Wall Street thinks Disney's new CEO Bob Chapek will be the company's profit protector as it undergoes a radical transformation

• Disney on Tuesday abruptly announced longtime Disney exec Bob Chapek as its new CEO, replacing Bob Iger, who is stepping into an executive chairman role until his planned retirement in 2020.
• While the investment community was somewhat blinded by the announcement, Wall Street analysts largely seem to believe that Disney made the best choice it could when faced with replacing a rockstar CEO during a tumultuous time for the company and industry.
• Chapek has a reputation as a leader who gets things done, having overseen the business' steadiest profit grower - the parks, experiences, and products division - and executing major expansions like the launch of Shanghai Disney and the Star Wars lands. He also has experience on the studio and home entertainment sides.
• With the succession issue out of the way, the big question left on analysts minds is whether Chapek can be the kind of bold, strategic leader that Iger was.
• "It's not a perfect choice, and not an easy choice, but I think they made the best choice," Tuna Amobi, media and entertainment analyst at CFRA Research, told Business Insider.
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Disney stunned Wall Street when it announced on Tuesday that Bob Chapek would immediately take over as CEO, while Bob Iger, one of the most respected and beloved chief executives in the US, would move into an executive chairman role - with 22 months still left to go in his contract.

Shares of Disney fell 2.5% in after-hours trading following the announcement, and continued to tumble on Wednesday.

Still, as the dust settles, many Wall Street analysts believe that Disney made the best choice it could when faced with replacing a rockstar CEO during a tumultuous time for the company and industry.

Chapek has a reputation as a leader who gets things done, having overseen the business' steadiest profit grower, the parks division, and executing major expansions like the launch of Shanghai Disney and the Star Wars lands. He's also had a hand in many aspects of the business, including parks, products, studio, and home entertainment.

"It's not a perfect choice, and not an easy choice, but I think they made the best choice," Tuna Amobi, media and entertainment analyst at CFRA Research, told Business Insider. "He has as broad an experience as you could hope for in a sprawling company like Disney - keeping in mind he has big shoes to fill."

Chapek's appointment, while seemingly abrupt, had been in the works for a "number of months," Iger told The New York Times' Brook Barnes.

Iger is now executive chairman, where he'll advise Chapek and take a heavier hand in shoring up the company's creative strategy.

The shift comes one month before Disney's annual investor meeting on March 11, which will now likely focus on future plans rather than succession strategy. But it also arrives after a blockbuster launch of Disney Plus, which has some investors questioning whether the streaming service has already peaked before it even launches in more of Europe and in India in March.

The 'right' choice, if not the perfect choice

Chapek's strong track record at Disney made him a clear - if not the "perfect" - pick to replace Iger, who was due to retire in December 2021.

Chapek had led the profitable parks, experiences, and products division since 2015, and held senior executive roles in the studio and home entertainment businesses. Having joined Disney in 1993, he also had a longer tenure than other would-be successors, like chairman of direct-to-consumer and international Kevin Mayer.

"We had assumed Chapek was the front runner given broader experience and long-standing operational roles as well as his 27-year successful tenure at the company," JPMorgan Chase analysts wrote in an investor note on Tuesday. "Importantly, Chapek is also well known by Wall Street with a big presence over the years at many investor events."

Not everyone had their money on Chapek.

Some analysts thought the mantle might go to Mayer, who had a hand in key deals like the Fox, Lucasfilm, Marvel, and Pixar acquisitions as chief strategy officer and, more recently, executed the launch of Disney Plus as chairman of Disney's direct-to-consumer and international businesses; or Peter Rice, who joined from Fox to lead its TV business and cochair its media networks, including cable channels like FX and National Geographic. Both are overseeing major transformations within Disney.

Chapek, meanwhile, has kept the core parks, experiences, and products business on course, and sailing to higher and higher profits. Under his leadership, the parks division has been "the most consistent and biggest profit grower over the last four years," the JPMorgan Chase analysts wrote. The division's operating income rose 11% to nearly $6.8 billion in 2019, contributing 45% of the company's total operating income. Chapek also oversaw massive park expansions like the opening on Shanghai Disney, and the new Star Wars lands at Disneyland and Walt Disney World.

He has experience in other parts of the business as well. Before parks, Chapek led Disney's consumer products business from 2011 to 2015. And, earlier in his career, he ran the content distribution strategy for Disney's studios as president of distribution, and he executed the "vault strategy" to release Disney films on home video for limited times to reignite interest, as president of the home-entertainment business.

Some analysts see Chapek's appointment as a move to protect Disney's profit center during the huge direct-to-consumer transition that Mayer is spearheading.

"They needed someone who will face the least amount of learning curve without necessarily changing the core strategy," Amobi at CFRA Research said, "which is to transition the company to direct-to-consumer, while feeding off the content engine and making sure the core business, where the company continues to derive most of profits, is protected."

Analysts at Rosenblatt Securities noted that the announcement came as the Coronavirus is spreading globally. The virus forced the temporary closures of Disney's Shanghai and Hong Kong parks, which will hit the company's second quarter. If spread more widely, damage control could demand more of the CEO's attention, at a crucial moment when Iger needs to focus on laying the foundation for the next phase of the Marvel Cinematic Universe, the next slate of Star Wars film, and Disney Plus' programming.

"This could have ultimately taken away from Bob Iger's focus on content creation, a specialty of his," Rosenblatt analysts wrote on Wednesday. "Leaving Bob Chapek, a Disney veteran with 27 years with the company including most recently as chairman of parks, experiences, and products, to run the day-to-day business while Bob Iger is still in the building seems like a good reallocation of resources to us."

What will Chapek's legacy be?

With the succession issue out of the way, the big question left on analysts' minds is what kind leader Chapek will be.

"Iger's legacy is that of a builder," Wells Fargo analysts wrote on Tuesday, citing the acquisitions of Pixar, Marvel, Lucasfilm, BAMTech, and Fox. "Perhaps the biggest question for Chapek is whether he's willing to part with any assets and in particular ESPN and ABC."

Disney's media networks, once the company's crown jewel, have been somewhat of blight on the business as viewers abandon traditional TV for cheaper, streaming alternatives. While media networks still bring in the most revenue and operating income, the division hasn't grown as steadily or heartily as others. It's a big reason Disney launched the streaming services Disney Plus and ESPN Plus, and took full control of Hulu.

Some analysts have pushed for Disney to sever the legacy TV business by spinning off networks ESPN and ABC. But it seemed unlikely under Iger's reign. He came up in the TV business, having started his career at ABC before it was bought by Disney.

Chapek doesn't have such ties, but some analysts question whether he has what it takes to make such a move.

"The challenge is that Chapek, while not emotionally tied to ESPN/ABC, is not the strategy guy, he is the execution/operations exec," the LightShed Partners analyst Rich Greenfield wrote on Wednesday. "We would have expected bolder strategic shifts such as spinning off ESPN/ABC or collapsing windows with Kevin Mayer as CEO vs. Chapek."

That said, analysts and industry experts were skeptical of Bob Iger when he first took the job as well, and he more than exceeded their expectations.

It'll be up to Chapek to prove he can be a bold strategic thinker. One way or another, he will have to solve Disney's media networks problem, while completing the pivot to streaming, and continuing to integrate Fox's assets.