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!
Have been making Disney World out vacation destination for 10 straight years. Our last trip in August was disappointing. Food has declined for a couple years, very few if any gluten free options, attraction broken down, no tram service, merchandise focusing on gay pride and other selections very limited.
Our family has decided to not go to Disney world for our 11th year in 2024. We will be taking a trip out west instead. CEO has to go and Disney must make changes back to what made the parks great previously. We will not be back until changes are made.
Yes FOOD HAS GREATLY DECLINED!! I was there last October for the first day of the 50th. Went back this September this time specifically for a Dinning experience. Had dinner at: Whispering Canyon, Hollywood & Vine, The Plaza, Rain Forest Cafe (breakfast at HS), Diamond Horseshoe, The Boathouse, Tony’s Town Square, La Haceinda, and Space 220. None of which I could write home about. Worst was the Plaza, followed by Diamond Horseshoe. Can you imagine going into an ITALIAN restaurant (Tony’s) and being charge EXTRA for BREAD. The only ones to cross the line of average was The Boat House and Space 220. Last October I raved about the Lobster at Space 220, it was GREAT. This year I thought it was GREATLY OVER COOKED. Food definately been going down for the last couple of years.
I think Disney is relying on brand loyalty to keep things afloat in tough times. However, they need to wake up and see that the brand name has been gradually ruined by BC’s money grabbing agenda. They think they will always have lots of people to go to the parks, no matter what.
But it looks like things are changing with unsatisfied APer’s, DVC owners selling out, and many loyal fans (including our family) who are definitely not going back. I won’t say never, but they would have to return to the Disney of old, with excellent customer service, good return on investment, and taking care of their attractions , grounds, and resorts. Since I don’t think that will happen, we have said goodbye to disney. This saddens me as I was a big Disney fan. Now? We are going to Universal and staying in their deluxe resorts. I don’t mind paying premium prices for a premium experience, and Universal checks all the boxes. Unfortunately disney does not anymore.
I hope that the board wakes up and sees what is really happening to their brand name. No brand name is excempt from failure – look at Sears for example. There are many others who never recoverd from their brand name decline. I hope this doesn’t happen and the powers that be wake up and change things before it is too late.
Brand loyalty it the only thing keeping Disney afloat. But nobody is addressing this is coming from overseas investors, NAMELY CHINA. China is filling the parks with JUNK, I just was just at WDW in September and bought a new “remote control” 50th Anniversary Monorail ($140.00) had it shipped home to Northern WI. It did not work, I contact CS they gave me a return label for an exchange.. It came and it was busted, called again for another exchange. This time I did not have to return it, they said just donate it. Third one came and it was busted too. Got my money back and they told me to donate the third one as well. Apparently they have a big problem with that monorail as they don’t even want to pay the return. Almost EVERYTHING in merchandise is CHINESE C**P. They have a big investment with Disney and product control is basically “I don’t give a dam”. It is all about the investment. How many people buy something of low value at Disney take it home and does not work or is busted. Nobody takes the time to return it. JUNK JUNK JUNK, we buy and Disney and Disney investors make money.
I AGREE fully tha Chapek & Karey Burke should have be fired a long time ago. They have political agendas that have NO PLACE in the World of Disney that should be neutral.
Walt would be turning in his grave to see how far astray his vision has gone. Bring in someone who still is a visionary for Walt’s dream of a place that ALL families can be together and enjoy and everyone will be happy from the cast members, visitor’s and the board.
Chapek is not a good fit for the job. The higher ups must have known that before he was offered such a powerful position. But what’s done is done and now Disney needs to polish Chapek’s image, or at the very least, show him how to better communicate with the public.
However, having said all that, I don’t think Disney’s brand is going to be tarnished by a ho-hum, foot in the mouth CEO. Nor will they greatly suffer from a recession. They’ve weathered a lot more and have come out okay. Also having said that, until things get better, after 50 years of trips, I will no longer be vacationing at WDW. I’m sure they won’t miss me, but I will miss them.
We sold our Disney stock several years ago when they stopped paying shareholders dividends. Now our vacations through DVC are solely to go with family and remember better times when it was fun to go. Chapek is a disaster and the anti Walt. He’s got to go
Sold my Dis stock which I’ve had since forever and did not renew our annual passes. I’m just one of thousands who have done the same thing. Chapek should never have been given the job. He needs to go along with a whole bunch of his incompetent brethren.
Tom, while not necessarily specific to this article, I wanted to comment how much I enjoy this site. Your insight into the parks and Disney in general is impressive, but then you get into very thoughtful discussions regarding finance, law, and Dole Whips! Thanks for all that you do. We only get to Disney World once a year, but your articles keep me connected and informed.
Yeah, I agree! Let’s give it up for Tom and Sarah!
There is too much to unpack in a simple blog reply, so I’ll attempt to keep it brief (this time).
Comparing stock valuations of Disney & Netflix in the short-term is unfair. Netflix current stock price is less than half of it’s 52-week high; Disney, by comparison is faring better. Said differently, Netflix is more volatile, as it should be (because they don’t have Parks making up for other losses).
But let’s stick with Netflix. To drive viewership, they create content out of thin air and are profitable. Disney started with a huge amount of content, makes blockbuster movies – and it’s streaming service is not profitable…..and getting worse. It really is head scratching.
For many years, ESPN (& ABC) was the driving force of stock profitability at Disney. Of course, this cashflow stream has been disrupted by changes in the market place & consumer attitudes. Disney’s response appears to be modestly investing in DraftKings.
And as pointed out by Tom & other blog posts, Park revenue is not likely to increase at the same metrics since Genie has been active for a full fiscal year.
So the question remains – what does Disney do next to increase profits to make shareholders & analysts happy?
Mr. Chapek’s answer is, “Trust me, despite mounting losses, as promised, streaming will be profitable in 2024.”
Maybe Disney should hire someone from Netflix to figure this out, because Mr. Chapek does not seem to inspire confidence.
Chapek is not good at this role. Disney will always make money. But what Chapek and some of the current leaders are forgetting is that the allure for Disney is that it creates a certain feeling in its guests. Currently, that feeling has taken a beating. Disney’s focus should always be about maximizing the enjoyment of its guests and people will spend money. Yes, people are spending money now because of the raised prices and cost cutting, but that is not sustainable long term. Disney used to differentiate itself, now it’s feeling tired.
I agree with how much Disney has changed for the worse! Very sad! I visited twice this year and I think I have had enough being nickel and dimmed on everything. The rides were down, the food was not good anywhere so disappointing!
Disney+ subscribers are being driven by the wireless carrier “giveaway’s”. I would be interested in the mix between those that get a subscription as a “perk” vs the ones who voluntarily sign up online.
Perks to try, on us
Try Disney+, discovery+, Apple Arcade or Google Play Pass, and Apple Music for 6 months on us
Amex is also currently running a 50% off deal for the next year for their cardholders and one of my grocery coupon apps was giving away 3 free months for filling out a survey. The subscriber counts are definitely being heavily goosed right now.
The current situation is making me wonder if we will see some giveback from Disney in the future months.. The taking away of discounts and now we have 2 hurricanes in a month feels like revenues might be impacted negatively for 2023. Is this similar to the climate in the early 2000s that led to free dining plans being offered to drive bookings back up in mid to late summer? I am wondering if the dining plan will make a comeback in the next 3-6 months to help keep bookings up for 2023… Disney needs to take some attention back as Universal has been drawing a LOT of attention lately!
Fans have wanted Chapek gone for some time; maybe the Disney board and larger stockholders will finally wise up and agree now. As a fan and small stockholder, I’ve realized Chapek’s leadership is lousy for the company for quite a while. As for all the money rolling in at the theme parks, it’s simply because of Chapek’s nickel & diming of the guests along with cost cutting, leading to dissatisfaction with both guests & cast members: great for short term gains, but lousy for the long term. And, as pointed out, it’ll be telling what will happen with Disney+ as those initial 3 year deals run out although next year may be even more telling as many of those subscribing under the 3 year deals will still be able to squeak under the upcoming price increase for another year.
I have said before that Disneyworld is starting to remind me of Six Flags. The Cast Members are not nearly as nice, and often rude, the parks are less kempt, downtime for attractions is higher, and the genie+ is making the rest of the visitors feel like 2nd class citizens. I have a visit scheduled for December, but it will be my last for several years.
I was wondering when you would touch on this. I think that a lot of the investor angst is more about the change in trajectories as opposed to the absolute values of the metrics. The company has been doing a lot of borrowing from one segment (e.g. Parks) to support very high expenditures on other projects (Streaming). Now that they’ve reached the apparent limits of profitability in Parks (and seen that trend reverse with inflation pressures and wage demands), they need to see streaming get closure to self funding. Which will not even begin to happen by their target date. Without sufficient funding through Parks and other sources, Streaming content will have to be pared down, which will lead to lower subscription numbers, and THAT is the prospect that freaks out investors and the Disney execs.
Add in a trend towards failure to execute projects to their full potential, i.e. movies that do “just OK” in box office or streaming numbers, or marquis streaming titles that fail to launch an entire franchise, and you get short term production that doesn’t lead to long term value. A new Pixar title needs to deliver more than a 30% return on its cost; it needs to be good enough to launch the next two sequels and make people scream for more. The hit rate at that level has dropped way off. Dreamworks can pump out a couple of kid focused fluff titles each year that will make a return on investment. Disney titles (and experiences) need to do that AND add to long term brand quality. No one is going to pony up an extra $150 a night to stay in an “Onward” themed resort room. Pixar, Disney Animation, Marvel and Lucasfilm titles have been mostly underwhelming in the last several years. Not failing, but not smacking it out of the park. The studios have been rushing projects, cutting corners and lowering standards and that’s eroding the long term prospects of the studios.
Personally I think most of the analysts are being way too sanguine on their price targets. I would put my number somewhere between $65-$70. There is just so little up side from a profitability perspective and so much that can go very wrong in the near term. As for Chapek, I think he’s a one trick pony. He can do operations and maximize net income, but that’s it. I don’t think he has the interpersonal skills to find, hire or retain the best people to head divisions. Chapek isn’t the one who finds the writers/directors that will create the next generation defining franchise, that’s not his role. But he hasn’t been able to find the right folks to do that, and that’s on him.
There are so many things in your post that I agree with, but you really nailed it with your “one trick pony” comment. The guy who was instrumental in the Disney movie vault strategy is not the best guy to create the new movies. The park reservation system, along with not selling annual passes, is the latest iteration of that same strategy. BTW- I also really appreciated the comment about the Upward-themed room! Pure comedy gold!
Agree with David. Your post is spot on.
The only thing I’d add is, yes he can ‘do operations’ but he’s clearly not a forward thinker. So he can squeeze the last penny out of the parks but has no vision for creating the new rides that are going to get people to come to the parks in the future. To your point, maybe he doesn’t need to be that guy, but he needs to hire and retain the person(s) who can do that and he hasn’t.
Short-term, quarterly thinking might put a lot of money in Chapek’s pocket, but isn’t going to do a lot for the company long-term.
Your points about communication seem spot on. We often see clups of Walt yalking about the parks or other things on Wonderful World of Disney. Could you imagine Chapek doing that? My 1 billion dollar company would be speck inaide Disney, but our CEO is very well spoken. It seems that fkr the salary Disney offers, they could find a candidate that checks that box.
Finally! Maybe now there will improvements and changes for the better. Fingers crossed but not holding my breath.
I’m not smart enough on any of this, but I feel like the Fox acquisition has to be a boat anchor for the company.
Thank you Drew. I seldom see this point brought up in discussions about the current state of the Disney company. While I’m not a Chapek fan and would like to see him go (he doesn’t get what makes the parks special), he was saddled with a ridiculous amount of debt from the Fox deal. Iger went one acquisition too far with that bloated deal. I have no doubt the lack of investment in the parks and general money grabbing is due in part to servicing that debt.
I know they are strictly looking at this financially but the guy is a terrible face for the company. Unless they are going for the Disney villain look? Seriously -he is really unlikeable .
Sooooo….. when do the better discounts start? Lol.
Discounts are not going to help. With people up north paying $7000 for their winter heating bills, people will start cutting their budgets and Disney stuff will be the first thing to go. The value of a Disney vacation is gone. Streaming will go too. Chapek may be grabbing the money now, but he is not growing a generation of people that want Disney.