"The only constant in life is change," as the old saying goes. That seems to be particularly appropriate when applied to Walt Disney (DIS 0.15%) in recent months.
In late November, Disney shareholders sent up a collective cheer at the return of iconic CEO Bob Iger, who returned to run the House of Mouse after a nearly two-year hiatus. Iger immediately set to work, unwinding a sweeping reorganization initiated by former CEO Bob Chapek before his very public ouster. Several other recent developments bear Iger's fingerprints, including some fan-friendly changes to theme park policies and a requirement that employees return to the office at least four days per week.
Today, two new developments greeted Disney investors. The company has elected a chairman of the board, and an activist investor is picking a fight with the house that Mickey built.
Mark Parker will run the show
Disney's board of directors announced late Wednesday that it named Mark Parker as its new board chair, succeeding the departing Susan Arnold -- who has reached Disney's term limits.
Parker is the executive chairman at Nike and was CEO at the shoemaker for 13 years. He has been an independent director at Disney for the past seven years. Parker will also helm the board's Succession Planning Committee, tasked with finding an eventual replacement for Iger, whose current term as CEO will be up in two years.
In a statement accepting the role, Parker addressed the elephant in the room, saying (emphasis mine), "I am honored to have the opportunity to serve as Disney's Chairman, and I look forward to working closely with Bob and his management team on a strategy of growth that balances investment with profitability." Parker also said one of his top priorities would be to identify a successor for Iger once his current two-year stint ends. It's worth noting that Parker has experience in handling a chief executive transition, having done so at Nike.
Agitating for change
In another development, Disney announced that activist investor Nelson Peltz of Trian Fund Management is looking to pick a proxy fight. Trian accumulated a stake in Disney worth more than $100 million, according to The Wall Street Journal. The fund is angling to get Peltz a seat on Disney's board, but the company declined. Disney said its board of directors had "engaged with Mr. Peltz numerous times over the last few months," but after several overtures was unable to come to an agreement.
Soon after Disney's announcement, Trian Fund publicly nominated Peltz for election to Disney's board. The matter will ultimately be decided by Disney shareholders at the company's annual meeting in the coming months. The company has urged investors to vote with Disney's slate of director nominations.
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Peltz is a well-known activist investor who hasn't shied away from going after big targets. He has previously taken on Procter & Gamble, General Electric, and DuPont, with mixed success.
Trian and Peltz launched a public campaign and a presentation titled "Restore the Magic." He cited the recent stock price decline and financial performance as evidence of mismanagement, calling Disney "a company in crisis." Peltz accused the company of inadequate succession planning, excessive compensation, and a lack of cost discipline, among other alleged shortfalls. Peltz also called Disney's streaming strategy "flawed" and is pushing for the reinstatement of Disney's dividend by 2025.
The only constant is change
These developments come at a time of great transition for Disney. The company's theme park business has largely recovered from its pandemic-induced slump, though investors have largely focused on Disney's direct-to-consumer (DTC) business.
The segment has been adding subscribers at a healthy clip, with more than 12 million joining the ranks of the company's flagship service, Disney+, in its fiscal 2022 fourth quarter (which ended Oct. 1). In all, the total number of subscribers for Disney+, Hulu, and ESPN+ was 236 million, surpassing streaming pioneer Netflix, which has a total of 223 million.
Unfortunately, investors were concerned about the high cost to acquire these subscribers, sending Disney's stock lower in the wake of results. The DTC segment generated revenue of $19.5 billion last year but delivered losses of more than $4 billion, primarily the result of its significant investment in content for Disney+. The company noted that Disney+ was still on track to reach profitability by 2024.
The company faces other challenges. The ongoing phenomenon of cord-cutting has reached epic proportions, while the costs of programming at ESPN continue to skyrocket.
On the other hand, investors should take heart in the fact that Disney has a 100-year history of success dealing with an ever-shifting-audience, changes in technology, and overcoming economic headwinds. Furthermore, the company warned investors that it would spend heavily to make Disney+ a streaming contender, something it achieved much more quickly than many imagined.
The bear market hasn't distinguished between quality companies and their inferior peers, with most stocks well off their peak. Given its track record of success and position as an industry-leading media company, Disney will no doubt recover its magic. And with a price-to-sales ratio of less than 2, Disney stock is a bargain.
