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Disney - Bob Iger to return as CEO

Bob Iger is returning to his position as Disney CEO, having previously held the position for 15 years.

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Bob Iger is returning to his position as Disney CEO, having previously held the position for 15 years. He will work with the Disney board to find a permanent replacement for the group's current CEO, Bob Chapek, who is stepping down.

Disney said Iger has a ''mandate from the Board to set the strategic direction for renewed growth''.

Disney shares rose 8.6% in pre-market trading.

View the latest Disney share price and how to deal

Our view

The market seems relieved old and trusted CEO, Bob Iger is returning to the fold. The current CEO failed to convince investors things were on the right track, and that was compounded when Disney finished the financial year on a disappointing note. Huge investments into its streaming service meant eyewatering losses.

Ultimately, we're optimistic about the group's foray into the streaming space. The group's brands include Disney+, ESPN+ and Hulu. This is an important pivot, because despite stellar performances lately, we've probably seen Cable's last hurrah.

It's impossible not to be impressed by recent subscriber growth. Disney's subscriber beat is partly down to the dynamics of scale - it has simply had more room to run before bumping up against the side of the tank. And that's why the rate of growth is expected to temper soon - those sides are closing in. While that's expected, a worse than expected blip would be badly received by the market.

We concur with the old adage, revenue for vanity, profit for sanity though. Once the landgrab starts to slow, we would expect investors to pay closer attention to the streaming division's bottom line. The idea that we could see profits in 2024 is very promising, but we're reserving judgment until we see results. The required urgency is a large reason why we think Iger's been brought back to supercharge efforts and stem losses.

Fortunately, we think Disney has a head start on rivals. An excellent content catalogue - whether that's princesses on Disney+ or quarterbacks on ESPN - is one thing - but Disney's ability to sell those products through a variety of channels, multiplies the benefit many times over. Theme parks, computer games, Disney Stores - all help the group squeeze maximum benefit from its content.

And theme parks are propping up the bottom line. As travel normalises and tourism resumes, high customer volumes are offsetting the enormous costs that come with running these parks. Disney cruises are filling up again and profits are sailing. Over the long-term, we view parks and experiences as highly resilient assets. In the shorter-term, there's a chance tougher economic conditions could see ticket sales or merchandise revenue weaken.

Disney's valuation has come down significantly since the start of the year. We're not convinced this has been a fair reaction. Over the long-term, Disney has an excellent offering and should hopefully be held in good stead. The main driver of market reactions will be the speed at which it can grow its streaming business - ups and downs can't be ruled out and there are no guarantees.

Disney key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

Fourth Quarter Results (8 November 2022)

Disney's fourth quarter revenue rose 9% to $20.1bn, while operating profit rose only 1% to $1.6bn. The lower rate of profit reflects higher investment in Disney+, where losses widened to $1.5bn in the direct-to-consumer business.

Growth in Disney+ subscribers was better than markets expected. There are now 164.2m subscribers, a 39% increase, including Hotstar, the group's Indian venture. Disney+ is expected to be profitable in the 2024 financial year. However, the rate of revenue growth is expected to start slowing.

Revenue in the Parks, Experiences and Products division rose 36% to $7.4bn. Operating profit more than doubled to $1.5bn, reflecting increased spending at US and international theme parks and cruise ship sailings.

Free cash flow for the year fell $929m to $1.1bn, largely because of the effect of re-starting operations after the pandemic, as well as higher film and television spending. Disney had net debt of $36.8bn as at the start of October.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 21st November 2022