Bob Iger’s Four Priorities at Disney
When The Walt Disney Company announced its theme park expansion, Wall Street perked its ears and paid careful attention.
After Disney finished its declaration to double its theme park investments, Wall Street analysts wrote new evaluations of the company’s market position.
As a consensus, these investors have noted the four priorities of Bob Iger as he positions Disney for the next decade. Let’s talk about each of them.
Building DTC and Gaining Profitability
As a baseline, I’m using a report called Investing in the Magic by Bank of America analyst Jessica Reif Ehrlich.
Overall, Erhlich considers Disney a buy with a target of $110. Notably, Ehrlich did drop her estimate by $25 in the wake of this reevaluation, though.
Wall Street typically reacts this way when a company announces that it will direct some of its free cash flow toward investments.
Still, investment analysts continue to eye Disney warily. The first three reasons I’ll discuss represent the best explanations for this caution.
For starters, the creation of Disney’s Direct-to-Consumer (DTC) business has caused financial losses.
Disney had predicted this well ahead of time, but DTC lost more than $1.8 billion in fiscal 2021 and 2022.
When Disney announces its fiscal earnings in a few weeks, we’ll probably learn that fiscal 2023 has lost more than either of the previous two years.
Not coincidentally, Iger ceded to investor demands and cut expenses across DTC.
Disney reduced the number of new projects it created, took tax write-offs on others, and performed layoffs.
All those moves combined to reduce the overhead in operating Disney’s DTC division.
However, a weird IPL Cricket issue has stymied the growth of Disney+.
Disney recently gained an estimated 9.5 million customers under an agreement with Charter Spectrum.
That move should offset some recent losses. Realistically, we likely won’t know the overall state of DTC for another six to nine months.
That’ll be the time after all the lost annual Star India subscribers no longer count toward DTC stats.
Iger has definitely moved to guarantee profitability, but we’re likely a full year away from that.
As Wells Fargo analyst Steven Cahall stated, “…we think direct-to-consumer profitability remains the real key to unlocking (Disney’s) future value.”
Managing Linear Networks Transition
We’ve talked about this one a lot lately, possibly too much for a theme park-centric website.
You can’t blame us, though. After all, Disney’s financial status drives much of its decision-making.
Since 1995, Disney’s ownership of ABC, ESPN and other cable networks has led to a staggering amount of revenue.
The Linear Networks division earned Disney a whopping $56.3 billion in revenue in fiscal 2021 and 2022.
Sadly, that revenue is trending downward, something Iger himself has acknowledged.
You don’t often hear a CEO describe one of his core products as a “no-growth business. Iger did exactly that with Disney’s Linear Networks, though.
The prevailing belief is that Disney will either sell this division or spin it off.
Nexstar, the current owner of The CW, and Byron Allen, the owner of many entities such as The Weather Channel, have already stated they’ll bid.
So, Disney already has the necessary demand to start a bidding war for its Linear Networks.
The question becomes how Iger wants to handle this division. If Disney chose a spin-off, it could add some of its debt to the new entity.
In the process, Disney would give itself a cleaner balance sheet while lowering its debt-to-equity ratio, something that matters on Wall Street.
Conversely, since Disney still owes Comcast at least $9.4 billion for Hulu, selling the Linear Networks could pay for this transaction.
Analysts want to know how Disney will address these potential asset exchanges.
“Revitalizing the Creative Engine”
Here’s the biggie for most Disney fans. Not everyone goes to the parks, but most people in the Americas watch Disney movies.
Lately, fans have debated the quality of these titles. I recently discussed the tremendous quality of Elemental and The Little Mermaid.
Meanwhile, Indiana Jones and the Dial of Destiny proved to be one of the strangest films I’ve ever tracked.
Metrics indicate that the odds of your enjoying the film directly depend on your age. Older fans adore the fifth Indy outing, while younger fans…do not.
I quite liked the film, so I guess I’m dating myself a bit there. But even if we argue about the quality of Dial of Destiny, we can all agree on a different film.
Ant-Man and the Wasp: Quantumania didn’t get there. It’s substandard for a Marvel movie and honestly mediocre overall.
Similarly, while I liked Haunted Mansion, its box office failure exemplifies Wall Street’s concern.
In 2019, Disney claimed arguably the greatest box office year ever for any studio.
Since the pandemic’s start, the studio has managed its fair of successes, topped by Avatar: The Way of Water, one of the three biggest films ever.
Still, box office inconsistencies have frustrated Wall Street analysts.
Disney’s so-called flywheel relies on the quality of its theatrical releases.
While every studio goes through dry spells, Disney’s 2023 has largely disappointed.
Disney couldn’t even win a soft box office weekend with its September 2023 release, A Haunting in Venice.
Bob Iger held one job after he promoted Bob Chapek to CEO. Iger remained in charge of Disney stories.
Many of the current struggles fall squarely on his shoulders. Now, he must redeem Disney as the best storytelling company in the world.
“Turbocharging” Theme Park Growth
We’ve talked about this one a lot lately.
Disney set its plans in motion during Destination D23. Executives hinted at massive plans in the offing.
Then, Disney filed the SEC paperwork to double its theme park expenditures over the next decade.
Disney has bragged that it can build the equivalent of seven Disneylands with the land it already owns.
A $60 billion investment assures that the construction of multiple themed lands is in the offing.
Some of them will happen at Disneyland Resort, while others will occur at Disney’s Animal Kingdom and Magic Kingdom.
Having tracked some of these stories, I can assure you that the expansion plans are daring in scope.
More importantly, Disney believes that it can reach seven times as many potential fans as those who currently engage at the parks.
Disney tracks something called affinity. The company has identified 700 million (!) people with Disney affinity who don’t visit the parks.
Disney plans to monetize these fans by creating more themed lands, cruise ships, Adventures by Disney trips, and other experiences.
In short, this “turbocharging” will build the theme park brand beyond its current levels.
That’s remarkable since Disney already gained 155+ million park visits in 2018 and 2019.
Final Thoughts
Understandably, Wall Street is excited by the notion that Disney will expand its high-margin theme park empire.
Something to keep in mind is the Disney+ scenario, though. Everyone on Wall Street loves an idea until it starts costing money.
Not coincidentally, Disney’s stock price fell by more than $3 when it filed the paperwork for $60 billion in expansion.
So, Bob Iger has a hidden fifth priority here. That’s keeping the mercurial Wall Street investors happy as Disney builds up the parks.
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