Editor's Note: Our Communications analyst Andrew Freedman sent this note to subscribers before this morning's market open. If you are an institutional investor interested in accessing his research email firstname.lastname@example.org
THE END OF AN ERA
Bob Iger is stepping down as CEO. While we knew he planned on departing once his contract ended in 2021, the timing seems early and surprising. Iger will take the role of Executive Chairman through the end of his contract in 2021. Iger will oversee the new CEO, Bob Chapek, former head of Parks. Chapek taking control over the day-to-day operations will allow Iger to focus his time on managing the creative/content the side of the business.
Content/creative is the lifeblood of Disney, and with the Fox assets in the mix and new DTC services, having someone like Iger making sure they are on the right path for the next decade seems like the right move. It also probably means that 21CF needs more help on the studio side. As a reminder, Bob Iger has a long history managing creative going back to his days running ABC. (Have to watch NFL rights renewal later this year too.. a lot of moving parts!)
Many thought (including us) that Kevin Mayer (head of DTC) would takeover. However, Chapek was always viewed as a close #2. Chapek has 27 of years experience at the company managing various divisions from Studio, Consumer Products and Parks. In reality, he is better suited for the role with Parks/Studios ~70% of operating income. It is more important for Mayer to focus on DTC.
I think management’s explanation for the timing of the transition makes strategic sense. Essentially, there is no better time than the present. Iger saw the company through the DTC launch and the 21CF acquisition. With those two major initiatives behind them, hand the reigns over to new CEO and make sure the transition is as seamless as possible. (With oversight from Iger).
Additionally, Bob Iger knows the negative effects bad succession planning and uncertainty can have on a firm/culture of Disney’s size… so we are reluctant to read too much into it.
While I am taking them at face value on this, many won’t. Especially as the announcement comes as concerns over COVID-19 and impact to global travel ramps up. A lot of speculation over if the timing means
1) Disney+ churn problems
2) 21CF integration problems
3) Iger for President 2020
4) Iger health problems
5) Kevin Mayer will leave the company now after being passed up.
While we still like DIS long-term, we realize that the stock is unlikely to work given all the uncertainty near-term. We believe consensus EPS estimates for FQ2/FQ3 need to come down more, but expect the fundamentals to inflect positively later this year into 2021.