Disney Falls as Wall Street Says Bob Chapek Lacks Content Experience
Wall Street isn’t letting Walt Disney Co. off the hook just yet.
(Bloomberg) -- Wall Street isn’t letting Walt Disney Co. off the hook just yet, having pulled a switcheroo of Bob Iger for parks chairman Bob Chapek as the new chief executive officer. Shares in the entertainment company reached a 10-month low Wednesday, declining as much as 4.7%.
Given the successful track record of the longtime executive, especially when it comes to content offerings, Citigroup said “investors will have a difficult time believing any successor will be able to match Mr. Iger’s results.”
Some analysts, including Loop Capital’s Alan Gould, view the appointment of Chapek as “a strong choice.” But others not so much.
“Chapek is not the technology guy when we look at his experience, which would appear critical as the tech and media worlds continue to collide,” said Lightshed Partners’ Richard Greenfield. But he cautioned to say that “given how wrong we were about Iger back in 2005, it is absurd to pre-judge Chapek’s potential to succeed.”
Disney’s succession plans have been top of mind for investors since Tom Staggs left his chief operating role almost four years ago, according to Needham analyst Laura Martin. Back then, it was believed Staggs didn’t have enough content experience for the top job at the world’s largest entertainment company, she said. “But Bob Chapek has less.”
Lynnwood Bibbens, chief executive officer of ReachTV, a streaming service for short-form content, believes that Kevin Mayer remains “the real heir apparent to Iger,” and will likely takeover when Chapek’s contract ends. But “eventually Kevin Mayer is the guy that you want to lead,” Bibbens tells Bloomberg News in an interview.
Disney shares are on track to fall for a fifth consecutive session, underperforming the S&P 500 index down by 0.2% as of 2:33 p.m. in New York.
Here’s what analysts are saying:
Lightshed Partners, Richard Greenfield
“There is no disputing that Chapek is an extremely talented operator who has proven his ability to execute across three of Disney’s complex global business units, not to mention, he knows and fits well into the Disney culture.”
However, Chapek is not “close to the content creation that is the lifeblood of the entire Walt Disney Company.”
“The reality is there was no candidate for the CEO job that checked all of the aforementioned boxes.”
Needham, Laura Martin
Hold rating
The executive change “is negative” for Disney as its “EPS weakness is riskier without Iger’s value-creating track record.”
“What created so much urgency to replace” Iger? Martin asked, noting “that succession at Disney has been top of mind since Tom Staggs left as Disney’s COO in 2016.”
“When Staggs left, the consensus view was that he didn’t have enough content experience for the top job at Disney, but Bob Chapek has less.”
“The fact that Bob Iger believes it’s a full time job to sort out the content assets over the next two years implies it’s a bigger mess over at the FOXA content assets than we thought.”
Citigroup, Jason Bazinet
“While Mr. Iger had been expected to step down as CEO by the end of his contract in 2021, [the] announcement came sooner than expected.”
“Given his track record, we suspect investors will have a difficult time believing any successor will be able to match Mr. Iger’s results.”
With Disney potentially facing a handful of headwinds from the coronavirus to “an economic expansion that is long in the tooth,” says Bazinet, “investors may see the timing as a way for Mr. Iger to step down on a high note (whether the timing was impacted by exogenous factors or not).”
Evercore ISI, Vijay Jayant
Outperform, price target $165
“We think a quick transition makes sense and effectively eliminates the need for a transitional period, and we do not expect any meaningful strategic shifts for the company as a result of the change.”
“We fully expect Iger to remain engaged in executing the company’s long-term strategy and note that Chapek appears to have been named CEO after a long and thorough search conducted by the company’s board.”
“We would be buyers of weakness stemming” from the executive change.
Loop Capital, Alan Gould
Buy, price target $170
Given Iger’s “successful tenure the past 15 years it is not surprising that the stock declined on this news,” Gould wrote in a note. “Iger will also oversee creative affairs, we assume focusing on the media networks in general, and specifically the NFL strategy, as well as the DTC businesses.”
“We believe Mr. Chapek is a strong choice.”
“We recognize the stock has also been weak due to coronavirus fears. While that risk is difficult to quantify, it is manageable, and in our opinion, investors should only put a one-times multiple on those potentially lost earnings.”
To contact the reporter on this story: Kamaron Leach in New York at kleach6@bloomberg.net
To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Jennifer Bissell-Linsk
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