Disney’s Shareholders Should Give Bob Chapek a Chance … Again

Theme park and streaming content company Disney (NYSE:DIS) has been in the headlines lately. However, the focus hasn’t been on any of Disney’s magical characters. Rather, the buzz has been about CEO Bob Chapek getting a three-year contract extension. The impact on DIS stock has been ho-hum, but commentators on social media are still talking about this notable event.

There’s a lot to consider here. Chapek took the helm in February 2020, replacing Bog Iger in the CEO role. Iger had been with Disney for a long time and was almost universally liked.

It’s an entirely different story with Chapek. He’s controversial, and Disney shares haven’t held their value well during Chapek’s tenure so far. However, this isn’t entirely his fault as Disney has been hit with challenging circumstances. In time, investors might come to trust the CEO if he can establish and execute a clear road map for Disney’s future in the 2020s.

Ticker  Company  Recent Price
DIS Disney $96.50

What’s Happening With DIS Stock?

The renewal of Chapek’s contract was revealed after the stock market concluded its regular trading hours on June 28. This should be huge news — positive or negative — but significant either way. Therefore, DIS stock ought to have made a sizable move the next day, right?

As usual, logic didn’t prevail in the markets. The Disney share price barely moved at all on June 29, and basically closed unchanged that day. Thus, the stock continued on its downtrend since the beginning of the year.

If we extend the look-back period to the time when Chapek first took the CEO position at Disney, we might conclude that DIS stock has lost around 30% of its value. This might suggest, at first glance, that Chapek didn’t deserve to have his contract renewed for three years.

A Position of Strength

It’s also rather odd that Chapek’s contract renewal wasn’t announced on Disney’s investor relations news page, as of June 29. Did Disney’s board make a terrible mistake, then?

Not necessarily. Remember, the Covid-19 crisis plunged America’s economy into a recession, and DIS stock into a bear market, right after Chapek took the CEO position. Then, two years later, Russia invaded Ukraine, supply chains were backed up all over the place and inflation wreaked havoc on people’s wallets and pocketbooks.

To quote Disney Chairman Susan Arnold, the company “was dealt a tough hand by the pandemic, yet with Bob at the helm, our businesses — from parks to streaming — not only weathered the storm but emerged in a position of strength.”

Evidently, Disney’s board concurred with this assessment. Granted, Chapek has been criticized for certain controversial views, but that’s beyond the scope of this discussion. As an investor, you can certainly consider the controversy, but also respect the board’s decision, which undoubtedly wasn’t an easy one.

What You Can Do Now

Going forward, prospective investors should expect Chapek to provide specific guidance on Disney’s future path. How will the company compete in the streaming field while drawing families to Disney’s theme parks in the coming years?

In other words, Chapek has a lot of proving to do. For the time being, though, investors can hold their DIS stock shares and give the CEO an opportunity to show what he can do.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.