Bob Iger began executing his new vision for Disney this week with a series of changes that should improve the entertainment giant’s fundamentals — and hopefully its share price. When Iger returns as CEO of Disney in November 2022, he promises to implement cost cuts and clean up the Mouse House. This week, he delivered by following through on job cuts first announced in February, targeting about 7,000 total job cuts as part of a $5.5 billion cost-saving plan. In a note to employees on Monday, Iger confirmed the start of the first of three rounds of cuts. But there were also three other things that kept Disney investors busy: a shake-up at the top of Marvel’s consumer products unit, a newly revealed move to maintain control of Disney’s Florida tax district, and Wall Street’s ideas for how to create more value around Disney. All of that appears to be shaping investors’ perceptions of the stock, which is up 6% this week and is now up more than 15% for the year. However, at just above $100 a share, Disney shares would have to gain nearly 50% to reach the 52-week high it set last year and more than double to pass its all-time high in early 2021. DIS 5Y Mountain Five-year-old Jim Cramer said this week that Disney is “worth a lot more than people realise,” noting that the company is taking meaningful steps to prioritize profitability. Below is a breakdown of all four developments and the club handles each. Disney is ditching the metaverse News: CNBC confirmed Tuesday that Disney is ditching a small division focused on publishing metaverse initiatives. Disney originally planned to use the metaverse as another platform to reach audiences with its content. The division, set up by former CEO Bob Chapek, is laying off 50 employees. Mike White, who led the team, will remain with the company. Disney jumped in the opposite direction in 2021, when Meta Platforms (META) (and then Facebook) began focusing its strategies on the virtual world. Disney’s indirect layoffs are part of Iger’s broader corporate restructuring plan. Club view: Although we’d like to see Disney revisit this area in the future, the asymmetric layoffs, which are part of the company’s larger effort to cut staff, are a step in the right direction. In order to improve its balance sheet, Disney needs to get rid of unprofitable business units and units that don’t produce revenue. Peltz ally broke the news: Iger Ike Perlmutter, longtime CEO of Marvel Entertainment, the consumer products division that operates separately from Marvel Studios, has been ousted. Disney confirmed the shooting Wednesday to the New York Times. Perlmutter is seen as a controversial figure for supporting Nelson Peltz’s fight of a close friend and large Disney shareholder for a seat on the board. Peltz later announced on CNBC the end of his proxy fight, minutes after hearing what Iger said in his own interview on the network and what he saw in Disney’s stronger-than-expected fiscal 2023 first-quarter results. Under Iger’s leadership, Disney bought Marvel from Perlmutter in 2009 in a $4 billion deal. According to The Times, Perlmutter hasn’t had anything to do with movies since 2015. Club opinion: It wasn’t surprising to see Egger push Perlmutter out in the wake of Peltz’s proxy battle. What Perlmutter’s departure will miss is strict cost discipline. Whether it was comic books, movies, or acquisitions, Perlmutter’s focus on maximizing profits dominated every business decision he made. Dispute with DeSantis News: Disney and Florida Governor Ron DeSantis are heading into a legal battle over the company’s long-standing private tax zone around Disney World in Orlando. Five DeSantis-appointed supervisors charged with overseeing the arrangement said they were stripped of their governance authority. It became known Wednesday that on February 8, weeks before the change, supervisors allied with Disney pushed through secret measures to give power to Disney. DeSantis, a likely Republican presidential nominee, began by saying he wanted to strip Disney of its special tax privileges after the company, led by Chapek, opposed Florida’s “Don’t Say Like Me” bill. Club view: We view any legal issues with DeSantis that could drive the share price down as a buying opportunity. The club is more focused on reducing management staff and its efforts in creating a more efficient company to increase profits and deal with the huge losses of the company. Value Creation, Additional Cost Savings News: Needham analyst Laura Martin said in a widely read research note Thursday that Club Disney and Apple (AAPL) holdings will be more valuable together than separately. This combination has been rumored – and wished upon by some campers – over the years. It’s unlikely that Apple will buy – or even be allowed by regulators – to buy Disney. In a separate note on Friday, UBS said it believes Disney will merge Hulu into Disney+, buying the remaining stake in Comcast (CMCSA). Analysts argue that the merger would create an additional $2 billion in cost savings opportunity in addition to Disney’s $5.5 billion goal. (Comcast is the parent company of NBCUniversal and CNBC.) Club View: We were intrigued by Needham’s research, which addresses the huge value-creation opportunity at Disney. Specifically, the company has a diversified portfolio of strong companies and distinguished intellectual property through its famous franchises. While we don’t see Apple buying the company anytime soon, the analysis properly highlights the value of Disney’s intellectual property along with its growth potential while providing several examples of why Disney stock is undervalued at current levels. That’s been our thesis since stocks fell last year, and Egger is the right leader with the right plan to recreate that value. Separately, UBS’ base case of Disney buying the rest of Hulu’s stake could help improve its direct-to-consumer strategy and cement its lead in the streaming wars. (Jim Cramer’s Charitable Trust is long DIS, META, AAPL. See here for a full list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you’ll get a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a share in his charity fund portfolio. If Jim talks about a stock on CNBC, he waits 72 hours after the trade alert is issued before executing the trade. 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Disney World’s Magic Kingdom in Orlando, Florida.
Joe Riddle | Getty Images News | Getty Images
Bob Iger began executing his new vision for Disney this week with a series of changes that should improve the entertainment giant’s fundamentals — and hopefully its share price.
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