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Disney: The Coronavirus Bear ETF (Podcast Transcript) (NYSE:DIS)

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Via SeekingAlpha.com

Editors’ Note: This is the transcript of the podcast we posted Thursday. Please note that due to time and audio constraints, transcription may not be perfect. We encourage you to listen to the podcast, embedded below, if you need any clarification. We hope you enjoy.

Daniel Shvartsman: Welcome to The Razor’s Edge. I’m Daniel Shvartsman. I’m joined by Seeking Alpha author, Akram’s Razor, as always. The Razor’s Edge is a podcast, where we talk about ideas that Akram has been following personally or as part of a Seeking Alpha Marketplace service, also called the The Razor’s Edge.

I bring my own perspective as a generalist and somebody follows the markets closely, though I’m not doing my own deep dive research the way I come off and does. We’ll look at specific stocks. We discuss how they might play out. We discuss the research, sometimes it’s more of a trading position orientation.

If you’re interested in more of these ideas and more of these trades and sort of approaches that Akram takes, I encourage you to check out Akram’s Razor or The Razor’s Edge on Seeking Alpha, just typing in A-K-R-A-M, and you’ll see the service pop-up. It’s a great service to follow the market, get some real trading flow and ideas.

This week, we’re talking about Disney. You could argue that airlines and restaurants and cruise lines aside, Disney is as much at the heart of what’s going on with coronavirus as anybody. They have cruise lines first of all, but also the – their theme parks, meaning they’re implicated by the travel sector shutdown.

The retail store and movie theater shutdown affect Disney’s consumer products in box office. No sports means ESPN is scraping the bottom of the barrel for content, might make it easier to cut the cord. On the flip side, Disney+ is out and becoming the most popular work from home babysitting assistant on the market.

Any – before all of this really happened, Bob Iger, the longtime beloved CEO has stepped down just over a month ago. Somehow Disney more or less in line with the market since the bear market kicked off, a little bit behind, I believe, but has not been really struggling. There’s a lot to talk about here, so we’re going to try to unpack it.

Before we begin our usual disclaimer and disclosure, The Razor’s Edge is a podcast on Seeking Alpha’s The Investing Edge channel. The views discussed belong to either Akram or me, respectively. Nothing on this podcast should be taken as investment advice. We’ll disclose any positions in any stocks discussed at the end of the podcast, potential recovery Disney, I’m along Disney and have been for a while. Akram is not, though, we did own it for a trade earlier this week.

Listen to or subscribe to The Investing Edge on these podcast platforms:

So, Akram, good morning.

Akram’s Razor: Good morning.

DS: You brought this up to me, so where do you want to really, Disney, you can break down into those five business lines: consumer products, box office, theme parks and physical, the ESPN and media business and now the new direct-to-consumer, I think, that’s it?

AR: Well, outside of Disney+, it’s like the coronavirus short ETF, right?

DS: It’s really got the full range of issues.

AR: I mean, it’s only other competition and maybe what Bill Akram was long before he was shorting on the credit side. But yes, no, it’s definitely an interesting one.

DS: Well, it’s interesting, because you – and I’ve seen, by the way, you call it out as one of those stocks that you sort of look at and get excited about, because it’s – it was previously trading at about 140 a share. It was – it’s hard to value precisely, because they’re going through this Disney+ shift, which hits some of their business, but in theory, should give them a more Netflix-like business on the other side. But it wasn’t cheap by any means before this. Now it’s sort of in – it got as low as I think about 12 to 13 times trailing earnings, but obviously that earnings takes a hit, so…

AR: [Multiple speakers] half or so. I got some last Wednesday in the mid-80s and sold it Monday. You kind of – this whipsaw, you get bullish then you get bearish. It’s like your emotions are while with the news and a lot of the stuff.

DS: Right.

AR: My rationale was, yes, it’s a business that is for the next year going to face some structural challenges that are just very, very difficult. I mean, it’s just starting with the theme parks, right? So I mean, at the end of the day and we’ve talked about this in the past with Disney, the theme park is – has been a profit center the last few years, right?

They’ve been raising ticket prices. Cruises have been super popular, by the way. That’s something people miss. I mean, like the cruise line industry has been in a secular boom for the last two decades almost, but really strong in the last 10 years. It’s become very popular globally. I mean, it used to be like something like 75% or even close to 80% in the 90s of cruise line passengers were from the U.S. and now it’s like, half comes from the rest of the world.

DS: Yes. That’s something we looked at now. Almost two years ago on our other Podcast, Behind the IDea, we looked at, I think, it was Royal Caribbean, which has usually been the stock that I’ve seen people look to short in the cruise line sector. And we had Paul Brady on who is a – he is now at Travel and Leisure. He is a lead editor there.

And yes, I mean, there’s – that industry has gotten – we’ve grown out of the sort of Gen X suspicion of anything sell out and commercial like that to a point where, yes, it’s become a popular form of travel. And Disney obviously has, I assume they have exposure, both because they have their own cruise line. I wouldn’t be surprised, I should have checked this. I wouldn’t be surprised if they also get cruise line passengers coming into their theme parks on…

AR: Yes. I mean, look, there’s – it’s part of, like they have a vacation resorts, right, type packaging like that. That’s a good chunk of that revenue and indeed 25 billion or so or 26 billion that is parks and resorts. So I think it’s probably 4 billion or 5 billion in there, right? So, call it, more than 10%, right, like 15% or so I think is coming from – within parks and resorts is coming from the cruises and vacation packages versus ticket sales, which is the biggest and then like food and beverage and then licensing and then merchandise.

DS: Well, and that’s the whole. For example, you take the bull story with Disney+, and a lot of people will talk about how Disney+ is going to give them a funnel directly to users, sorry, I’m thinking of like an online company. But to customers the same way that Amazon Prime becomes that staple, so that you then once you have Amazon Prime now, you’re using it to order from Whole Foods, but you’re also using it to watch videos and you’re benefiting from all these other things. Disney+ gets you tickets to the theme parks or discounts off the theme parks using plus as a way to create that relationship…

AR: Yes, a lot into the brand Kite and Flywheel.

DS: Yes. Well, and that’s…

AR: Flywheel.

DS: Walt Disney had that, there’s that old graphic that goes around, where he was talking about all the different lines of the business model flow into each other. Do you – so when we talk about theme parks since we started there, does that – is that just an isolated problem? Or do you see it also having that sort of repercussion with the rest of the brand?

AR: Well, look, I mean, when we discussed this, I mean, we’re all the way doing Netflix, was it or…?

DS: Yes, the streaming wars [Multiple speakers]

AR: Yes, when we got into the streaming wars, right? I mean, you and I both like Disney. And I mean, I owned it from a Head of the Disney+ launch and whatnot. But when you think back on that when we were – when we’re investing in a den, both you and me, I would say even like going back to before their Analyst Day when they announced the pricing of Disney+, the dynamic was that, parks is a stable dominant business, right?

Like you were messing with that, like, that’s factored in, right? And then the franchises that they owned in terms of mainstream box office boxable, bankable – sorry, content was, we had Star Wars. We’ve got the whole Marvel Empire, like it’s exactly what people still go to the theater for. That’s about it, right?

So we had – we were looking at it from a standpoint of these are, you don’t question these. It’s like the iPhone of their space than anything. And I would say, I mean, and I don’t remember how much we got into it. But where we got into the debate around it was that, what’s weighed on the stock before it got going, let’s go back to that was ESPN, right?

ESPN is a huge chunk of profitability for them. I mean, it’s like – it’s an $11 billion a year revenue generator between the affiliate fees and the advertising. And that had been highest rising carrier fees for like a decade, like they’re wrapping it on cable. It was a money-making machine. And cord-cutting became – that was like the drag that Iger was dealing with. And he went into the Marvel Super Cycle and then this boom in the parks business.

I mean, the parks business people forget really was – has been carrying this thing. They’ve been executing flawlessly in parks. And part of that has been cruises. And part of that, obviously, has been how they’ve succeeded internationally. But we – I think, when we discussed it in the streaming wars, we did point out that, I mean, live sports and ESPN being more open in terms of the Disney brand before being squeaky clean to embracing gambling, to start embracing Esports a little bit, and the way they were opening it up.

And they’ve launched this whole bundle of direct-to-consumer broad range of ESPN content. But I mean, still the huge package deals they have there and then they went out and they bought the Fox assets on the film side to kind of consolidate the box office. So we are – you added that in there.

So like streaming was the upside, right? And we saw that as something not being captured by the stock price and that they would go very quickly there. And like, I think that was essentially the bold narrative. And that’s where you go back to this whole flywheel you were talking about earlier. It all feeds into good. I don’t think that breaks now. I don’t think you have brand damage, right?

But I mean, let me ask you, because this is what I struggle with. And I’m sure, anyone listening to this, if they’re looking at an asset like Disney, which is one of the bluest of blue chip assets, right? I mean, the four stocks I bought last week were Nike, The Home Depot, McDonald’s and Disney. I mean, it’s like the Warren Buffett of America type of investing.

You weren’t really sitting there getting too complicated with what you’re thinking like, hey, these businesses are going to be fine in five years and you want that kind of installation. And then a week later, you’re like, I’m still paying like 20x for all these, except for Disney, which I got in cheap. And that’s where you started like, and then like, well, what if people start changing their travel behavior? And 13 times trailing is great, but maybe they lose money this year.

So I mean, I don’t know, like, let’s consider, like where are you? Like, you have to have a view right now. And it’s obviously very hard considering where we’re at with this coronavirus. But you have to have a view on how this changes consumer behavior in the West, particularly in the United States, right? And are we looking – like is it a year to attendance? Is back to where it was pre-corona? Is it two years? Is there a chance that we’re facing a dynamic where the world changes a lot and maybe you have even a more significant pullback? It’s an interesting question to ask.

And I’m – and – in terms of the theater business, like the box office, you almost at this point now have to ask, if this is like the final straw that broke the camel’s back, right? I mean, AMC was on its way to a bankruptcy restructuring potential scenario before this happened. And you now have this.

So, I mean, we’ll get to the box office in a second. But I think the first thing you got to be thinking is how much is behavior change a year from now? What that – what’s the path back to normal? And what do you view as – is there a new normal? Is this like after 9/11, you go to the airport and you now have to deal with significantly more wait times, securities being scanned in the – what you call them the biometric or whatever devices and that kind of change.

You couldn’t just walk up to the airport – go – walk to the airport with no idea, no nothing and hop on a flight 15 minutes before, right? It became a bit of endeavor. So is outdoor entertainment like a theme park, something that takes a hit at the margin that changes how we value a big piece of their business. It doesn’t have to be much, right?

DS: Right, because it’s a fixed – a lot of fixed costs. So a lot of their CapEx goes here. I think, it’s a – it’s the right question to ask. I think – so I’m a hard to – I should disclose, I’ve talked before about being long certain travel stocks. I’m a big traveler. I feel like this is not going to change how I travel. And so it’s hard for me to remove myself. My sense from what I see from other people, I know we’re both on Twitter. Twitter is the most hyper aware of what’s going on, I think, as a social network.

But my sense is that, travel does get back to normal by, let’s say, 2022, to me, it seems like it’s going to be a normal travel year. I don’t think that there’s going to be a makeup for what’s lost. I do think this is pure lost revenue that’s going to happen in this period. But I do think that setting aside whatever the broader economic impact is, which is, of course, there, because maybe people will have less discretionary income to travel.

I do think even if you could imagine a world where everybody gets temperature scanned whenever they walk into a large gathering, whether it would be a sporting event or a theme park like this, I do think that I wouldn’t be surprised. I would expect my base cases that it does get back, it’s just a matter of how long. And to Disney’s advantage, their balance sheet isn’t perfect. They obviously took on a lot of debt with the Fox acquisition. But I think they managed to issue debt successfully in the past week? I don’t – I didn’t see it what’s the kind of price…

AR: Yes, yes, they did about $6 billion or something.

DS: And the interest rates were about 3.5. I don’t know how they priced it, but they…

AR: Liquidity is fine right now. That’s not – I don’t think that’s an issue, right?

DS: So…

AR: …And the market didn’t really seem to have an issue taking it up. I mean, these are all kind of horribly time variables, right? I mean, they would have gotten Fox a lot cheaper, okay?

DS: That’s true.

AR: And Iger stepping down, I mean, it was him and Keith Block at Salesforce the same day like, just as coronavirus meeting up, right? I mean, yes, the person in-charge is a theme parks and resorts guy. So it’s actually kind of an interesting dynamic that like you’re taking the captain of this major ship. It’s the Titanic of Travel and Leisure. There was actually someone had published something called beach stocks…

DS: Right, I saw that.

AR: …selling the stocks that hit as it glow, I mean, isn’t that Disney? It’s like the beach stock portfolio.

DS: Though – so here’s how I don’t know – I don’t have a strong view on the themes and parks. Beyond that, I think, we probably get back to normalcy. You could argue that given that Disney like, let’s say, cruise lines and there has been talk that the cruise lines…

AR: You’re in the camp of normal, it is 2020, right?

DS: For travel?

AR: Yes.

DS: For the travel, I think, the box office is – box office and ESPN are other factors to think about, but [Multiple speakers]…

AR: But it’s a box office. I think, ESPN, there’s two ways to look at it. I mean, there’s some things that are difficult and then there’s some things that could work in their favor. But going back to what you were saying in terms of 2022 and I, let’s just take that assumption that like there’s no problem going to parks and people are active again. And I mean, that’s a likely type of scenario.

Look, I mean, people forget. When you look at Asia and I was having this conversation with a friend, I’ve got a couple subscribers who are based in China. I have a brother who used to work for a Chinese company and a relative who works at TikTok and so on and so forth. And I mean, for the Chinese, like coronavirus, like you can – it’s pretty returned to normal for them in terms of lifestyle.

I mean, it’s not completely returned to normal, but you can go get a cup of coffee, walk on the street, walk into the Apple store, that’s happening in Shanghai. You may not be going to the movie theaters right now. But they’ve dealt with these viruses before they’ve had the experience like they’re used to walking around with masks. It’s not a big deal in Asia. And I mean, there’s maybe even argument that their exposure to past coronaviruses has played a factor in some of this. I mean, look, I’m no scientist, I’m no epidemiologist, what is it? Epidemiologist?

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DS: Yes.

AR: But like you do sit there and wonder like how certain things are going like what – have they benefited at all immunity-wise, because they’ve been exposed to previous types of coronaviruses at a different scale, who knows? But the bottom line is, the Chinese and Asia has had more past experiences with this as a function of daily life, right, and getting on with it. The United States hasn’t, that’s – and the Europeans haven’t had something like this in a long time.

So that’s where you kind of have that shock. And for the – I think for Disney’s theme park business in the U.S., which is the bulk of it, right, it’s very hard to see how to see yours [ph] in a write-off completely. I mean, I don’t know where you are on that. But I mean, let’s just assume that where – I mean, the President is all about getting back to work and whatnot.

But, I mean, what caused me to sell as like, look, this is all – there has been excitement about shifting to focusing on opening the economy back up, and you’re like, all right, so it’s open. What percentage of people are going to feel comfortable doing anything till they see? The hospitals have had a huge drop off on people and I see, it’s –that’s number one, right? And then even after that, what percentage of you are like, okay, yes, I’m going to go to work. I may even go to the gym. But I’m not going to a crowded theme park. [Multiple speakers]

DS: Well, and also…

AR: [Multiple speakers] there’s a vaccine or some antivirals.

DS: You just look at the uncertainty in the – you have to get there, too, in the travel industry. I had family that was supposed to be visiting me in Spain this month or in April. And they – like they obviously, it was pretty clear that they weren’t going to be able to come not so long into this. But you have to buy tickets. You have to plan hotels, et cetera, and that’s hard. I mean, we’re not sure yet how when we usually go to the states in the summer, and we’re still – that’s still to me a question mark. And so, for planning a discretionary trip, like going to a theme park, it feels like yes…

AR: Yes, it’s so low on the totem pole of priorities…

DS: Exactly, exactly.

AR: …right, for everyone, because even – you even have the element of like – and we don’t even know anything yet about this in terms of. But it’s going to come back in September, October in some sort of fashion and what are we going to be dealing with there? And how prepared are we there, right, and then you have an election in the United States. So – and then you’re going through this whole process.

I mean, I don’t know if you’ve looked at the CARES Act yet. I mean, the house will be voting on it today. I mean, I went through this whole thing. I’ve been following that closely. And I mean, like you’re going to have people applying for these loans that give you the 2.5 month of a paycheck protection and the loan forgiveness and the delay in the taxes and I mean, you’ve disrupted a lot of things.

And I mean, even when you get outside of a hotel and travel, you have core businesses that have been disrupted. And even in the healthcare profession, you and I were talking about earlier in terms of surgical practices and having to delay patient treatments and so on and so forth. So I don’t think anyone is thinking about vacation right now, right? And that’s when you get into the, like that’s a – this is a $27 billion a year revenue business. About 80% of that is domestic U.S., right?

So that’s a huge hit. And then you were talking about these cruises. I mean, have you seen all the people on Twitter being like, yes, no money for the cruise lines. They don’t pay taxes and they’re all flying flags in Panama and Bermuda and Bahamas or whatever.

DS: So what’s funny about – we’re recording this on Friday the 27. The market is, as we – I think, I said, was back in a bull market, apparently. I mean, it’s just been a crazy rally this week. And I think everybody is so eager to just look through Q2, maybe even Q3 and say, all right, we’re going to have a – if you look at all this stimulus, we’re going to have a V-shaped recovery.

I think that’s – I don’t think it’s nefarious per se. But I think that investors are just hoping that, we just want to close your eyes, ignore the next six months and then get back to normal. I think that’s a little bit of the attitude. Obviously, that’s my characterization. But you – here is the argument, I think, for Disney and the theme park space. I don’t know that, but I do think we do approach normalcy.

But you could argue that, look, Disney will take a hit for sure. But they do have the liquidity in the capital to hold up. Once you are going back, again, where are you going to go? You’re going to go to your tent-poles. You’re going to go, oh, we got to get to Disney World. We just see, that’s got to be where I go.

And then on the cruise line side, they don’t – whether or not first of all, they probably can avail themselves to a bailout in a way that the other – I mean, I don’t know the broader scope of things, because they have a bigger business. But in theory, they’re not facing the – they’re not flying, I assume under Liberia or whatever the other flags are.

AR: Well, their ships are not U.S.-based, right?

DS: Oh, they’re not. Oh, kind of I stand correct.

AR: I mean, the – it’s a subsidiary. It’s – actually, the whole thing is interesting. It has nothing to do with taxes. I mean, I remember this from law school. And I even tried to get into someone, but Twitter is a 147 characters and nobody has the patience to have a real conversation. But it would actually be great to get a maritime law professor on. But I mean, the entire industry of cruises is essentially based on 19th century legal principles, which were very protect the business anti-consumer from liability.

It actually goes back to like, you get sick on a cruise ship and the doctor treats you, right? They don’t want to be liable. It actually leads the world out of that. That’s where it really started. But they’re on this like 100-year-old regime in terms of maritime law that is, they don’t want to pay. They’re avoiding labor laws. They’re avoiding insurance laws. There’s a lot of things and predominantly in the United States liability law. Like if you go to a bar and you get wasted and so passed out drunk and then someone robs you, in the United States of America, you can sue the bar…

DS: All right.

AR: Okay? You cannot do that on a cruise line. And I mean, I – believe me, I’m sure it’s more likely to get wasted on a cruise line and something goes wrong.

DS: Pickpocketed, yes.

AR: Exactly. So the – they actually are structured in that way. And that’s convenient also in the sense that they have paid significantly less taxes, but all the major cruise lines are headquartered in Miami. So their physical presence is there. But they do hire, I mean, a lot of the – most of the labor is below minimum wage. That’s another thing they want to do. There’s seasonality element to it. And like I mean, the industry has gone after, if you think about it from like, back in the Titanic days of being where the luxury, super-rich live it up and then everybody else’s cram below.

I mean, it’s been like price point aggressive consumer targeted mass market. It’s been a booming business and it’s expanded drastically over the last 20 years. So I don’t think it’s a – they didn’t have necessarily an issue with taxes. But it’s more about liability for them and maybe this highlight set up they need to bail out and they have to come on shore, but then what’s the net result of that? It gets more expensive, right, because you’re changing the cost structure.

But I mean, Disney, relative to the rest of them, maybe that’s something good for them, right, because they do have the diversified business relative to the three other cruise lines of note to take market share on this – on the outside of this.

DS: Yes, that’s why – I mean, in theory, that’s the opportunity here is that Disney is big enough that whatever disruption there is for these other cruise lines Disney, in theory, again, we talked about in a different context, it may could, in theory, be a consolidator there.

I’m not making that argument, but that’s where in some sense that there’s some Disney isn’t you couldn’t make a case that there’ll be okay in the travel industry. I think the box office, especially ESPN, I think, there’s more questions. But the box office, especially to me, this seems like fuel on the fire for them to just go direct-to-consumer, like this seems like…

AR: I mean, it was already getting pretty small. Like Disney is a $70 billion company. The whole box office business is $10 or $11 billion. And in that box office business, the actual rake on the theater chains is half of that. So you can basically say, you’re talking like 8% of revenue is what they get from the cinemas. It’s not the biggest piece, because they’ve got blu-rays sales, like – and I’m sure the margins on that are much higher, it’s not broken out.

But that’s a significant portion. Then like licensing these movies directly for pay-per-view and whatever, that’s a significant portion. So that’s probably a bigger part of profitability. So yes, the box office in of itself has to take, but they are such a big part of it. That’s the interesting thing, right?

I mean, in the U.S., they’re 40%, right, after they bought Fox. You add the Time Warner and Sony are probably 30% between them, maybe 26%. So like you’re looking like, you’re looking about 70% of the industry in the [indiscernible], but Disney is 40% of it. And I mean, like they may have to make a strategic decision, like you said, like are they just going to go? Like are they really going to push towards streaming? Because – I mean, this has been an area they dominate, right?

Like when their superhero movies come out, you still do. It’s an event people do want to see them on a big screen. And the same thing with Lion King and Frozen. But like they’re essentially supporting that – this business model, and in the United States, I mean, AMC has – was seriously teetering coming into this. Does Disney even have to come in here from a strategic standpoint and how about? I don’t know, it depends on what they’re thinking internally about the box office. And like it’s – that’s a tough one. I don’t know what’s your opinion on it?

DS: I mean, I don’t – you’re saying can they be compelled to, or would they want to step in?

AR: Look, you can reduce debt, restructure and have new equity. That’s what – that’s capitalism and that’s what’s supposed to be allowed to happen. My question is if you do get AMC in a bankruptcy and you have an Amazon and a Facebook or an Apple or whatever, or Netflix who’s thinking, what, let’s get some screens and start airing, like I mean, who has to protect share there, right?

Like if I’m AMC right now and or I’m – I found these Martin Scorsese and these guys bitched about Hollywood and where it’s going and the streaming and or criticize the tent-pole films and like, you want to step in here and protect the cinema experience going forward. You may have to do something or it won’t be there.

DS: Maybe it’s a George Lucas takes his Lucas – his Disney buyout and he goes back and buys the – buys one of these chains. No, I – for – yes, it’s interesting, because, in theory, that’s more Disney’s home turf. They don’t necessarily have to – they’ve kind of had that as their free runner space. Netflix only shows up there if they want to get something considered for the Oscars. I don’t – I’m actually not familiar with Amazon producing movies that go on the big screen. Their movies feel to me more under the radar. They’re more…

AR: Yes, so far. But I mean, I guess, the point is that I’m trying to make and look, this is complete, like for anyone listening, we’re utterly speculating here from based on anything. If I wanted to do something opportunistic or get more aggressive or change the game, because you remember when they were launching – when Netflix was launching Scorsese’s film, what was that thing called, again?

DS: The Irishman.

AR: Yes, that four-hour, three-hour.

DS: I skipped it.

AR: I mean, I’m a huge fan of those types of movies and even I was exhausted. But like they – I would have felt ripped off if I had to see that in a theater. So thank you Netflix. But the dynamic there with that was, they would not – the theater chains would not back down on the window, right? And they – these – the two of them had gone back and forth and whatever. Now you look at it.

And within that context with the theater chains having been financially under some duress and now getting hit with this, if you’re Netflix, who by the way right now has been like, as far as stocks go up until the last couple of days. If you want to go back in the past when markets had crashes, like your best performing stocks tended to be like Coca-Cola and like Procter & Gamble, and back before it was the worst sector in the world, ExxonMobil, right? But this time it was like Walmart, Costco and Netflix. And then if – the work from home crowd buy and Zoom…

DS: You can throw Amazon in there, I feel like.

AR: Yes, you’re right. With no without question, which I had sold by the way and regret after being tortured by it for three months underperforming, Amazon has been a rockstar, right? Because unlike Facebook and Google, it’s not where – there’s no advertising. But that’s for another day, because Facebook has just been the worst.

But going to the Netflix, it’s like, revenue is predictable. It’s not – you’re not going to worry about theme parks having a write-off for a year and then how impaired they are next year. It’s like literally it’s going up, right? It’s not going up as much as Zoom. But revenue is going to be stronger than whatever you expected before the virus for the year, right?

So I mean, it’s like a AAA credit, right, in terms of – in that sense, if you’re assessing visibility. And with them sitting in that position, because the stock is still obviously extremely expensive. And you’ve got to be thinking in terms of a broader valuation in markets, which you’ve seen a little bit in Zoom and Netflix and Walmart, as everything else has rallied, some money has come out of there where people have been hiding, that they would want to exploit it. And that’s when you go and you say, could they do something opportunistically here?

And if they are thinking about doing something opportunistically here, does that force someone like Disney, who has 40% share? And Disney economically make it like generating a profit of what they earn off the box office ticket sales, may not be as important as the brand effect it has in terms of the blu-ray and DVD sales, the pay-per-view and the hype that it creates around the events of, let’s say, the Marvel and Star Wars films, which then will feed into your Disney+ and your brands and your theme park attractions and that whole like flywheel and the merchandising and everything else related, right?

So it starts at the box office with everyone talking about it going, wanting to see it when there is a big event. And like that’s – they’ve had that a lockdown. So if their share there is going to be jeopardized, like maybe a play – someone can step in and maybe these chains can play these guys against each other, who are now looking at this as an opportunity to maybe disrupt some of what Netflix has there and come in and – sorry, what Disney has there, not Netflix and come in and cause a little bit more havoc or just forced this in that direction, right, where streaming really takes over completely. I mean, I don’t know if you’re going to lose the theater exactly. But I definitely think it’s one of those things that after this year, like who have taken an even bigger hit.

DS: Well, it just – yes. I mean, it just seems like.

AR: Because people being cooped up in the house when they get out, I just feel like the last thing they be thinking is, oh, I just want to go to the theater.

DS: Right. No, certainly not. I mean, for, let’s say, a music concert or for whatever, in theory. But yes, for somebody that they’ve already watched on their screen. I feel like when you’re trying to piece through what’s going to be a more lasting change versus what’s not so to meet travel, I think, he probably do recover.

But yes, I think and I still actually – I’m the only one – my wife and I are the only ones left in our family who still go to the movie theater and we – I still like movie theater popcorn and go maybe two or three times a year, maybe a little more. But yes, it just seems like well, that’s not really…

AR: I’ve gone the most I have ever gone last year. I mean, it was – I was – I saw so many movies in the theater.

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DS: So there – yes. I mean, there’s still something to it. But it’s a weird social experiment, because it’s like I mean, even remember back to being, like you can’t talk to the other person really. You’re sort of in a room together. So you’re experiencing, I remember being in college and seeing preview screenings of old school, for example, in School of Rock.

And though that’s a lot of fun, because everybody is – you’re sharing the experience in a way you sort of kept unwind, but we’re so used to – people who are web native are so used to doing the same thing with Twitter, whether it’s the Disney+ finally rolled out in Spain this week. And I did sign up and I’m watching The Mandalorian, which they’re still actually staggering every week, the release of the episodes after the first two. But the Baby Yoda Theme or whatever Meme and all this stuff around that.

So there’s definitely I just think, yes, theaters are probably – and I could see somebody like Amazon or Facebook or Netflix being creative about just viewing it as real – like get real estate do pop-up theaters…

AR: We are rooms…

DS: Yes.

AR: …in Facebook live events, concerts, what can watch them there, sell merchandise. I mean, there’s many things that could, in theory, be experimented with – at these venues. That has not happened yet. But it’s – we are at a point where – thus, I guess, I mean, without spending too much more time on this.

But we are at a point where you’re just like, something like this is the type of thing that attracts someone who’s willing to take the risk on a new idea, right? Where before it may be more difficult and shaking things, something made more difficult. You now may have just kind of opened it. But what we’re willing to do this now?

DS: Yes. I mean, you – we’ve talked about and then you’re once upon a time tech the idea that in recessions, your new ideas are born out of that. And the other thing from a strictly Disney perspective is, I think one of the risks that we’ve talked about all along with Disney for years, this has been that – is – can they have their cake and eat it, too? Can they maintain their old business lines, while still dedicating enough energy to grow in Disney+?

And I think this, on the box office side, forces their hand to really – they need to just figure out how you generate that buzz or what like you’ve raised some good – some of the important legacy factors even beyond the revenue of the box office. But how do they continue to generate that buzz, too?

AR: It’s marketing, right, at the end of the day?

DS: Right.

AR: …because if you look at the numbers and you go through the 10-Ks, I mean, even I looked at it in the past as I can, you know what? It’s frickin small. Like, they’re still making this much on DVD and blu-ray and the TV and subscription on-demand element of the box office content, like when they had actually licensed it to, to Amazon, Netflix, Hulu, whoever, right, like what – like that’s where the money is. So like so little, it’s still – it’s actually coming from watching it in the theater. But like that – it sets up everything else.

DS: Right. I mean it is – yes, it’s their brand. It’s yes, it’s free – not free, but it’s advertising. So that that’s a risk, but I do – I think that you’re going to – it feels like that has to accelerate. The question is on the other side, ESPN, where they get the fees from cable and they have some other channels, but let’s talk – let’s just use ESPN. They have the fees, but then they also sell advertising. And yes, no, I mean, I don’t know if…

AR: Like ESPN has $0.5 billion hit if the NBA doesn’t resume, right? That’s literally what’s – what you’re talking about. NBA playoffs, literally that’s like $500 million, $400 million or so plus. I mean don’t quote me exactly, but it’s between $400 million and $500 million. So – and then you have other sports probably a few hundred million. I mean, like they’ve spent a lot of money acquiring rights and they’re going to take the head.

Of course, it’s – it’ll be interesting to see maybe they don’t have to make those payments to the league. And that’s another, I mean I – people hate in situations like this had like here’s your money back, right. So what the leagues extend them for a year? Is it, like they say, “Hey, we’re going to have make updates.” The Masters has been rescheduled to September, for example, right, Indy 500, a bunch of stuff.

So when sports comes back, you’re going to have huge pent-up demand. And that may make it difficult to actually monetize on all these events, right? So like, this is another one where like, how are they going to deal with it in the interim? And because that still should be predictable cash flow for them versus the parks and the box office which are at zero, right?

DS: Well, it seems like the risk that people are seeing from what I’ve read is – and so I want to ask you what you think about it. Is essentially that the strain here ESPN is not really important. If ESPN is why you were maintaining your cable package or otherwise or anything new programming is going to slowdown, too, to the point where you may as well just have cut the cord and get a direct-to-consumer, where you can just watch old stuff.

If all this is sort of playing out and the only – maybe keep an antenna to get local news if you really care about that. But it seems like you might lose – your subscriber base might [act if I] [ph] a lot faster all of a sudden, because…

AR: Yes, it is actually doing really well right now, Cable News.

DS: Cable News, okay.

AR: Right. So like there’s a counter argument on cutting the cord. I mean, I was looking at the ratings for CNN and Fox. I mean, CNN is actually the biggest winner on all this, like they’ve actually managed to close some of that, that gap between them and Fox. But they’re both off huge, as Trump would say huge, huge. Their numbers are through the roof, best numbers ever.

DS: People tell us, they’re doing great. People tell us…

AR: We’re talking best numbers ever. We are crushing it. Again, people will not turn off our channel. The rating is amazing.

DS: Can’t get. Well, and by the way, just where a financial market, NewsSite, our traffic numbers have also been very high in March. It’s been a very busy time for us. So I can hear that. And that – but the issue is at the same time and the same thing…

AR: Yes, but ESPN, if I’m sure if we were taking a close look at their ratings, like I mean, it’s worse than like watching the Mountain West Conference like at midnight on their host…

DS: No, it’s [Multiple speakers]

AR: So let’s call it, they’re like airing like Villanova versus…

DS: Georgetown.

AR: Georgetown from 1997.

DS: There – well, no…

AR: They’re like wait, did – oh, did they win that game? I don’t know.

DS: They – so not only do you have the lack of programming, but you also have that advertising. I mean, if Facebook is taking it on the chin with advertising, I can’t imagine that TV advertisers are doing any better. And so…

AR: I was actually talking to a friend of mine on that. And he got, like he’s – he runs a business that does a lot of Facebook advertising.

DS: Okay.

AR: And he is like, we usually takes like half a day to get our ads approved and we got our ads approved like 10 minutes.

DS: Yes. I mean, you’re just looking – the average advertising is always the first to go, right? And so that’s where the question is just do they lose any momentum – is the lost momentum? Are people just going to return to ESPN? Does it again – I would imagine that the next – this is not any insight or any reporting or anything else.

I would imagine the next round of rights deals is going to include online rights like direct-to-consumer rights of some sort, like they can’t include that stuff in ESPN plus yet. But they’re going to have to, especially if Amazon is pushing in, I don’t know Facebook has any. I think Facebook has a couple of rights as well. You’ve got to be seeing something more on this frontline…

AR: Facebook got into the European league right?

DS: Yes.

AR: Champions League Soccer?

DS: Yes. I thought they had some soccer on there…

AR: Twitter has done their thing with the NFL, but that to me has not really been that compelling.

DS: Wow.

AR: But no, yes, I mean, it’s definitely something that’s – that has to be integrated. Look, ESPN is a cash cow for them. And that’s I mean – the way you’re describing it, I feel like you’re a little bit more bearish on your ESPN view, in which case [Multiple speakers]…

DS: I think you have to think about the – look, I’m wanting to stock. I’m sort of a longer-term investor and I think Disney, I – to be honest…

AR: Longer than a week?

DS: Right. And to be – to give my full thesis, I was impressed with Disney in 2018 when it was trading around 100. I thought, “Oh, yes, like, oh my gosh, I just sort of realized their collection of assets. This is worth owning.” I then put more money into it in 2019 as one of the accounts or a couple of accounts I managed, got some money, I just thought okay, this is sort of the way I feel about Google, which I’m also along with a little bit even just this will be fine. I need to put it somewhere to have market exposure. And now that we’ve had a big kit, I’m not in a rush to sell it.

But it’s not – for all the things that we’re naming and we’ll get the plus side, I guess, pun intended in a second. But Disney isn’t – I get it. It’s a blue chip. It’s going to be fine. I think whether it’s one-year, two years of recovery, whether there are some shifts on the margin that do affect their business, or whether they’re smart enough to capitalize, I think, there’s still a lot to be said. But it’s still not obvious to me that it’s – to me, it’s not obvious that there are a lot of stocks that are super attractive yet. I’ve been trying to – I look – I put a well bid on AT&T, for example, but there’s not like a lot of, oh, you need to…

AR: Hey, your Internet bill.

DS: Yes, it’s like it’s still – I was looking at Cummins came across the screen is pretty cheap, but there’s still sort of auto and trucks exposed. That’s – I’ve been trying to swear off the auto industry.

AR: Well, I mean, look, I mean, Nike, Home Depot, McDonald’s, I bought and sold all three for between 20% and 30% in a week. And where I bought them, they were all, I think, the lowest was an 18 PE.

DS: Right.

AR: Right. Disney was down to like 13%, 14%.

DS: Right.

AR: But Disney has major – like Disney has got most likely there’s a scenario, where they lose money this year.

DS: Well, and they were going through a…

AR: And they’re going to take a massive charge on parks, right? The box office, forget about it. It’s probably down 40% in 2020, right? And we don’t like they’re going to have to explain how media networks is working and what’s going to happen with ESPN. But ESPN ratings have got to be down massively as everybody else is just watching CNN and Fox and MSNBC or whatever right now on CNBC. And this window has extended for a month or two.

And then what are people, I mean, you’ve got to wait for sports to come back – live sports, but I think there’s – they have some installation there. But I mean, it’s a write-off here. And then if you look at next year, you say, “All right, parks rebounds significantly, but still not to pre-levels, right?” And let’s assume that, parks, which has been driven by pricing has to do a lot of discounting as well, right, to get that traffic back up.

So that takes – that’s another year that’s below your box office rebound, but still below where it was before, which was like Avengers in 2019. It’s going to look like peek box office for a while for them, right? I mean, you’ll have had Endgame and Lion King and Aladdin and Star Wars and then coronavirus.

So if you put it together, you’re going to say, well, okay, 2020 earnings and 2021 earnings are going to be lower than 2019. So I got to be looking still out to 2022, right, as far as I’m thinking about what I’m buying.

And so I mean, from that standpoint, you’re – because I mean, streaming is going to come in, but streaming – it’s a crowded field and making money. It’s an upfront investment and it doesn’t meant in the same way. And we don’t really know and that’s where the introduction of, if cable courting picks up at the rate, because ESPN has been so profitable from the carrier fees that the net-net could still be a shrinkage.

So you’ve got to basically be thinking that was something like that. You – it’s – maybe it’s dead money, right, right around here, or you want to buy it, maybe you need to buy it on like one chunk cheaper, right? And if you’re a person who’s sitting here and thinking about your rational to be, I mean, I’m – I want to be in this when the tide is turning, let’s say, because I’m still of the view that financial performance is going to really lag, right?

And that’s what these things get tough. It’s like you were saying in terms of getting that buffer and that’s where you like, you buy Disney and then when it bounces, you’re like, you know what? This is not going to get back to the same profitability that it was this year for two years now, three years these moving pieces. And I don’t really – I can’t really figure out what happens with the box office and I’m really uncertain about ESPN.

Like, is ESPN going to get into Esports more? I mean, is this open the door to that? Like there’s a bunch of stuff that you – like you – one does wonder what the plan is there. It’s probably worth. If you’re investing in Disney today, I think, you have made a good point that maybe figuring out ESPN and that media networks business is really where you got to spend your time, because Disney+ is going to grow.

And like you said, parks is something that is coming back. You don’t have to worry about it. And operationally, they’ve proven themselves in terms of execution there and they’re putting the parks guy who has run this thing so well. And I think that’s maybe why he got the CEO position in terms of execution on the parks in-charge.

So I think you got to have their – the confidence that operationally and this is essentially an operational incident response exercise, that they’re in good position. It’s that other pocket where you’re just like, what changes in sports and cable programming and this huge moneymaker that has been in ESPN? And this is still, because it was looking – like I was feeling better about ESPN when we were doing the streaming wars than I’m today.

But live sports is live sports, right? And like they still have that – I’m just be like, I have a very hard time understanding where that business model is heading and how much of an impact it is to the whole pie, right, when all the other things aren’t firing on every cylinder, because it was easy to ignore the headwinds in ESPN with parks cruising, box office cruising and Disney+ ramping.

And I got to be like, “Okay, well, here’s you’re like, you’ve been slowing it down. And like it’s – like this turn – if you remember the stock before a year-and-a-half ago, like part of the misery in it was the ESPN. Like you’d be like “Oh this was great. Why did it go up again? Like this is just frustrating. We’re like, this is – they’re doing well here. They’re crushing it here in $20 billion in revenue from Marvel and [explicit] ESPN.”

DS: Well..

AR: Sorry.

DS: No, it’s funny that – we – the ESPN – the other thing with sports just to remember, the leagues are taking huge hits. I don’t – I haven’t seen reporting on the U.S., but I know, I follow an ESPN reporter gab Mark Carney [ph].

AR: Tom Brady, what are you talking about brother Tom Brady?

DS: Well, so NFL was [Multiple speakers] this is perfect for the NFL, because…

AR: We all will talk about, my ravens and had two major signings after the depressing exit we had in the playoffs.

DS: Well…

AR: Yes. So we’re going to have live 24/7 coverage all day, every day of NFL draft…

DS: Draft is going to still happen. Yes. No, I mean if a league – because look, we still – you assume that we have a game plan at least for coronavirus in the fall. The NFL is like the big winner in all of this. It’s almost like they couldn’t have screwed up. But – and if they…

AR: Well, that’s where you hope ESPN would do some like, [explicit] LeBron does when he’s not playing basketball, right? Like they should have these – like they should do some like almost reality segments.

DS: Well, Steph Curry just interviewed Dr. Fauci.

AR: Yes.

DS: So…

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AR: He is the stud of all studs. Fauci is everywhere.

DS: They just need content creators, right? They just need to turn the…

AR: Well, I want to go to sleep at night and I’m having coronavirus fears, I just like I put Fauci on loop and just like I feel much better. Thank you. Thank God.

DS: So let me just go – let’s just quickly on Disney+. They – I’m looking at their Q4 call transcript or Q1 call transcript, but calendar year Q4. And they – their project – they had – their number was $60 million to $90 million to get to profitability, which they were talking about 2023…

AR: Subscribers, sorry.

DS: Yes, sorry, subscribers to get to profitability. They were talking about $900 million operating loss in the D2C and international line. They’re launching it abroad now. Their sub – I can’t – I couldn’t find the reporters we were talking, but somebody is talking about how Netflix is incrementally getting more subscribers. So it’s good, because there are big great bigger bass. But this has got to be like there could be – you talk about the whole Disney versus Netflix comparison. Netflix’s market cap is, I believe much bigger than Disney’s, again. I mean, Netflix…

AR: They passed them, that was what – that’s what – that was what has prompted me to…

DS: Oh, no.

AR: …ping you on doing this, right? I was like, damn it Netflix is bigger.

DS: Well, it looks like Disney has recovered, I think – because Disney is diluted…

AR: They did, but it was – that was last week.

DS: Yes.

AR: Netflix was – when Netflix was defense.

DS: Right, right. And so the…

AR: And Zoom was worth half a Cisco and an IBM more than the airline industry.

DS: So you look at that and you say, well, if Disney somehow surprised big to the upside, let’s say, and you just…

AR: Saw it happening…

DS: …you don’t – in terms of Disney+, specifically, you don’t think that there’s any scenario where Disney+ is at 50, let’s say. I don’t know, a crazy – it’s a crazy number. I think…

AR: I think, look, they’re going to get to a huge number like, I liked how you opened this. I didn’t even think about that where you’re just like a babysitter.

DS: Yes. I mean, no…

AR: That should be another work from home angle.

DS: It’s totally.

AR: It’s one of those things where you’re like buy it, because maybe like, but what about the $40 billion in revenue that’s shutdown?

DS: Right. No, but you just try to…

AR: No, I get it.

DS: …you try to change the mindset a little bit to like, you look through and you say, “All right, parks will get back. Box office, I don’t know. ESPN, I think we’ve raised some important questions. But if Disney+ is cooking people in and becoming a behemoth that’s actually catching up to Netflix much faster, then all of a sudden, you start to do that.” Some of the parks, well, you’ve got a Netflix hidden in there, and then you’ve got all these other businesses you’re going to be firing. I guess that’s…

AR: Look, this is a content – this is an efficient content machine, right? I mean, just like what we talk about HBO. This is not Netflix, right? Like they own premium assets, they make serious money off of them. So they don’t like adding subscribers for them is going to flow more to the bottom line, right? Without question, I mean, it’s like, they’re Walter White breaking bad 99.1% pure, right? Netflix is selling generic cola, right?

DS: Well – and I do…

AR: Do you want to live in a world without Coca-Cola, Daniel? Do you really?

DS: I was – I made the realization having signed up for Disney+. I knew that this was true. But still, you see that they have The Simpsons full library in there. If I’m bored enough, I could just stream The Simpsons first seasons two through 10 just sort of non-stop that owed last me, at least, a couple of weeks. And so that’s the sort of – they have the backlog of quality content. And, again, I think…

AR: They own family guy, too, through Fox?

DS: That’s a good question. I don’t know. They should.

AR: I think so, they should have Family Guy.

DS: I don’t know who…

AR: They got FX, which is like my – Fargo is my favorite series of the last several years.

DS: Oh, it’s – I should check Fargo. Yes, that’d be an interesting.

AR: Fargo is just gold, gold. And then, yes, it is…

DS: Some of these have encumbered lease. Some of them are streaming on other channels, right? I think they’re trying to get at it. So I don’t know where they are with all this. But they do have the library to – yes, I don’t know.

AR: That’s that’s why I was making the Breaking Bad joke. It’s $120 million that’s not being pissed away a year on substandard product. And like Disney can say that, they get a subscriber. They have the premium product and that means they earn a margin that nobody else in streaming is earning. And that’s because they built a library and consolidated it at the right time.

So, yes, I mean, I guess, your point is what? Like is there a chance that this is like, this has created in a Zoom scenario? And every parent who is on using Zoom for homeschooling has also at the same time for Ragtime downloaded Disney+.

DS: I think it’s – I don’t think it’ll play out like Zoom. But I’m saying where you get to the point where the earnings call…

AR: Well, it’s like a play, I’ll let Zoom for the stock. But like you could be talking about very meaningful upside if you believe that, I mean, because it would indicate and it’s a newly launched product, remember Zoom has been around. I mean like people sit here like one of the things about Zoom and I mean, I got really hammered being long Zoom at literally the bottom of Zoom’s price and when it reported in December. I was buying this thing in the 60s.

I was like, you know what, I’m not going to buy any of those other than Zoom Salesforce back at the end of November. As I can, Zoom is super. Zoom is not a typically a stock that I would buy. But I was just like so confident that they’re going to get too close to $1 billion in revenue by next year, right, and there’s no way, I think, you’re going to hit those numbers, right, without question.

But like, okay, fine. Now it’s like, all right, it’s trading at 45 times the forward multiple of where I thought it’d be, instead of buying it 15 times the forward multiple. So it’s – Zoom is crazy, because like yours, you watch people are still using WebEx and Skype. And I mean, they didn’t invent video conferencing, and like how many people need to host and whatever?

So when I think about Disney, though, I think like what, like, I mean, you do have a very good case that every single person, family household with children under the age of 15 are going to be subscribing to Disney+in this environment with their kids with them 24/7.

DS: Well, I talked to my brother and he’s got two kids, preteens, let’s say, preteens elementary and middle school. And he said a lot of video games, but I’ve got to imagine they’ve also got – they still have Cable, so maybe they’re just jamming out on Disney Channel or whatever.

But I just think you have that access. It just becomes a big need. And you see, again, you see it on Twitter, you just see it in general, people are – it’s just – you’re trying to – homeschooling is hard. We have – my wife is a teacher and we have lots of friends who are at teaching right now and trying to do the teaching from home and that’s really challenging for them. It’s also challenging for the kids.

And so there’s – you’re just trying to fill a time in Disney at $7 a month or whatever. And I’m not trying to make a sales pitch, I’m just – and I’m not even – I’m still – so I’m not necessarily bullish on Disney. I’m holding on. I see they have Ducktales in their library. So there you go, but…

AR: Scrooge McDuck.

DS: They’ve got..

AR: A lucky day and I love Ducktales.

DS: So there you go. There’s your pitch, but they…

AR: I literally thought about watching that at Disney+ and I have not got it around it.

DS: They – well, that’s where you, in theory, have – you could just see them putting that narrative into a hyper accelerator. And all of a sudden, yes, we are now literally a streaming company with other units. I don’t know at that point. I’m not necessarily bullish on. I’m going to hold on to my shares for the foreseeable future, but I’m not necessarily looking to buy orders out and not for Disney.

AR: Look, in theory, though, like you can make that point, right? I mean, it’s defensible, because what is Netflix’s market enterprise value actually, it’s like $170 billion?

DS: So, yes, so…

AR: And market cap is like what $150 billion and ad is like…

DS: $160 billion is what I said. Yes.

AR: Yes, ad debt and off-balance sheet card debt obligations, or whatever it is, you’re talking $170 billion-plus?

DS: Yes, yes.

AR: Just for what, streaming? No merge. No, nothing.

DS: And so, Disney…

AR: They’re not licensing the content out to anyone else, really.

DS: I have no idea of what’s going on with Hulu. But Hulu is also there. So Disney doesn’t have just one and they do have ESPN+, I can’t imagine is…

AR: Yes, I watched the Hillary documentary, which is freaking awesome, by the way.

DS: Okay.

AR: I came away being like, yes, maybe I also had some sort of sergeant’s bias on her that was just pre-programmed in my brain by Rush Limbaugh, because, I mean, like, I was impressed. I was like, what, if she had that documentary on the background of her life out there before she ran for President, I would have been like, “Oh, this is like on the merits, I was a lot more impressed with her background.” It just shows how ignorant I was on her, but it was a good documentary. And that is the reason I’m paying for Hulu.

DS: And I imagine actually, I’m trying to find Fargo and I don’t see it. Again, I’m in Spain, so maybe it’s different. But Fargo is probably on Hulu.

AR: Fargo in on Hulu?

DS: Yes.

AR: Okay.

DS: So you’ve got all the – all those sorts of shows…

AR: I probably watched all three seasons of it. The fourth season actually was supposed to be coming out with Chris Rock and the lead. But production has been postponed because of coronavirus.

DS: And that’s another sort of, if this persists longer than people are expecting, that’s going to be really interesting, because everybody now is like, “Oh, Netflix and Disney…

AR: Well, Tom Hanks got it, man. I mean, would it like..

DS: But I’m saying that all of a sudden you’re not going to be having new shows, because they actually take time. And what I would…

AR: What the hell is the virus doing going after the national treasure?

DS: Well – but – and so I watched Steven Colbert. I don’t know if you saw Steven Colbert did a – he did one show where as they were really shutting down where it was an empty audience and it was very funny. But then, like I watched one of his things that he’s just recording from his balcony or something and watched Trevor Noah 2, and it kind of isn’t as funny if they don’t have anybody to play off of.

AR: So, Jimmy Fallon has been good with his…

DS: Okay.

AR: …home stuff and so as Kimmel that they just thought.

DS: Okay. Okay, so maybe I…

AR: But I can imagine those guys were just sitting at the desks. But like they just do random [explicit] like interview their neighbor or like do like a Zoom call with Jennifer what’s her name, Gardener and then it gets like interrupted by their children. It’s like Dad, can I…

DS: That’s what’s just so –and that’s maybe where we can kind of underlie this. Disney is a diversionary company, right? They divert you through their theme parks, through sports, through movies, through and we’re at a time it’s really hard to find diversions from what’s going on, because every NewsSite…

AR: Well, here I always do.

DS: …is covering this…

AR: Watch CNN for three hours, then watch Fox News for three hours, then watch CNN for three hours, then watch Fox News for three hours. I do that so like I go from straight up what is the President doing, President loss it to? It show more people die in automobile accidents.

DS: So…

AR: It’s a good exercise.

DS: If you look at my – I work from home. I’m on the computer all the time. So my day-to-day life is actually not dramatically impacted by this. But what’s changed for me is, when I tried to kill some – not kill time, but divert myself I go to the Atlantic, or I go to the ringer, or I go to ESPN, there’s just nothing interesting on those sites except is related to coronavirus right now.

AR: But there is one place that is super interesting, Twitter.

DS: Wow.

AR: Which by the way, works out great as a short. I wish I had done more trades like that.

DS: Yes.

AR: Like literally, Scott Galloway, if you’re out there, just shorting Twitter after the coronavirus had broke out and after they announced the deal, and it was up when the market was down and then it fell 50%.

DS: Yes, on Twitter.

AR: And they did come out and show great numbers. But I mean, I did cover it, because it’s just like, whatever, it’s Twitter and you’re just like, maybe they actually do figure something out. But they came out and warned that they’re going from…

DS: Growth…

AR: 12% growth to like, let’s say, a 2% revenue drop or something. And when you consider it’s like four weeks that had to have covered, that tells you how quickly the ad spend shutdown. Despite surging engagement, which is going to be on Facebook as hinted. They didn’t give you much. But Facebook and Google are really going to be interesting when it gets to that.

DS: Yes.

AR: Because, I mean, do they not grow revenue this year? Like probably it’s extremely likely. How much does it decline? That’s another question. I mean, who’s more resilient in this environment? Because everyone is going to have low visibility. And that’s where you get into that, like, that’s where like you were saying, I did like these streaming businesses are, I’ve been so predictable. And maybe that is enough installation if you – if you’re looking.

If you take the view that Disney+, this is like a watershed moment and it’s like we knew it was going to get to Netflix type levels pretty fast, but it was going to take time. And then this lit a fire and got them there like they skipped a step, right? They skipped a step kind of effect here and then slowly all these other pieces come back. Well, maybe the streaming business is enough to insulate it to make it worth holding here as everything else comes in.

But I mean, then we got to go back to that whole streaming, like what our streaming business is worth just there for their exercises for every single platform company. At what point these people spend less money on content? I mean, this is rationalized content spend. Does that slow that down a little bit? I don’t know. I mean, you’re going to have such a pipeline to go through after this, that you do wonder about that, because you’ve kind of delayed everything, right? I mean, doesn’t everything get pushed back a year?

DS: In terms of the – yes. I mean, I think it’s – I think or, however, long, it’s – this is a pod.

AR: Yes. If you had a production schedule and like you got to postpone, I mean, like they’re financing these mega projects, you’d – like you would have to – if you’re going to complete them, you’re going to have to push things back.

DS: Right. Yes, yes, totally. And I think the two sort of the bullish cases, I think for Disney are: A, that Disney+ gives them – this is opportunity for that step to the forefront; and B, that Disney – that when return to normalcy happens, nothing is more normal in America than Disney – and so – and ESPN in the sports world, and so because Disney is, as you said, the 100% pure. They’re going to be the – where you fly back to normal. And so they can hold up better than anybody.

The flip side is that not so fast my friend, as Lee Corso would say from ESPN, we don’t know if normal is going to be the same for movies, for theme parks and for ESPN. And my take is, I think, theme parks is probably going to be normal; and cruises, I don’t know; box office, I think will be definitely changed; and ESPN is definitely up for grabs. Any positions. I mean, we mentioned a lot of stocks or anything. I’m along Disney and Google. I think that’s – those are the only stocks in mind that we have.

AR: I’m still in Facebook, still in Coca-Cola.

DS: All right. Good. So, Akram, be well and we’ll do it again, soon.

AR: All right. Take care.

DS: Take care.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Daniel is long DIS and GOOG.
Akram’s Razor is long FB and KO.
Nothing on this podcast should be taken as investing advice.




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