The American multinational media and entertainment giant has taken a knock this past week, after a long, great season. Disney’s stock has climbed an astounding 314% during Bob Iger's 11-year tenure as CEO. In relation, the S&P 500 only climbed 68% over that same period. But even with $8.4 billion recorded profit and so many new major acquisitions (Marvel Entertainment, Lucasfilm and Pixar Animation), their future is suddenly as uncertain as ever before.
Walt Disney Co
NYSE: DIS - 06 Apr, 7:53 PM GMT-4
97,49USD ^ 0,49 (0,51%)
As always, what makes us interested in the value of a stock goes way beyond revenues, and recently Disney has interested us a lot. As of Monday, the apparent heir to Disney CEO Bob Iger, Thomas Staggs (COO), resigned. According to Seeking Alpha: “Differences arose between Staggs and the board as they examined him for the chief role, sources said”. What followed was an almost 2% drop in stock prices, and a lot of confusion.
Staggs, promoted to his No. 2 position only last year, was understood to be the heir to CEO for Iger’s retirement in 2018. But, now he’s gone and there’s no-one to replace him.
What is Disney going to do? That’s the question that everyone was, and is, throwing around following this announcement. Disney’s succession plan, at least in the eyes of its shareholders, was all tied up in Staggs, and now that he is gone the future isn’t quite as clear as it once was for this entertainment behemoth. Of course, this has caused a mixed reaction amongst investors, but amongst shareholders it has mostly been cause for concern and brought up a degree of uncertainty. The 2% stock drop on Monday is testimony to this, but what is Disney doing about it?
Diversifying Investments to Minimise Risk
It’s a clearly defined 3D value investing tactic that Disney is cottoning onto. On Monday, 04 April 2016, Disney announced it would be broadening “the scope of its succession planning process to identify and evaluate a robust slate of candidates for consideration”. In investment terms, though, they’re diversifying, and we like that.
Before Staggs was decided on as the “No. 2”, some people might forget there was a similar struggle to find a suitable replacement for Iger. Bob Iger has built Disney from strength to strength in his 11-year tenure, which meant one vitally simple thing: This was a big decision. That’s why having only one seemingly solid investment in Staggs was worrying. With the concerns around ESPN’s “cord cutting” and their possible broadcast limitations, we like that Disney is diversifying – not only in it’s portfolio of companies but, crucially, in the management of the business too - and looking further afield for their future.
What It Means for the Value Investor
Staggs would have probably been a great CEO to replace Iger, but he was not the needle in the haystack. Now that Disney is broadening their scope on their new Staggs hunt, we believe this opens up a lot of potential value for the company in the future. However, with the questions over their ESPN network and opening of Shanghai Disneyland in this turbulent time, it seems important to now watch them closely and hold stocks until the water is a bit less murky.