Motley Fool Money - Bob Iger 2: Return of the CEO!

Episode Date: November 21, 2022

Late Sunday night the board of directors at The Walt Disney Company fired CEO Bob Chapek and re-hired Bob Iger. (0:21) Jason Moser discusses: - The board's sudden reversal on Chapek - Expected changes in Disney's executive ranks - Iger's strengths in building relationships - Iger's track record in succession planning (13:11) Dylan Lewis and Kirsten Guerra engage in a bull vs. bear debate over Pinterest. Stocks mentioned: DIS, PEP, PINS, META Host: Chris Hill Guest: Jason Moser, Dylan Lewis, Kirsten Guerra Producer: Ricky Mulvey Engineer: Dan Boyd, Tim Sparks, Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

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progress right in the app, which makes it so much easier to stay on track. And you can get unlimited expert help at no extra cost, even on nights and weekends during tax season. Visit turbotax.com to get matched with an expert today, only available with TurboTax full service experts. Coming soon to a theater near you, it's Bob Eiger 2, return of the CEO. Motley Fool Money starts now. I'm Chris Hill, joining me in studio. Motley Fool Senior analyst Jason Moser. Thanks for being here. Hey, hey. Late Sunday night, the Disney Board of Directors fired CEO Bob Chepec. Former CEO, Bob Eiger is back in the corner office for the next two years. In the statement from the board. Susan Arnold, who's the chairman, said, quote, we thank Bob Chappick for his service to Disney

over his long career, including navigating the company through the unprecedented challenges of the pandemic. The board has concluded that as Disney embarks on an increasingly complex period of industry transformation, Bob Eager is uniquely situated to lead the company through this pivotal period. Shares of Disney up 7% this morning. to the company, we'll get to the business, and we'll get to Bob Eiger. Can we start with the board? Sure. Can we start with the board of directors that four months ago, five months ago, renewed Chapix contract for two more years? And the statement behind that news was, we are lockstep behind Bob Chapic. This is our guy.

Yeah. Take a trip back in time with me, Chris. Because I really do, I think you, you know, you You, at the very top, I think, read the quote, the statement from the board. I understand what they're saying, but I mean, if you go back to just June, when they re-upped him, like you said, let's read what they said then, too. And I quote, Disney was dealt a tough hand by the pandemic. Yet with Bob, Chappick at the helm, our business from parks to streaming, not only weathered the storm, but emerged in a position of strength. In this important time of growth and transformation, the board is committed to keeping Disney

on the successful path it is on today. And Bob's leadership is key to achieving that goal. Bob is the right leader at the right time for the Walt Disney Company, and the board has full confidence in him and his leadership team." End quote. Wow, that escalated quickly. I don't know what changed, and all I can tell you, there is something here that we're not getting.

Something changed. And it's not just, I refuse to believe that it's just. just this most recent quarterly results. That could have been the straw that broke the camel's back, but something else is going on here, because this doesn't fully add up. Yeah, we were saying right before we started recording, there's going to be a story that comes out later this week or later this year, at some point in the future, that really gives more insight into this process. Reportedly, the board contacted Bob Iger Friday night, And by Sunday, they had a deal in place, and the announcement went out at 10 o'clock Sunday night.

But you're right. It can't just be this one. Now, granted, the quarter was bad. The most recent quarter was bad. I get that. But there has to be more going on there. And I do wonder, when you think about Bob Eiger's skill, part of his skill, part of what made him a great CEO. of this company for 15 years was his ability to build relationships with business partners

with talent, and his ability to sell Disney within Hollywood. And I think we set on the show at the time when there was sort of the snafu, I think in 2020 or 2021, about the Black Widow movie and Scarlett Johansson's compensation for that movie that sort of blew up and went public. I remember saying at the time, either here in the office or maybe on one of these episodes, this is one of those things that if Bob Eager was CEO, we never would have heard about this. It would have been handled behind closed doors. They would have figured it out. And Chepec, you said this recently on the show. Cheapek made his bones in the parks, which is such a key part of the business. It's probably

a big part of why Bob Eiger himself tapped him. Yeah, and I think I read where Chepik did have some experience in the media segment, but that's back when like VHS ruled the day. So I feel like the landscape has changed significantly since then. To your point, yes, Bob Chepik has definitely had a few stumbles along the way as a new CEO. So maybe the sentiment started to form after a little while that he wasn't the ideal cultural fit. I really do believe there's something cultural here that is part of what's going on with this decision.

It's not to say that's good or bad. I just think that's probably part of it. But the modern-day media landscape is not his specialty, like we said. And given his background with a company, I mean, the modern-day media landscape is really, that's the part of the business that's in the biggest state of flux right now. So, I mean, you look at Disney, it's in the middle of a generational transition in how it produces and distributes media. And these next few years are, you're just a are just utterly crucial. I do get that. I think we all agree with that. So, Bob Eager has been there for all the big deals, all the strategy planning over the past decade plus. I absolutely understand if the board has a level of comfort with him navigating this terrain

as opposed to Bob Chepeg. But I will say, I don't think these challenges are so easily solved. He definitely has his work cut out from him. Because everything that's happened here, just over the last 24 hours less. I mean, this all creates a whole new set of questions that just aren't easily answered, right? I mean, I assume achieving streaming profitability is still the goal, the key, right? We need to know that for sure. They need to explicitly state it. Is 2024 still the goal as well? Because Chepec, you know, had laid that out there. And whether he got there or not, that would have been, you know, that would have remained to have been seen. But, But he at least had a path to how to get there.

He listed that out on the last call, where he's talking about three key things to help them get there, focusing on increasing prices of the offering, along with the ad-supported model. They said, the second, a realignment of their costs, including a meaningful rationalization of their marketing spend. And then third, ultimately leveraging all of their learnings and experience in developing a content slate that was just steady. impact that never left you wanting. And that was something that we noted early on in Disney Plus's rollout was the content was somewhat limited. It was hit or miss, and it wasn't really

as steady a state as I think they would like it to be. But those go to the things that Chepec was looking to in order to build this streaming offering. We'll Eiger guarantee this performance regardless of economic conditions, right? I think that's one thing they got the market a little bit. In that earnings call, when Chaypex said, yeah, we'll get the profitability in 2024, assuming there are no adverse economic conditions, right? There's that condition. And I just think the market maybe isn't looking for conditions there. What do we make of Chaypex's recent rigorous review and cost structure task force, right? I mean, he was looking to go through the entire business, maximize efficiencies, cut costs that weren't really contributing to return.

I think we all probably would agree that's a good thing. Is that set to continue? I don't know. How will Iager approach pricing for this? Because that was one of the big differences. Chepec was raising prices. Iger saw it as he was in favor of lower prices as a differentiator, right? And, well, I mean, higher prices is going to be an easier way to get you to profitability sooner. And so we'll have to see how Iager approaches the pricing scenario there. It's almost certainly going to result in more. more managerial musical chairs. So it's all to say that two years sounds like a long time for Iger to be stepping into this, but I think that time's going to go by very quickly, and he's going to have to deliver the goods.

He is, and I'm glad you mentioned the musical chairs, because Bob Chapec has spent part of his time as CEO installing his team into leadership positions. I am assuming that the board of directors knew when they made this decision. decision over the weekend, that part of what they were signing up for is almost certainly a huge changeover in the executive ranks over the next six to 12 months as Iger looks to put his team in place. And part of his job, as you said, two years is going to go by quickly. Part of his to-do list is finding a successor.

And for all the things Bob Eiger has been great at as CEO, I would argue the thing he has been abjectly bad at is succession planning. I think I'm in re-delayed his own retirement three times. He picked Sheapec. There were other big, Tom Staggs at one point, was the era parent. And I was thinking about this last week when we had our annual meeting. Part of our annual meeting here at The Motley Fool was our CEO, Tom Gardner, interviewed Indra Newie, the former CEO of Pepsi.

And it's about four years ago that she stepped down. And I think part of, when you look at New Yee's time as CEO at Pepsi, part of what goes in the plus column is the very last thing. She, you know, like her successor, the hand she had in picking Ramon LaGuarda, who's been CEO for four years. And that, I mean, that's a business that's done well under. his leadership. So, I'm not rooting against Disney. I'm rooting for them. But, you know, this knee-jerk reaction of, oh, Chepex's out, Iger's in, great, let's pop the stock. It's like, there is still

so much work to be done here. And Iger knows that. I just hope shareholders know it. Yeah, well, I mean, you're right. Again, I mean, I go back to all of those questions. I mean, we talked about this over the last couple of weeks here at HQ. You and I and Bill Mann We're chatting about it just the other day, and thinking, well, it would be odd to see them get rid of Chepex so soon based on, I mean, the kind words that they said about him when they re-upped him. I mean, he clearly had a plan in place. He's got goals set.

And so then we're saying, well, if you get closer to that goal of 2024, and it's becoming increasingly clear that he can't achieve that, then he really is on the hot seat and you start to get it. But you take this and you say, all right, well, you kick Chepec out and you bring someone in, it's Eiger or whoever else, but what do they do? I mean, what do you do? Clearly, you're not going to come in and blow up the streaming offering. That's like core to the business for the coming decades plus.

So what do you do? And maybe that is where some of the cultural stuff comes into play. I mean, I know there was a reorg that Chepec undertook right as he got in there that took some power, I think, out of the content executive's hands. They didn't like that that much. It seems like Hollywood didn't really get it either. So I suspect we would probably see Iger make some adjustments there as well. But yeah, again, it's one thing to replace the individual if there's just this long track

record of not getting it done. But, man, I mean, these guys stood up this streaming offering with like 240 million subscribers in no time whatsoever. I mean, you've got to tip your cap to him. And clearly, the board not all that long ago was 100% on board. It's a really, it's a phenomenal change of sentiment in such a short period of time. Jason Moser, thanks for being here. Thank you. Pinterest is a great place for finding ideas on everything from recipes, to home decor, but it has been a rough year for the stock. Ricky Mulvey hosts a Bull versus Bear debate

over the social media platform. Bull versus Bear, we get a stock, find some analysts, and then flip a coin to see which side they'll take. Today, the stock is Pinterest, the social media and image sharing site. We have two contestants making their Bull versus Bear debut. On the Bull side, we have, Kristen Guera. Thank you so much for joining the show. Thanks, Ricky. Happy to be here. And on the bare side, it is Dylan Lewis. Dylan, good to see you.

Happy to be here. Both of you own the stock, so I'm excited to hear the cases, and we will start with the bullside. Kirsten, five minutes is yours. Thanks, Ricky. So, Pinterest, for anyone who's unfamiliar, is an online platform for discovery, finding inspiration, collecting, and planning. It's kind of a half social media, half search engine. and Pinterest attracts nearly 450 million monthly active users across the globe. Now, that user base has declined sequentially over three quarters before coming in flat

in the most recent quarter. But Kirsten, you're saying, this is supposed to be the bull case. Let me finish. Here's the thing. Growing the user base isn't how Pinterest plans to grow earnings for investors. The growth story here is all about increasing monetization of those existing users. So that monetization goal is best tracked in a metric called average revenue per user or ARPOO. Before I share with you, Pinterest, Arpoo, I want to give you some contacts for some other

companies. Facebook, about $249, Arpoo. Twitter, around $26 Arpoo. So now Pinterest, $6.13 in the U.S. in Canada, only 72 cents in Europe, 11 cents across the rest of the world. We can see that social media platforms have a lot of opportunity to monetize users, and Pinterest is just getting started. So here's why Pinterest is uniquely poised to generate a much stronger ARPU from here. Pinterest is an advertiser's dream platform. So one, users visit Pinterest with the mindset to discover and consume. They are primed to explore new clothes that they like. find their next travel destination or plan their wedding. And that openness of users to discovery is very attractive to advertisers.

As is its trove of user data, knowing user searches, saves, and pinboard curation really helps advertisers to keep ads highly targeted. And that's very efficient ad spend for them. Two, Pinterest is also just, I mean, it's a really pleasant place to be with Facebook and Instagram parent meta pivoting in a wildly different direction and Twitter. melting down, Pinterest is looking more and more attractive to advertisers. So we saw a ton of advertisers pull back from Twitter in response to fears that the platform would become less moderated, more politically charged, and Pinterest just doesn't stir those same fears. It's not

built around controversy. It's just a place for people to explore, to be inspired, and to curate things that they like. Three, Pinterest is making a lot of moves to make the overall ad experience better for both advertisers and its end users. So with the acquisitions of video editing app, Bochi and AI-powered shopping app, the yes, it's never been easier to make modern content like videos on Pinterest and have that content find its way to the most interested users. So how has this focused already played out over the last year? Well, international users, which represent Pinterest's biggest opportunity at nearly 80% of its monthly active users, their international average revenue per user is up 24% compared to a year ago.

US and Canada is up 15%. Now, a quick note on management, because Pinterest did recently replace founder Ben Silverman with new CEO Bill Reddy. Now, I really liked Ben Silverman, but I think it says a lot when a company recognizes that a new lead is needed to take a company to the next level. And that's where Pinterest is now. CEO Ready did not step up from within the ring. of Pinterest, which could be concerning, but his background is strong for the task at hand.

He was president of Commerce, payments, and next billion users at Google. Finally, I could also mention that the company is profitable, free cash flow positive, has a very respectable debt to equity position, but I don't want to dilute the Pinterest argument too much. Again, the big story here is Pinterest's massive opportunity to monetize its existing users in a way that's beneficial to both advertisers and consumers. Kirsten-Gueira, thank you for the Bull case. But surely there's a reason the stock has been more than cut in half. Let's hear the bear case. Dylan Lewis, five minutes is yours. There are reasons that this company has been cut in half. And it's tough to see. I'm a Pinterest

shareholder. I love the academic exercise of this because it's putting me in a spot to really question a holding. And I think it's something that everyone should do with any company in their portfolio. I agree with with a lot of what Kirsten said. And I will say my confidence in Pinterest has been shaken recently. Let's get a little bit into why. The promise of Pinterest, when it came public, was we are just beginning to effectively monetize a social media property that has a critical base of users, and we have decent levers for growth. We're going to go through a ramp-up in monetizing, where we are increasing our ad inventory and expanding it over time. We're going to be exploring new ad products. We're also going to be exploring new ad products. We're also going to

to be adding more users to the site and growing the monetizable activity that happens on it. Now, I honestly think Pinterest could not have timed its public debut any better for people who were early insiders and early investors. The company came public at a time when it was putting a serious concerted effort in a monetization and was pretty much guaranteed to show gaudy, topline growth. Increasing ad load, still showing user base. There's a lot of things moving in the right direction. There's a growth story and a monetizing story happening there.

It was founded in 2009 and did not make significant progress on monetizing for a long time. Just to kind of go back in the history of it, it crossed 500 million in trailing 12-month revenue in 2018, at a point where it had roughly 200 million users and had been around for almost a decade. When it came public in 2019, it had a $1 billion annual run rate. They then doubled their top line again at the end of 2021, where they were a major beneficiary of the pandemic, because there was a lot of focus on DIY. Why, cooking, and home improvement inspiration.

We have seen over the last couple of years the year-over-year growth rate growth from the 50, 60, 70 percent year-over-year range, and in the last couple quarters, decelerate dramatically to single-digit growth. My concern with Pinterest is that over the last few years, we saw the easy money get made with monetization. Because the site was barely monetized over the last couple years, there was a lot of low-hanging fruit for this business. And as a cautionary tale, I went through that period that we saw with Pinterest.

That growth story is very similar to what we saw with Twitter just a few years earlier. Explosive growth until the top line hit about $2.5 billion. And then for several years, the company had a very hard time finding meaningful growth, because the platform was not growing users in a big way in the most valuable ad market, which is North America. In Pinterest case, I worry that if they're not showing growth on the user side, they're going to have to focus on monetizing the platform effectively. And I think that that's going to get a lot harder for them, because as the economic

Outlook gets cloudier, and budgets tighten up for advertisers. Ad budgets are going to be focused on where marketers get the highest ROI, and that is not Pinterest. HubSpot put together a state of marketing trends report. They do this every year. They surveyed marketers to get a feel for trends in spend and performance. They asked the question, what channel has the best ROI on paid social media campaigns? Leaders, Facebook, Instagram, YouTube, Twitter, TikTok, Tumblr, Reddit, all in front of Pinterest. That is the best. a lot of numbers to go through, and it's a lot of names to go through for marketers. Just as it case and point for the profile that Pinterest has in the digital ad market, in a

50-page report, Pinterest gets named four times. Facebook, YouTube, TikTok, etc., get name-checked dozens of times, and I worry that they are going to face that same bottom of the pile status when we're looking at tighter ad budgets going forward over the next couple quarters. Dylan Lewis, he's bringing Tumblr back to the mainstream. Thank you so much for the bear case. Kirsten. Thank you for the Bull case. You can go to at Motley Fool Money on Twitter and decide who made the better argument, because today's lucky winner will receive. Today's lucky winner will receive salt, pepper, and storytelling.

That's right. Today's winner will receive an easy weeknight asparagus recipe from Chefwell. Sure, this recipe is the cooking time and necessary ingredients, but you'll also receive a likely discussion on the philosophy and family history behind this delicious side. You'll get the origin story for Chapwell's roasted asparagus in the first five paragraphs. And this recipe includes some substantiated and anecdotal evidence about its health benefits. A link to this webpage could be yours if you win Bull versus Bear. Produces and spices are not included.

As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against. So don't buy ourselves stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow. You know,