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 stock price. When Iger returned as CEO of Disney back in November 2022 , he promised to implement cost reductions and clean up the House of Mouse. This week, he delivered by following through on jobs cuts first announced in February, targeting about 7,000 total job cuts as part of a $5.5 billion cost-saving plan. In a memo to staff 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 change at the top of Marvel’s consumer product unit, a newly revealed move to maintain control over Disney’s special tax district in Florida, and Wall Street ideas on how more value could be created around Disney. It all seemed to shape investor perceptions of the stock, which gained 6% this week and is now up more than 15% for the year. Still, at just above $100 per share, Disney shares would have to gain nearly 50% to reach its 52-week high set last year and more than double to exceed its all-time high set back in early 2021. DIS 5Y mountain Five year performance Disney is “worth substantially more than people realize,” Jim Cramer said this week, noting that the company is taking meaningful steps to prioritize profitability. Here’s a breakdown of all four developments and the Club’s take on each. Disney ditches metaverse The news: CNBC confirmed on Tuesday that Disney is getting rid of a small division focused on deploying metaverse initiatives. Disney originally planned to use the metaverse as another platform to reach audiences with its content. The division, which was established by former CEO Bob Chapek, is laying off 50 employees. Mike White, who led the team, will remain at the company. Disney jumped on the metaverse trend in 2021, when Meta Platforms (META) (then Facebook) began to focus its strategies on the virtual world. Disney’s metaverse layoffs are part of Iger’s broader corporate restructuring plan. The Club’s take: Even though we would like to see Disney revisit this field in the future, its metaverse layoffs, which are a part of the company’s larger headcount reduction efforts, are a step in the right direction. In order to improve its balance sheet, Disney needs to wind down unprofitable business units and ones that don’t produce revenues. Peltz ally fired The news: Iger ousted Ike Perlmutter, the long-time CEO of Marvel Entertainment, the consumer products division that’s operated separately from Marvel Studios. Disney confirmed the firing Wednesday to The New York Times. Perlmutter has been seen as a controversial figure for supporting close friend and large Disney shareholder Nelson Peltz’s battle for a board seat. Peltz later announced on CNBC an end to 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, Disney bought Marvel from Perlmutter in 2009 in a $4 billion deal. According to the Times, Perlmutter has had nothing to do with the movies since 2015. The Club’s take: It wasn’t surprising to see Iger push Perlmutter out in aftermath of Peltz’s proxy battle. What will be missed by Perlmutter’s departure is his rigorous cost discipline. Whether it was about comic books, movies, or acquisitions, Perlmutter’s focus on maximizing profits dominated every business decision he made. Dispute with DeSantis The news: Disney and Florida Gov. Ron DeSantis are headed for a legal battle over the company’s long-standing special tax district around Disney World in Orlando. Five DeSantis-appointed supervisors, tasked to assume oversight of the arrangement, said they were stripped of their governance authority . It became known Wednesday that on Feb. 8, weeks before the change, Disney-allied supervisors discreetly pushed through measures to give authority to Disney. DeSantis, a likely GOP presidential contender, started saying he wants to strip Disney of its special tax privileges after the company, under Chapek, opposed Florida’s “Don’t Say Gay” bill. The Club’s take: We view any legal issues with DeSantis that could move the stock price lower as a buying opportunity. The Club is much more focused on management’s headcount reduction and its efforts in creating a more efficient company to increase profits and deal with the firm’s massive steaming losses. Value creation, further cost savings The news: Needham analyst Laura Martin said in a widely read research note Thursday that Club holdings Disney and Apple (AAPL) would be worth more together than separately. Such a combination has been rumored — and wished for in some camps — over the years. It’s unlikely Apple would — or would even be allowed by regulators to — buy Disney. In a separate note Friday, UBS said it believes Disney will integrate Hulu into Disney+, buying out Comcast ‘s (CMCSA) remaining stake. Analysts argue the consolidation will create an additional $2 billion cost-saving opportunity on top of Disney’s target of $5.5 billion. (Comcast is the parent of NBCUniversal and CNBC.) The Club’s take: We were intrigued by Needham’s research, which addresses the massive opportunity for value creation at Disney. Namely, the company has a diverse set of strong businesses and premium intellectual property through its iconic franchises. Though we don’t see Apple buying the company any time soon, the analysis properly highlights the value of Disney’s intellectual property along with its growth potential while providing several examples of why Disney’s stock is undervalued at current levels. That’s been our thesis since the stock languished last year, and Iger is the right leader with the right plan to re-create that value. Separately UBS’ base case of Disney buying the rest of the Hulu stake could also help optimize its direct-to-consumer strategy and further its leadership in the streaming wars. (Jim Cramer’s Charitable Trust is long DIS, META, AAPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. 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Disney World’s Magic Kingdom in Orlando, Florida.
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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 stock price.
