Disney: Bob Iger Back As CEO; Push Into Metaverse? (NYSE:DIS)

Thesis

Disney (NYSE:DIS) shares surged as much as 10% pre-market, as Wall Street celebrated the surprising return of Bob Iger as Disney’s CEO.

The change of leadership comes after investors’ confidence in Chapek soured and DIS stock has lost more than 40% YTD. Mr. Iger, who has successfully served as Disney’s CEO for more than 15 years, is now tasked to return Disney to a renewed path of growth.

Personally, I view the news of Iger’s return as super bullish. While investors might not necessarily expect an accelerated push toward streaming profitability, with Iger as CEO, markets might feel more confident betting on a continuation of Disney’s creative leadership. Moreover, I wouldn’t deem it unlikely that with Mr. Iger Disney is exploring creative opportunities to find growth in the metaverse. Perhaps an acquisition of Roblox (RBLX) is on the table? (disclaimer: pure speculation).

With Iger back as Disney’s CEO, I am confident to reiterate my ‘Buy’ recommendation for DIS.

Surprising Change of Leadership

On Sunday 20st November, Disney issued a press release – communicating a surprising change in leadership. Bob Chapek, who served Disney as CEO for less than 33 months is stepping down as the company’s Chief Executive effective immediately. At the same time, Bob Iger, who spent more than four decades at Disney, is returning as Disney’s CEO for 2 years.

While no official reason for Chapek’s sudden departure has been communicated or confirmed, the change of leadership is likely anchored on Disney stock’s disappointing share price performance YTD, losing more than 40% of market capitalization. Moreover, Disney’s struggles to find profitability for its streaming arm Disney+ certainly add to the decision. For reference, in Q4 2022 alone, losses for Disney’s DTC business expanded to $1.47 billion, versus a loss of $0.63 billion for the same period one year earlier. Accordingly, Disney’s Board of directors …

… has concluded that as Disney embarks on an increasingly complex period of industry transformation, Bob Iger is uniquely situated to lead the company through this pivotal period …

According to the press release, Mr. Iger is charged by the board with two key responsibilities:

[1] set the strategic direction for renewed growth, and

[2] work closely with the Board in developing a successor to lead the Company at the completion of his term

Investor Implication

Back To Storytelling

Personally, I do not think that Bob Iger will accelerate Disney’s push for profitability at the DTC streaming business. In Q4 2022, management commented that losses for the DTC business will likely narrow going into 2023, but net profitability for the segment will likely be reached not earlier 2024. In my opinion, this timeline will remain.

But Iger might be able to shift Wall Street’s focus on profitability back to an appreciation of creativity and storytelling – which might support a rising share price even while DTC remains loss making.

Accepting the role as Disney’s new CEO, Iger commented: (emphasis added):

I am extremely optimistic for the future of this great company and thrilled to be asked by the Board to return as its CEO …

… Disney and its incomparable brands and franchises hold a special place in the hearts of so many people around the globe—most especially in the hearts of our employees, whose dedication to this company and its mission is an inspiration.

I am deeply honored to be asked to again lead this remarkable team, with a clear mission focused on creative excellence to inspire generations through unrivaled, bold storytelling.

Will Disney Now Push Into The Metaverse?

Investors should also consider that Bob Iger has for a long time favored growth through M&A – as he directed a number of highly successful acquisitions, including Marvel, Lucasfilm, Pixar, and 20th Century Fox. And personally, I deem it as highly likely that his mandate ‘to set the strategic direction for renewed growth’ will anchor on acquisitions related to the metaverse.

Bob Iger is certainly open to consider opportunities in the metaverse. Notably, Iger has already invested his personal resources in a metaverse startup called Genie – a leading developer of the avatar ecosystem. In a statement announcing his investment in Genies, Iger said: (emphasis added)

I’ve always been drawn to the intersection between technology and art, and Genies provides unique and compelling opportunities to harness the power of that combination to enable new forms of creativity, expression and communication.

He also added that:

You may have an avatar, but you’ll go all over the place. And I think that it’s likely to be developed into something real as an experience.

Acquiring Roblox – a metaverse platform that pursues storytelling though user-developed gaming experiences – might be an interesting opportunity for Disney. The rationale is simple: Acquiring Roblox would allow Disney to expand the company’s entertainment empire into new forms of storytelling and provide exposure to new technology-driven growth verticals. Moreover, leveraging Disney’s IP through Roblox’ interactive/social gaming technology could likely unlock enormous economic value.

Investor Implication

Reflecting on Bob Iger’s return as Disney’s CEO, I remain bullish on DIS stock. Personally, I assume that Bob Iger will very likely be successful in shifting Wall Street’s focus on profitability back to an appreciation of creativity and storytelling. Moreover, I feel excited by the possibility that Mr. Iger might leverage his mandate to ‘set the strategic direction for renewed growth’ towards finding opportunities in the metaverse. In my opinion, there is an enormous dormant potential for Disney’s IP in interactive/social entertainment.

I reiterate ‘Buy’ recommendation and a 117.79/share target price.