Why a Bet on Disney Stock Is a Bet on Bob Iger

Over the last month, Walt Disney Co. (NYSE:DIS) stock is up 14%. Bulls say the good times have just begun. They note it was trading at $113 a year ago, at $150 a year before that.

Bob Iger has been back for a year, they say, and things are getting better. The pandemic is over, people are traveling, they’re even going to movies. Not to mention betting on sports.But is this really an all-clear? Could DIS stock fall again, maybe to its October low of $80 or below?

The Bear Case for DIS Stock

Disney’s latest quarterly report showed just a 3% growth in revenue, but an 86% improvement in earnings to 14 cents/share. All segments participated, with entertainment turning from a loss to a profit, and experiences (theme parks and cruises) jumping 31%.

Then there are the sources of profit. Disney is still losing money in streaming, $420 million in the last quarter alone. Linear networks, in the form of ABC Television, and cable networks, are holding entertainment up. That won’t continue and activists want those assets sold.

The growth came in international traffic to Disney’s resorts and experiences. That rose 55%, to $1.66 billion. Disney is getting better results from Hong Kong and Shanghai than from Anaheim and Orlando, say the bears.

The good news also hid some holes. ESPN revenue isn’t growing. Streaming isn’t growing. The problems Iger inherited remain problems.

Betting on Iger

Disney bulls like ValueAct Capital are betting on Bob Iger. In more ways than one.

They see Iger cutting expenses, with three rounds of layoffs so far. They see the theme parks being worth $80/share by themselves, earning $10 billion this year before income taxes.

Bulls see the streaming wars ending, with program cutbacks and price rises coming across the board. They see the buy-out of Hulu for $8.61 billion giving it a complete streaming play, including a cable replacement. Disney can now put together a bundle that replicates what cable was. It’s a cable-like price with all the money flowing directly to Disney.

Iger’s Gamble

Then there’s Iger’s biggest gamble, ESPN Bets. By licensing the online betting platform of Penn Entertainment (NASDAQ:PENN), ESPN thinks it can get 20% of the online sports betting market. Former partner DraftKings (NASDSAQ:DKNG) has over one-third of that market, powered by ESPN promotions, say the bulls.

But the first mover advantage has already gone to DraftKings and rival FanDuel, controlled by European gambling behemoth Flutter Entertainment (OTCMKTS:PDYPY).

Giant casino companies like MGM Resorts International (NYSE:MGM) and Caesars Entertainment (NYSE:CZR) have single-digit shares despite huge marketing budgets. Once customers are with one bookie, they seldom go to another.

Beyond the question of how much market share ESPN Bets can take there’s reputational risk. You’re putting a gambling site inside a bundle that includes kids’ programming. You’re embracing all the potential scandals of gambling while pushing family friendly theme parks.

Gambling may be the future of sports. But do kids want to see gold chains on Mickey Mouse?

The Bottom Line on DIS Stock

Iger has convinced analysts he has a magic touch. Of 25 following the stock at Tipranks, 18 are telling investors to buy now.

But Disney isn’t what it was. It’s puny next to the real leaders in entertainment, the Cloud Czars at Apple (NASDAQ:AAPL), Amazon.Com (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL). Take them alongside China’s TikTok and you now have most of the world’s attention.

ESPN’s programming costs are about to skyrocket, as the Czars and Disney’s entertainment rivals bet on the stickiness of live games. Then there’s Iger’s own promise to leave, again, after finding a successor.

This is not a slam dunk. Iger has another year of tinkering before we know what the future Walt Disney Co. looks like. You’re betting on the man. Know that.

As of this writing, Dana Blankenhorn had LONG positions in AAPL, AMZN, and GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.