Wednesday Morning Rant

It is always fascinating to watch when the market turns on a participant. Wall Street's unshakable faith in a company or even an entire sector can cause it to levitate above the fray, defying gravity and all rational expectation. Anyone who looks at the madness from the outside and says, "hold the phones, man, none of this makes any sense" is called Chicken Little and those inside insist that he just doesn't get it.

Eventually and inevitably, the gravity-defying wunderkinds are dragged back down to earth. Then, in a total inversion of recent history, Wall Street encircles them and starts pummeling them into the turf. We've seen it in high tech. We've seen it in banking. We will see it eventually in AI. Sometimes, we see it with specific companies.

One such company is the Walt Disney Company. Disney spent most of the past ten years flying high. It acquired rivals in staggeringly bad merger deals (20th Century Fox). It engaged in massive investments that were damaging to the company (Disney+). It picked costly fights with governments (Florida). It put out lousy products that alienated its customers with increasing frequency. It completely lost control of expenses. All the while, its stock soared while its profitability groaned under the weight of bad decisions.

Until it didn't. Disney has finally started to be pulverized by the market, and now the pile-on is getting started. According to the old rule of thumb "look at the long-term chart without your glasses and if you can still see the move, it's significant," Disney's stock price decline is significant. In response, Wall Street is doing what it does and is starting to hurl rocks at the walls surrounding the company.

One analyst telegraphed his intent during the last earnings call by putting Iger on the spot and asking about breaking up the company. Iger deflected and walked into the trap laid for him when he said to the analyst that he was "looking forward to reading [the analyst's] thesis on it." The analyst published that thesis this week.

Disney itself is also preparing for the assaults. It is taking the unusual move of hiring a permanent crisis-communications staff to coach executives and handle crisis response. The coverage of this odd development is strange because most of the articles I have read are focused on Iger's recent comments on the strikes and how he riled up the unions with them. This makes no sense. Those crises are in the rearview mirror now and you don't hire a crisis management staff to address old problems. I think Disney is expecting more crises, and expecting them soon. They are expecting to need that staff on an ongoing basis.

Disney is not just the ultimate expression of woke corporations, it is also a Dow Jones component and has outsized influence. Wall Street starting to turn on Disney is a big deal for the market as a whole, though the schadenfreude of witnessing the market starting to pummel a cultural enemy like Disney cannot be denied and makes it particularly enjoyable to watch. Disney will survive this one shape or form, but it may be an early indicator of things to come as profitability and enterprise value might suddenly start mattering again.

If the sharks are starting to circle Disney, who's next?

posted by Joe Mannix at 11:00 AM

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