$350 billion. That was Disney’s market capitalisation at the start of 2021. CEO Bob Chapek must have felt his tenure was secure and that he would have a multi-decade stint as the leader of the House of the Mouse. But fast forward to November 2022, the market capitalisation has tumbled to $180bn, and Chapek has been booted out.
Disney has now turned to Chapek’s predecessor, Bob Iger, to return as CEO. Iger was much lauded during his tenure. He made major acquisitions such as Pixar, Marvel, Lucasfilm and 21st Century Fox, and Disney’s stock price outperformed (Chart 1).
Iger also launched Disney’s rival streaming service to Netflix – Disney+. In a twist of irony, it was Disney+ that led Chapek’s downfall. Disney’s recent quarterly earnings report revealed the streaming service had lost $1.5bn in one quarter! This was more than double the loss from a year earlier.
Digging into the numbers, the unit economics of streaming look terrible. Disney+ earns $3.91 per user per month, but the actual cost of the subscription is $20.71. Disney’s other businesses, such as theme parks and regular TV are therefore heavily subsidising the streaming service.
Now, Iger’s job is to turn this around.
A normal CEO would likely attack the cost base, but Iger has a taste for acquisitions. It has worked before, so he will likely fall back to his tried-and-tested playbook. The question is, who could Disney buy?
The obvious gaps are in gaming, music streaming, and social media. Therefore, names like Nintendo, EA, Spotify and Snap have been mentioned as possible acquisitions. But the biggest move would be TikTok.
The video-based social media company has rapidly become one of the dominant players in recent years. More importantly, users spend hours and hours on the app. Meanwhile, US authorities have long wanted Chinese tech company ByteDance to sell TikTok. Already, ByteDance has spun out TikTok’s infrastructure to the US to appease regulators. This could be a win-win for both sides.
Of course, Disney is laden with debt after its 21st Century Fox acquisition. And it is unclear how buying TikTok will help Disney+. Yet everyone knows how distracting TikTok is, and so Iger may use that to distract investors away from its losses. You heard it here first…
Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.