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Disney: The return of Bob Iger 'certainly a surprising move,' analyst says

RBC Capital Markets Analyst Kutgun Maral joins Yahoo Finance Live to discuss the return of Bob Iger to Disney and the outlook for the media giant.

Video Transcript


- Kutgun, as Allie just pointed out, I mean, it hasn't even been six months since the board voted to extend Bob's Chapek's contract. A lot of investors kind of shaking their heads today. What happened?

KUTGUN MARAL: Yeah, I mean, certainly a surprising move, especially for a company that has only had seven CEOs in its nearly 100-year history and following the contract extension not so long ago. It's hard to know exactly what happened behind the scenes. Clearly everyone's aware of the stock price, which is hovering at mutliyear lows. To be frank, I think that would be a hard judgment from the board, given the volatile media sector, given the broader tape overall. But shareholder returns are inescapably a key determinant of how long senior leadership holds on to their seats.

Another thing that I feel like has changed over the last five, six months is that Disney has certainly been flexing its pricing power quite meaningfully, especially at the parks and direct-to-consumer. And many investors, I think, find merit in leaning into pricing power to help mitigate the margin pressures that Disney and the rest of the broader media ecosystem is seeing. But I think there's growing concern that the company is being too aggressive with pricing at a time when consumer-- the consumer is seeing mounting challenges. And so looking ahead, the strategy might help per cap spend at the parks or RPU trends at Disney+. But it could alienate prospective and current customers, especially if the macro gets worse, and weigh on the Disney brand overall.

And I think just lastly, the move from the board certainly suggests a little bit more urgency in positioning the company for the next three, four, five, ten years. And the reality is with Iger coming in, there's only so much he could do operationally in a matter of his two-year term. And I think most important would be what does he do to really change the strategic direction of the company? And that's what we're looking forward to finding out.

- I mean, that seems to be sort of the broader question right now. I mean, to be fair, Bob Chapek came in right before the pandemic. I mean, this is a time when the parks had to shut down. Certainly there were struggles there. How much of this with Bob Iger stepping in can actually lead to a turnaround? How much of what some would consider missteps from Bob Chapek were really about the broader macro environment that wasn't necessarily in Disney's control?

KUTGUN MARAL: I think that's a fair question. Chapek did step into the role at a very challenging time. And it was especially in the shadow of Iger, who is perhaps the most well respected executive across my entire coverage. And so there have been some missteps, perhaps, some fair, some maybe unfair to judge. And maybe Iger would have been better suited and maybe the only person that would have been better suited to tackle them.

But moving forward, what can Iger do? And I think that's the most interesting question and certainly the question that we've been getting all morning long. And to me, I think the initial market reaction certainly makes sense, stock up. And I think there's a greater sense of this company is moving forward in ways that will help drive shareholder value.

To me, as much as I personally admire Iger, I think the transition does create some uncertainty that we all need to be mindful of in terms of the strategic shifts. And I think even though the longer-term opportunity remains very attractive, we still need to see what the next steps are to better evaluate the near to medium-term implications to shares, depending on whatever path Iger takes for his mandate for, quote unquote, renewed growth.

ALLIE CANAL: And let's pick up on that uncertainty and really the contrarian view to all of this because, as you said, the stock is up. But the fact that Disney renewed Chapek's contract in June for another three years and now Iger is stepping in, it just makes them look a bit directionless. It's kind of silly, right, the fact that they renewed that contract. So what's your take on that?

KUTGUN MARAL: It's a question mark for a company for Disney's status to change positions so quickly after a unanimous approval and vote to extend Chapek's contract. There are certainly questions that I don't think we'll be able to answer today, who knows if there was something going on internally. From my perspective, again, I think a lot of what has changed over the last five to six months is really to do with the market's reaction to the stock and the strategic vision and the guidance for 2023, which came in quite underwhelming in terms of the high-single-digit revenue and segment operating income growth for fiscal 2023, as well as, again, leaning maybe a little bit too much into the pricing power that the Disney brand commands, which is very different than if you go back a few years how Iger really helped shaped direct-to-consumer, for example, as making it a low-cost service to go after broad distribution and subscriber growth. And so I think as we move forward, we'll see tweaks around the pricing model and really positioning the company for hopefully the next decade.

- Two key questions I have, Kutgun. Two years, not a whole lot, right, not a whole lot of time. What are the immediate names that come to mind of a potential successor? And then another thing that Disney has to decide on down the line, what happens to Hulu when there's others like Comcast who've already expressed interest?

KUTGUN MARAL: Great question. I don't have a great answer in terms of who will take the seat in two years. It's something that the board and Iger will have to spend a lot of time trying to figure out. But I do think that near-term optimism and enthusiasm may need to be reined in a bit because to your point, two years is certainly not that long of a time, especially when you think about the fact that Iger and the board and the rest of the management team needs to work on managing through this murky macro backdrop along with what his focus should be, which is also figuring out succession planning.

When I look ahead in terms of what I'd like to see and what I think investors would like to see over the next two years are perhaps a greater articulation and reshaping of the plan with the creative side of the business, the pricing strategy that I talked about, evolution of the direct-to-consumer portfolio, especially around general entertainment, where there's this increasing conflict between Disney and Hulu and what kind of programming goes on which, along with how the sports streaming side with ESPN+ may evolve, and M&A as well. I think let's not forget that Bob Iger has a very storied and successful track record of acquisitions and rethinking the corporate profile to really execute, whether it be Pixar or Marvel, Lucasfilm.

As we move ahead, how will Disney lean into that the background and strength of Iger? And is there something that he could do to perhaps pull forward the timeline to acquire Comcast's stake in Hulu and finally move forward with what the future of Hulu in the United States might look like? And I think these are all things that we look forward to.

Again, just in terms of reining in some near-term optimism, two years is not that long of a time. And I think we'll have to see what Bob Iger chooses in terms of what battles he picks.

- Yeah, so many layers to follow on this story. It's good to have you on today to give us some insight. Kutgun Maral, RBC Capital Markets media cable and telecom analyst, and our thanks to Allie Canal as well.