Even as people across the U.S. get into the Thanksgiving spirit, stock markets seemed resigned to starting the new week on a downbeat note. Futures contracts on most major market indexes were down as much as half a percent, with the Dow Jones Industrial Average (^DJI -0.98%) faring a little bit better.
The Dow's attempt to get back to break-even territory got a big boost from Walt Disney (DIS -1.01%), which announced a surprising change in its corporate suite. The move has investors excited about where the media and entertainment giant could be headed from here, even though the company still faces substantial challenges.
Iger is back for a sequel
Shares of Disney jumped 10% in premarket trading Monday morning after the theme park operator and video content production company announced that it had made a transition in leadership. Bob Chapek has stepped down from his position as chief executive officer, and the board of directors has named former CEO Bob Iger to take back his old job.
Iger spent 15 years leading Disney from 2005 to 2020, and the executive has agreed to come back for a two-year period to help the company come up with a viable strategic vision that will allow it to bolster its growth prospects. Moreover, Iger will work closely with the Disney board to find and work with a prospective successor, presumably to take over in late 2024 at the end of Iger's agreed-upon term of employment.
Iger's return hearkens back to what has become a key period in Disney's evolution. With acquisitions of Pixar, Marvel, and Lucasfilm, the once- and future CEO was early to recognize the value of content and set the stage for massive franchises that have helped Disney keep its pipeline of blockbuster releases full. Expansion into new international markets also helped to develop what was already a strong worldwide brand, and Iger's recognition of the role of technology in media helped Disney move aggressively into streaming video when competitive pressures made it a necessity.
An about-face
What's surprising about the move is that it comes shortly after the Disney board extended Chapek's contract to lead the company. Directors could have allowed the now-former CEO's original employment agreement to lapse in February 2023. Yet even facing financial difficulties from the COVID-19 pandemic and political controversy in Disney World's home state of Florida, Disney affirmed its initial 2020 selection of Chapek by signing a three-year extension.
The irony is that Iger might now get credit for a rebound that was already in the cards. Pandemic-era restrictions on theme park and movie attendance have largely disappeared, and even Disney cruises are back on the seas. Analysts already expect 2023 earnings to climb 18% from projected 2022 bottom-line figures, and 2024 could bring an even sharper earnings growth rate approaching 30%.
That said, Disney faces newer problems. The House of Mouse has plenty of brand value, but even ardent visitors to its theme parks are vulnerable to weakening macroeconomic conditions. After getting visits in to release pent-up demand during the lockdowns of 2020 and 2021, consumers might well succumb to financial pressure to rein in their discretionary spending. Moreover, the economics of Disney+ and the company's other streaming efforts remain in question, as the advertising environment is softening at the same time that competition among streaming companies remains fiercer than ever.
For the Dow, Disney's jump on Monday morning is worth between 70 and 80 points of upward pressure on the index. Yet even as the stock pushes back above $100 per share, Disney has a long way to go to return to the roughly $160 per share it fetched at the beginning of 2022. Shareholders hope Iger will succeed, but ultimately, it'll be up to Disney's customers to decide whether Disney can regain its former magic.
