest.
Still, Chapek deserves credit for doing something daring. In late 2020, he switched the focus of Disney, turning it into a streaming service.
Folks, Disney turns 100 years old next year. Companies that mature rarely change core businesses.
Perhaps the only comparable example involves Nintendo, which has its roots in gaming cards but pivoted to videogames in the 1980s.
After 99 years of animated stories and theme park entertainment, Disney has done something similar. It was a bold move but seems like the right one.
Controversial Decisions
Okay, here is where the conversation takes a turn. Think of this section as the airing of grievances.
I won’t list them all, as you can read the comments section of any Disney site just as well as I.
The gist is that many people haaaaate Bob Chapek. So they burn him in effigy and throw darts at his shiny bald head.
For some Disney fans, the outrage stems from an overwhelming number of changes at the parks, some of which came out of necessity.
When Walt Disney World reopened, Disney needed to ensure small crowds. So, it introduced Park Passes as a means to that end.
However, we haven’t needed Park Passes as a safety measure for a long time now. Disney still uses them because it likes the system.
Similarly, Disney has temporarily (?) dropped annual passes. But, again, the underlying thought is that annual passholders pay $1,000 and then visit 100+ times.
That’s $10 a visit, an extremely low and therefore unprofitable admission price.
Everyone pays more than $100 per visit by taking away annual passes. But, unfortunately, those numbers also work better for Disney than for you.
Then, there’s the subject of FastPass, a formerly free service that now costs $15 per person per day…plus tax.
I always add that last part because it’s a sticking point for many.
Disneyland doesn’t charge tax. So why do we have it at Walt Disney World? Because Disney makes more money that way.
I could go on, but you know the deal. Almost all of Chapek’s decisions involve finances. He wants theme parks squeezing every dollar out of guests.
As a would-be guest, you resent him for it. And you’re not wrong.
How Is Bob Chapek Doing?
This answer depends on who you ask. Disney stockholders go back and forth on the subject, depending on whether DIS is up or down at the time.
Right now, the stock appears predestined to soar over the next three years.
Disney has weathered the storm, so to speak, and it has better positioned its ledger sheet for the future.
You don’t know who these people are, but SSgA Funds Management, Inc., BlackRock Fund Advisors, and The Vanguard Company, Inc. own 15 percent of all Disney stock.
These faceless fund managers like Bob Chapek very, very much.
Everyone in the comments section who complains that Disney has gotten too expensive disagrees.
Who is right, and who is wrong? I hate to hedge here, but the truth lies somewhere in the middle.
Chapek undeniably has done a remarkable job keeping Disney afloat during the proverbial 100-year-flood.
However, he does so at the expense of many of Disney’s most passionate fans. As long as the economy remains strong, I think he’s on solid footing.
Should the economy suddenly suffer a significant setback, Disney would be forced to rely on its most loyal fans…and many of them are LIVID right now.
Feature Image: CNBC.com
I am through with Disney and it’s policy to squeeze every penny out of guests. Took our family to WDW for more than 30 years. Last time there it was dirty. They took away so many of the wonderful things my husband and I enjoyed and so wanted to show our grandkids. We now take our family elsewhere and our money goes with us.