Christine McCarthy – A Walk With The Mouse

An investigation is underway into claims by investors who say Disney execs engaged in unlawful business practices, including securities fraud, with regard to the success of Disney+.

A class-action lawsuit is mounting against The Walt Disney Company as shareholders have lodged complaints against the company about alleged dishonest business practices. The current investigation concerns whether three of Disney’s officers and/or directors engaged in those practices.

The Pomerantz Law Firm press release details the events that took place in late 2022 that have led to shareholders’ claims of wrongdoing on Disney’s part:

On September 21, 2021, Disney gave a virtual presentation at the Goldman Sachs Communacopia Conference. During the presentation, Chief Executive Officer Robert Chapek acknowledged that Disney+ subscriber growth had slowed in the fourth quarter of the fiscal year that ended on October 2, 2021.

Disney CEO Bob Chapek talks park pass reservation system

On this news, Disney’s stock price fell $7.44 per share, or more than 4%, to close at $178.61 per share on September 20, 2021.

On November 10, 2021, Disney reported its financial results for its fourth quarter and fiscal year ended October 2, 2021. Disney posted quarterly results that missed Wall Street’s already diminished expectations as the Company saw a dramatic slowdown in Disney+ subscribers. The Company added just 2.1 million customers during the quarter (the smallest quarterly gain since the service’s launch two years prior), revenue of $18.53 billion, and adjusted earnings per share of 37 cents – all of which were below consensus estimates of 119.6 million subscribers, $18.78 billion in revenues, and adjusted earnings per share of 49 cents.

On this news, Disney’s stock price fell $12.34 per share, or more than 7%, to close at $162.11 per share on November 11, 2021.

Finally, on November 8, 2022, Disney issued a press release reporting the Company’s financial results for its fourth quarter and fiscal year ended October 1, 2022. Disney missed analyst estimates by wide margins on both the top and bottom lines. Revenue in the quarter grew just 9% to $20.15 billion, below estimates at $21.36 billion. Sales, at $20.2 billion, fell about $1 billion short of analysts’ projections. Earnings, excluding certain items, fell to 30 cents per share, missing the average estimate of 51 cents from analysts surveyed by Bloomberg. The Company’s DTC segment, which includes streaming services Disney+, ESPN+, Hulu, and Hotstar, reported a monumental operating loss of $1.47 billion compared to a $630 million loss in the same quarter the year prior. Revenue in the segment increased just 8% to $4.9 billion. The Company also reported a decline in its average revenue per Disney+ subscriber as more customers subscribed through a discounted bundle with the Company’s other services. Notably, the bundled offering made up about 40% of domestic subscribers, confirming that Disney was relying on short-term promotional efforts to boost subscriber growth while impairing the platform’s long-term profitability.

On this news, Disney’s stock price fell $13.15 per share, or more than 13%, to close at $86.75 per share on November 9, 2022.

Disney’s then-CEO Bob Chapek was removed from his post back on Sunday, November 20–a move that sent shockwaves throughout the Disney community. Veteran CEO Bob Iger was reinstalled, returning to The Walt Disney Company under a two-year contract. On Thursday, Disney announced the stepping down of CFO Christine McCarthy, who will reportedly take a family medical leave beginning July 1, 2023. Her final day of leave, as well as her final day of employment with The Walt Disney Company, will be June 30, 2024. An interim CFO will take her place while the company searches for the next chief financial officer. No other details were shared.

Both Chapek and McCarthy have been named in the suit, as has Kareem Daniel, who was fired from The Walt Disney Company shortly after Chapek’s removal. The three are named for their alleged involvement in “drafting, producing, reviewing and/or disseminating false and misleading statements” regarding the success of the company’s streaming business, according to the 39-page document filed in the U.S. District Court for the Central District of California on May 12.

It remains to be seen whether McCarthy’s leave of absence is related to the suit.

Disney’s Chief Financial Officer made a huge announcement about park capacity at Walt Disney World on Monday as she participated in a Q&A session at Morgan Stanley’s 2022 Technology, Media & Telecom Conference.

Christine McCarthy, CFO of The Walt Disney Company, was asked about Disney’s Parks, Experience, and Products division. Specifically, she was asked about experiences and about park capacity.

“We are coming back towards full capacity, we’re not yet there,” McCarthy said. “But one of the things we were able to do when the parks were closed was really look at some of the underlying technologies for how we could run the business better and give a better consumer experience.”

McCarthy touted the Park Pass Reservation System, which was unveiled when Disney World reopened in July 2020 after an almost four-month closure in response to the coronavirus pandemic. McCarthy said that the system was necessary as Disney dealt with capacity limitations as the parks reopened. But she says the company realized quickly that the system could continue to be used after those limitations were gone as a tool to “manage attendance.”

In fact, she made a huge announcement in the midst of all the questioning and answering that took place during the conference. She said that the parks will not be returning to pre-pandemic capacity levels. She even said that Disney doesn’t want the parks “bursting at the seams.”

During the conference, McCarthy was asked, “What does full capacity mean looking forward?” She answered, saying that the parks aren’t currently operating at full capacity. (Tell that to Guests who’ve visited lately and have returned with photos of massive crowds at Disney World!)

But if you’re thinking that Disney wants Guests comfortable with lots of wiggle and elbow room while they’re visiting the parks, think again. It’s much more probable that Disney wants you to have just enough room to reach for your wallet. When attendance (aka “crowds”) is managed (by the aforementioned Park Pass Reservation System), Guests have more room–spending room. They enjoy the parks more and feel freer with their money.

Think about a time you visited Disney World and it was so crowded, you couldn’t think. Crowds make us more easily frustrated, on edge, etc., and when we feel that way, we’re frustrated about spending money. But if we’re more at ease during our visit, our wallets seem to open more easily as well.

And thanks to the Park Pass Reservation System, Disney can continue to create more and more demand for its products and experiences: in this case, admission to Disney World.

McCarthy talked about several things that seem to play a role in Disney World’s “new normal,” including Genie+, Lightning Lane, character meet-and-greets, and other things, such as the upcoming debut of Guardians of the Galaxy: COSMIC REWIND attraction at EPCOT this summer.

McCarthy talked about the recovery of the company’s parks division, saying it was driven by ticket prices and by Guests’ spending while in the parks as well.

“Part of it is because people could not go to our parks for a long period of time, especially in California, and when they came back, they wanted to spend money,” she said.

The company’s latest earnings reports show a massive increase in revenue in its parks division–nearly $7.2 billion earned in just one quarter.

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