Written By Subrat Patnaik | Bloomberg
The second term of Walt Disney Co.’s Bob Iger has been extended, presenting him with significant challenges in restoring the stock market prowess of his first tenure.
During Iger’s initial 15-year run as CEO, the entertainment giant’s shares soared nearly sixfold until February 2020. However, his successor, Bob Chapek, faced a 28% decline in a short and turbulent period due to the Covid-19 pandemic’s impact on Disney’s theme parks, film studio, and cruise businesses.
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Since Iger’s return as CEO in November, the stock has declined by 6.8%, while the S&P 500 Index has experienced a 14% rally during the same period. Meanwhile, Netflix Inc., Disney’s streaming competitor, has seen a 56% increase in stock value, overtaking Disney with the widest margin ever in market capitalization.
Iger, who previously transformed Disney into the world’s most influential entertainment company by acquiring Pixar, Marvel Studios, and Lucasfilm’s Star Wars, is now focusing on cost-cutting measures and layoffs, while Netflix is regaining subscribers.
“The work that he needed to do wasn’t achievable in just two years. Finding someone capable of accomplishing those tasks has proven to be a challenge,” said Thomas Martin, senior portfolio manager at Globalt Investments. “So why not stick with someone who possesses such experience and expertise?”
Although significant stock gains upon a CEO’s return for a second term are not guaranteed, notable successes include Starbucks Corp., which saw its shares surge more than 500% during Howard Schultz’s comeback to guide the coffee-shop chain through the financial crisis.
Another example is Steve Jobs, the late co-founder of Apple. Although not CEO when he was ousted in 1985, Jobs’ return in 2000 resulted in a 1,300% stock gain under his leadership, ultimately transforming Apple into one of the world’s most valuable companies until his departure.
On the other hand, Michael Dell, who established one of the largest personal computer companies from his college dorm room, returned as CEO in 2007. However, the company’s shares continued to underperform until Dell took the firm private in 2013.
According to Laura Martin, an analyst at Needham & Co., Iger’s extension until 2026 provides investors with a “higher signal quality regarding Disney’s path,” offering a “reasonable investment timeframe.”
The extension also grants the 72-year-old Iger more time to find his successor, a task that is anticipated to require a significant amount of time.
“In hindsight, it was clear that the initial two years wouldn’t be sufficient,” added Globalt’s Martin. “So, will the next two years be enough? The short answer is probably not. They will most likely need more time.”
Tech chart of the day
Despite the Nasdaq 100 Index’s 44% surge this year, several stocks failed to participate in the rally. Shares of major telecommunications companies, including T-Mobile Us Inc., Verizon Communications Inc., and AT&T Inc., have all declined. AT&T has been the group’s worst performer, dropping 11% in the last two sessions due to concerns over potential high costs associated with cleaning up contamination from lead-clad wiring across its nationwide network.
With assistance from Tom Contiliano at Bloomberg.
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