Wall Street Cuts Disney Stock Prices & Jim Cramer Calls for Bob Chapek to Be Fired
After Disney stock plummeted over 13% to close under $87 following the company’s fiscal fourth quarter earnings call, Wall Street analysts and investors had criticism for CEO Bob Chapek and his stewardship of the company, with CNBC television personality Jim Cramer calling for Chapek to be fired. This recaps what happened and discusses the reasons for deep disappointment.
For starters, Disney stock closed at $86.75 a share, which was down more than 13% following the earnings call. This was due to significant misses on revenue and earnings per share, but more significantly on the Walt Disney Company’s weak forward-looking earnings forecast.
The single-day plunge was the biggest for Disney shares since March 2020, when the stock market was ravaged due to COVID fears and the stock also fell 13%. With this drop, Disney’s stock reached its lowest price since 2014, with a fall of more than 40% in 2022. That’s far worse than the Dow Jones Industrial Average, but in fairness, is closer to on par with its streaming service counterparts. Moreover, Disney recovered in the day since, with its share price closing at $90.46 today.
Also in fairness, Disney did have some bright spots in the earnings call. Disney+ added 12.1 million subscribers to hit 164.2 million globally, and 14.6 million total direct-to-consumer (DTC) customers in its fiscal fourth quarter. Both numbers beat analyst estimates and blew away this quarter’s additions by Netflix, which gained just 2.4 million new subscribers in the quarter.
However, Disney’s DTC segment also posted $1.47 billion in fourth-quarter operating losses (you read that correctly—a loss of almost $1.5 BILLION in a single quarter), roughly 134% more than the $630 million it reported in the prior-year quarter.
CEO Bob Chapek said Disney expects that amount to “narrow going forward” and for Disney+ to become profitable in fiscal 2024 (still). Both of those things are “assuming we do not see a meaningful shift in the economic climate,” according to Chapek.
Walt Disney World and Disneyland were another bright spot. The Disney Parks division posted $7.4 billion in fourth quarter revenue, compared to $5.5 billion in the prior-year quarter.
Revenue for the parks division was $28.7 billion, up a whopping 73% from the previous fiscal year, while operating income increased $7.9 billion for the fiscal year.
As always, this was due to per guest spending growth. That was fueled by price increases to tickets and…pretty much everything else. The full year growth was also attributed to Genie+ and Lightning Lanes, which rolled out in the first quarter of the current fiscal year.
Nevertheless, profitability is weighing heavy on Wall Street despite the performance of theme parks and subscriber growth of the streaming services. CEO Bob Chapek and CFO Christine McCarthy attempted to reassure investors and paint these results in the best light possible during the commentary and questions & answers segments of the earnings call.
However, plenty of concerns remain, especially as the economic environment appears to be entering a downturn or possible recession. Traditional businesses like linear TV are under significant pressure from cord-cutting. DTC continues to hemorrhage money. Theme parks look strong for now, but their resiliency is a concern during a recession. Those are just some of the many headwinds facing Disney in 2023 and beyond.
Consequently, virtually every Wall Street analyst who has published an investor note since has reduced their rating of Disney’s stock, cut their price target, or done both.
In a flurry of investor notes, analysts debated Disney’s earnings report and conference call with executives. Several explained their rationale for increased bearishness and called into question the divergence between Wall Street expectations for 2023 and Disney’s more conservative guidance.
Despite that, and some blistering commentary expressing disappointment with leadership, they largely maintained existing recommendations to investors and didn’t issue downgrades based on the latest numbers.
Michael Nathanson of MoffettNathanson said the “biggest controversy” is Disney’s forecast for fiscal 2023 segment earnings growth of high single-digits, which was far below Wall Street’s consensus of 25%. His own outlook was previously for 34% growth, and he conceded that “rarely have we been so incorrect in our forecasting of Disney profits.”
Nathanson continued, “Given the company’s confidence that Parks trends appear resilient, it appears that the culprit for the massive earnings downgrade is much higher than expected DTC losses and significant declines at linear networks.” Nathanson now has a neutral rating on Disney, lowering his 12-month share price target by a colossal $30–to $100–signaling he believes it’ll perform on par with the market.
Michael Morris of Guggenheim titled his Disney note: “These Are Not The Results You’re Looking For.” The title pretty much says it all, with corresponding analysis of Chapek’s guidance going forward and the headline misses in the fourth quarter report.
Morris likewise dropped his 12-month price target by $30 to $115 from $145. Despite this, he still has a buy rating on the Walt Disney Company.
Jessica Reif Ehrlich at Bank of America Securities conceded the quarter was “tough,” but she still had rosier commentary than many of her counterparts.
She had previously been incredibly bullish on Disney, saying the company had been “hitting it out of the park” with streaming. Ehrlich reiterated her buy rating on the stock, but trimmed her 12-month price target to $115 from $127.
She wrote in an investor note that the quarter and forward looking outlook were disappointing, “but not as bad as headline numbers may suggest.” Ehrlich reiterated that “underlying theme park demand remains healthy and the operating income miss is largely due to one-time items vs. moderating demand.”
She also pointed out that Disney’s linear networks are “experiencing many of the same headwinds other industry participants are facing, but we believe their iconic brands and scaled/growing DTC service position them well to better manage these headwinds and industry transitions relative to peers.”
Ben Swinburne of Morgan Stanley expressed similar sentiment, reiterating his overweight rating on the stock. He set a $125 price target for Disney, placing it firmly in buy territory. Swinburne said the scaled back revenue and profit guidance for fiscal 2023 are “primarily a function of margin pressure at legacy TV networks, with lower F4Q Parks & Streaming results also contributing.”
Swinburne’s investor note reflected such optimism: “We remain bullish the Parks segment growth outlook, continue to expect it will represent the majority of Disney’s EPS over time, and believe shares are undervaluing the Parks assets at current level.”
Then there was the prolific CNBC “Mad Money” host Jim Cramer. It should be noted that Cramer is a talking head who offers financial “entertainment” rather than investor analysis (much like prime time cable “news” programming). While Cramer has a loyal fan following, he’s generally not taken seriously by anyone but retail investors.
In typical Cramer fashion, he made the radical suggestion that Disney get rid of CEO Bob Chapek. (It’s also worth noting that Cramer has generally been very “friendly” towards Chapek and deferential towards Disney, even during this year’s current stock slide. So this is quite the about-face for him.)
“Disney, they have ESPN. If we were on ESPN, we would say Chapek has got to be fired. That’s pretty cut and dry,” Cramer said on CNBC’s Squawk Box. “The losses are just mind-boggling. When you’re going over the quarter, it’s stunning.”
Cramer joined the CNBC Squawk Box panel to discuss Disney’s earnings and election results with Andrew Ross Sorkin. During their discussion of Disney, Cramer criticized Chapek for his weak explanation for the quarter. Chapek’s commentary accompanying the earnings focused mostly on the Disney+ subscription growth, while downplaying the staggering losses. This was despite Chapek being cognizant of Wall Street’s decreased emphasis on subscriber growth and focus on the financials.
Cramer said that “The way [Chapek] handled it, he made it sound like it was a four-star quarter. Delusional.” When asked if he was in favor of the board firing CEO Bob Chapek, Cramer was crystal clear: “Absolutely. Absolutely. Absolutely.”
“He had a couple of years,” Cramer continued. “The team’s going downhill. I mean…I had faith, but there is no doubt that he has to go. I mean that was just unconscionable.”
Cramer went on to say that he believed in Chapek, but he was wrong. Curiously, Cramer said even the theme parks, which Chapek was supposedly “good at,” were not performing. This assertion isn’t supported by the quarter’s results or forward-looking guidance, but CNBC has recently focused increasing attention at fan “unrest” with Walt Disney World and Disneyland, so perhaps that’s what Cramer meant?
Regardless, Cramer’s conclusion on Chapek and his future with the Walt Disney Company were unequivocal: “He’s gotta be fired,” stated Cramer. “That’s pretty cut and dry.”
In terms of commentary, I don’t have much to add at this point. We have a future article doing a deeper dive, but for now, only want to call attention to a couple of things analysts might be overlooking.
One thing we’ve pointed out repeatedly is that Chapek is not a good communicator. It’s ironic that a company specializing in storytelling has a leader who is utterly incapable of presenting a compelling narrative or delivering a message in a way that seems sincere and heartfelt, rather than stilted and scripted.
While Chapek has plenty of problems, one of his biggest is that he’s just not as convincing as Bob Iger. When Chapek stays on-script, it comes across as robotic; when he goes off-script, he often sounds condescending or ends up putting his foot in his mouth. It seems like these exact same financials and forward-looking forecast would’ve been received much better by Wall Street had they been delivered by Bob Iger.
Beyond messaging, there are question marks going forward. First is the expiration of a ton of Disney+ introductory offers that coincided with the launch of the streaming service. That deal offered 33% off a three year subscription, costing $140 in total up until now.
It was essentially a buy 2 years, get 1 free deal—or less than $4 a month. It remains to be seen how many of those will renew at full price versus cancel, but it’s probably a good thing that Disney+ is launching an ad-supported tier.
Then there’s the exhaustion of pent-up demand at Walt Disney World and Disneyland. This was actually discussed on the call, and we’ve already updated What Does Walt Disney World Do During a Recession? to reflect that analysis.
We don’t think Walt Disney World is going to see demand drop off a cliff, but historical precedent during past recessions is instructive. Even in the absence of economic downturn, 40% year over year increases to per guest spending are unsustainable. That’s especially true now that the gains from Genie+ have been felt over the course of a full fiscal year.
In short, even the things about which Wall Street analysts and investors are bullish might become cause for concern within the next year. Analysts seem to view theme park and Disney+ subscriber growth as givens, but that may not have a concrete basis in reality. None of this is to say Disney’s stock is “doomed” or the company is in financial peril—far from it—but there could be a stronger bear case than meets the eye here. Suffice to say, 2023 might be a rough year for Bob Chapek as Disney CEO (assuming he lasts the year), and probably not how the company wanted to start “celebrating” Disney’s 100th Anniversary.
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Did you listen to Disney CEO Bob Chapek’s statements during the fourth quarter earnings call? Thoughts on anything he said–or didn’t say? Are you bullish or bearish about Disney’s financial future? Agree or disagree with Jim Cramer that Chapek should be fired? Are you worried about the future of Walt Disney World, Disneyland, or the company in general? Think things will improve or get worse throughout this year? Do you agree or disagree with our assessment? Any questions we can help you answer? Hearing your feedback–even when you disagree with us–is both interesting to us and helpful to other readers, so please share your thoughts below in the comments!
Buh-bye Mr Tone Deaf!
Unbelievable he lasted that long. The board themselves need to do some serious soul searching beyond Iger. Obviously to all the rest of us, Disney successors need the magic touch, not just business acumen.
Well said Kyle !
Happy Thanksgiving from Louisiana.
Disney is losing money. And should anyone every dig into their spending reports at the resorts and what they actually end up netting per room it will turn ugly quick. Disney Authorizes thousands of Dollars in Charges that appear as income, then charges a full amount to each room at checkout, and then leaves the pre-authorized amount to expire out. Now, Disney resorts try to explain this is for your protection and to keep your credit card from shutting down fraudulent charges. If it were that simple, why not hold $1.00, such as when you get gas in many cases? (Think about how charges appear on dinning whn you leave a tip.) Yet, they authorize at least $100.00 a day, and then charge the full amount at checkout. Why? Go back to Enron and packing charges, while only actually receiving a portion of the charges. If you doubt it, look closely at the reported amount Disney parks are making vs. spending vs. quarterly gain/loss. Diney is losing money hand over fist and using resort card charing practices, which were instituted around the time COVID-19 started affecting Theme Park income, to create the appearance of income and prop up stock prices. While it is was smart, when the company continues to pursue a losing strategy it will catch up with the CEO and Board of Directors at some point. Unfortunately, the only people hurt will be the average every day work who attends the parks and the stock holders who find thier assets worthless!
Disney is about the immersion and experience for me. The higher the cost, the lower grade of service, and fewer offerings of entertainment pull me out of the immersion and dampen the experience. For better or worse, nothing has categorically improved under the helm of Chapek. I don’t believe that he is the single deciding factor in this equation, but there also must be someone better suited for this position. If the only focus of a company is end-over-end profit increases every quarter, it is going to show when they are be forced to cut corners. Exponential growth in profits with lead to an exponential decline in quality.
Disney World will always hold a special place for myself and my family… at least in our memories. Disney+ does not and will not. Nobody is going to reminisce about the time when they were 12 and their whole family sat down and enjoyed a Disney+ subscription together on their holiday. If Disney wants to expand their company into a digital market and carve out a corner for themselves, that is only logical and a decidedly reasonable business strategy. However, that is not going to empower the brand in the same way that their legacy has. Walt founded Disney with meaningful storytelling, beautiful animation, and magical family memories. The films and parks that defined the Disney brand are the only things that can strengthen their brand today. If they continue to chip away at those things and try to carry the weight of the company on higher-cost reduced offerings and a streaming service, it will continue to slip and fall. I hope that the board see that and do something to right the ship.
We have been giving way less money to Disney the last few years. We don’t watch Disney bloggers on YouTube anymore (partially because the subject no longer interests us and partially because the bloggers are getting so lazy and obnoxious).
We cancelled D+ after admitting to ourselves that marvel and Star Wars was putting quantity waaaaay above quality. It’s basically a content farm at the moment.
We have convinced several people to go to Europe instead of Disney for their “once in a lifetime” trip. (They all loved it, and spent significantly less for the trips).
We ourselves have been going to national parks, as well as more local attractions to fill our vacations.
To Me, Disney isn’t some marketing vehicle to sell whatever new focus group tested garbage they’ve created. It’s an institution, that on its own gave the Disney brand a nearly impenetrable reputation. Chapek has severely cracked that armor. I just hope they get him out of there before it can’t be repaired anymore.
Yet, here you are!
Great point on the Disney+ front though.. The Marvel and Star Wars shows are sooooo budget. Other streamers have put so much more of a focus on quality programming and storytelling… uhhhhh – I think ya dun bonked yer head, Al!
Enjoy your transatlantic vacations sans Mickey! Auf Wiedersehen!
i sold all stock and this is likely our last year.
I’m a lifelong fan of Disney, and I’ve been going to Disney World annually for over 20 years. It’s always amused me the number of people who don’t “get Disney”. You get it, or you don’t. Bob Chapek doesn’t get it. The man has no business being in the position he’s in. Fire him.
20 years a Disney Fan… Your not even wet behind the ears. Try 60 years (I am 71) I grew up as a kid with the “Classic Movies” and the Wonderful World of Color and all the other Disney Stuff. Married Sept. 11, 1976 and Honeymooned at WDW, when there was only the MK ($490.00 for five nights at the Contemporary and all park Tickets). For years I went to the Parks and went to the Disneyana Conventions from 98 to 04 when the ended, also on the ony Convention Cruise. I NOW have to label myself as a “VINTAGE” Disney fan as I don’t like the NEW Disney. I am a Chapter President in the DFC. Everthing is now about the BUCK and a WOKE agenda. They forgot the people who’s back Disney was built on. As I said Chapek and Burke have to go and give the Fans back what WE had.
I’ve been a loyal shareholder but I’m quite disillusioned about where Disney is going. They need a major shakeup. Just a few layoffs and cost-cutting stuff won’t do it. Chapek is not a storyteller CEO. He doesn’t get streaming. As a Parks guy, he still falls flat. His answer to everything is just to raise prices. We need some new product like an Amazon Prime or new ideas or new consolidation or a new CEO.
Chapek needs to go – NOW.
I’ve got a 7-step plan: 1) Fire Cheapek. 2) Remove the park reservation system and return to first come, first served like Universal still is. 3) Return to the free FastPass system. 4) Charge whatever you need to for room rates and park entry in order to pay the cast members a decent wage (that’ll be the most unpopular step with many readers I’d imagine). 5) Sell all the annual passes by the categories as they existed in March 2020. 6) Follow up the 50th Anniversary flop by announcing a return to a ‘Year of a Million Dreams’ campaign. Empower your cast members to make guests the priority (by deed, not just lip service), and make their dreams come true in both small and even bigger ways, every day. 7) And finally, stop focusing on culture war issues and mind your business as your number 1 priority. Full stop.
could not agree more. The magic is gone
Agreed! Especially the culture war part! Stick to making a magical FAMILY experience.
Michael for CEO. You nailed it. Alienating a large portion of the adult population with a culture war from C suite is just poor business. Just focus on bringing the magic back and rebuilding the Disney brand with what made it great in the first place.
I completely agree with Katie’s reply of “Michael for CEO”! The plan is simple, logical, and EXACTLY what is needed. Just one addition, bring back the Magical Express as it was the perfect kickoff and end to a WDW trip. As a dedicated Disney Fan who lived to visit Disney World and began planning my next trip as soon as I returned home, I am brokenhearted by what it has become and have no desire to return until something changes. I hope this happens sooner rather than later.
Spot on. Over the past 40 years we’ve seen many changes at WDW, but none compare to this, systemic teardown of the Disney brand . We sold or stock and won’t be visiting in the foreseeable future. The loyal fan base has been alienated.
Thanks to everyone for your replies. I worked at WDW twice: once at All Star Resort as concierge and once as security at Epcot. Disney absolutely needs to reset, in major, not minor, ways. Since this posting I’ve seen the announcement of both layoffs and tiered changes to ticket prices that they’ve announced. This is the opposite of what needs to be done. Okay, raise the admission prices across the board if need be, but K.I.S.S. Cheapek. What are you giving back to your loyal fans? Crickets. There’s your problem, smacking you right in your uncomprehending California mug.
Of course it sounds like Cramer wants Chapek fired for not squeezing *more* money out of the parks segment; 40% growth to infinity and beyond!
I always figured Chapek would be like Capone, not punished directly for most actions, but caught by the unsolvable Hulu problem rather than tax evasions. (If you want a hot take: losing the Big Ten to every other linear network company was not a good look for the live sports that drive linear network income.)
The other item is that their current assets/current liab acid test is also lower this is also an indicator of problems.
also I have noticed the number of ride breakdowns – while I have not tracked this it also seems to be a growing problem – considering other posters here with concerns with staff members may highlight a problem – they may have lost seasoned staff – both front of guests and those who new the tricks to fix things and that institutional happiness and knowledge has been lost.
Also the comments by Paycheck and the CFO – remember we keep charging more because people will pay – instead of pointing out all the new attractions and the CFO shrinking portion sizes because we are all too fat but managing to message with clarity what your kindergarten child should be learning. Not matter what your opinion of the last item is – it was something that they should have steered clear. – IE they seem to have a messaging problem
I worked at Disney World this year. The problem with maintenance is staffing, like everywhere else. The new contract was only a 1% year over year gain, so I left. Moved back to Wisconsin where I make more money because my new employer decided in order to get staff, you have to pay. Got a 10% raise, now I make what I would have to wait 2 years at Disney and I get a year over year raise. Disney and the union are buddies. Billion dollar corporation doesn’t want to pay people what they are worth, and Orlando is expensive.
On my last two visits I ran into cast members whose manner dripped with contempt for the guest.
If I run into that at Christmas, I will not simply grin and bear it. This has to end.
My family has changed Disney spending habits in recent years.
First to sink was merch and subscription spending (except D23) over the last 5 years. Price to quality plummeted. Quality control is abysmal, and they have no qualms about sending out stuff after they’re well aware it’s unfit for sale. Over and over. We no longer trust Disney to buy anything sight unseen. With going to the parks less, this means >90% reduction in our spending this category.
Dis+, we still subscribe but DH recently mentioned dropping it since we’ve barely watched it over the last 6 months. We’ll probably just do 3 months a year going forward which I wouldn’t be inclined to do if we weren’t already paying extra arms & legs visiting WDW to keep the company afloat.
Which brings me to the parks, the whole reason we became enthusiastic Disney consumers in the first place. Trips are more hectic and expensive as ever. We still enjoy it but are cutting out half our normal trips over the next 5 years. The competition wins now at current pricing. We’re going to Europe next year and expect to have a blast using our cuckoo WDW budget. When Epic Universe opens we’ll replace our WDW week with UO. Along with a planned UK tour, cutting WDW trips down from 5 to just 2.
WDW is still fun. It just isn’t nearly as golden on bang for our buck anymore. More expensive while other destinations have become less expensive, plus we’re craving more international trips to make up what we missed during covid.
Our WDW addiction has been whittled down to once every 2 years. We’ve also grown wary of the ADRs and upcharges we used to enjoy. The continued downgrades and rocketing costs have us enjoying QS, lounges, EE and EEH more than ever.
This is post-Chapek Disney consumer spending. It really has become ‘seeing what they can get away with’. I gave them many passes until it became clear current management cares little about future consumer confidence in their brand as long as they’re grabbing that extra dollar today. It’s going to bite them in the Alien Swirling Saucers. I expect DIS in the $100-$125 range for 5 years unless they start making some better decisions..