Vontobel Asset Management Portfolio Manager Markus Hansen joins Yahoo Finance Live to break down Disney’s fourth-quarter earnings report and the latest subscriber numbers for Disney+.
AKIKO FUJITA: Welcome back to Yahoo Finance Live as we continue to track this uptick in coronavirus infection. Some news here in New York City. Mayor Bill de Blasio reportedly saying parents should prepare for schools to be closed here in the city and continue to learn by remote learning only, which is what a lot of students have been doing over the last few months. But this coming out from Mayor Bill de Blasio. This remote learning likely to be a minimum for the rest of November, so a few more weeks. We’ll bring you any additional details we get on that story.
But let’s turn our attention back to the markets and Disney because we are seeing a pop for the company right now, up roughly 2% after beating expectations in the quarter. The company reporting a quarterly loss, though, of $0.20 a share on revenue of $14.7 billion. Disney+ the real bright spot for the company with more than 74 million paid subscribers now.
Let’s bring in Markus Hansen. He’s a portfolio manager at Vontobel Asset Management. And, Markus, what’s interesting here is that there’s a lot being highlighted about Disney+, but if you look at their other divisions here, parks and experiences down 61% year on year. Studios down 52% year on year. When you look at the stock move right now, is this being valued based on just streaming? I mean, is that where investors are looking to?
MARKUS HANSEN: It’s a good question. Thank you for having me on. It’s a good question. It’s a tale of two stories with Disney. You’ve had the last six months, which have been particularly hard on their core traditional businesses, the things we think about– movies and studios, the parks business in particular, and even on the sports side. Remember, ESPN was unable to broadcast any real sports until recently.
What’s encouraged from these numbers has been the resilience of the operations through that. Keep in mind, they have been able to reopen the bulk of their parks except for California right now but to limited capacity. And indeed on the call, I think Bob Chapek, the CEO, discussed about how they’ve now been looking to increase that capacity from around 25% to 35%. That keeps the guidelines in terms of distancing and safety. But really the losses have been contained, right sizing the cost but also adjusting to this new era we’re in right now.
Coming back to your original point about streaming, yeah, that’s a euphoria. That business has been spectacular. Launched exactly a year ago. They’ve reached targets that they were setting for about a five-year progression. And that’s a combination of what we’re seeing on the resilience of the park business, even only partially opened, and Disney+.
It comes back to what is Disney? And this is this strong IP content that resonates across the world. And remember, they’ve only opened Disney+ in about 20 countries globally. They still have a big chunk to come in Latin America, parts of Asia, and Eastern Europe. And so the prospects for that are looking significantly better going into 2021. I think that’s what the market’s encouraged about.
Your previous segment talked about vaccines, timelines on those. Really, that’s going to tie in nicely for 2021. We still got a lot of bridge to get there. Don’t get me wrong. There’s still issues. But now people are looking to the reopen potential, and Disney gives you a bit of both of those, what’s going on with streaming coupled with what’s going on to the reopen a year from now.
ZACK GUZMAN: Yeah, Markus, I mean, we’ve been talking so much about this whole tech rotation into cyclicals. It’s strange because Disney is basically both of those when you look at the parks side and the tech side in their streaming business.
But just to hit your point one more time, I mean, how shocking is it for a company to have a five-year growth target hit in just its first year in launching Disney+. You look at where the subscribers sit right now. You look at Netflix up by about 50% year to date, mostly because they’ve shown some pretty strong subscriber growth, at least earlier in the year. And then you look at what Disney has put up, and the stock’s down 7% year to date. So talk about that and how there’s still room to run if people do buy under the idea that this is a tech company.
MARKUS HANSEN: Absolutely. I think there’s two elements there. Looking into 2021 and 2022, what you’re trying to assess is in a normal environment, what is the real earnings power of Disney? And obviously if we get to a reopen, the theme parks are showing significant demand. They were talking about bookings being significant. They were even talking about cruise-line bookings, even though they haven’t reopened the cruises, being significant already, and that may be a year, year and a half away. The demand for the Disney products is very strong. So if that normalizes, we then look at the upside potential coming from their streaming product.
Now we mentioned Disney+, but keep in mind add in Hulu and ESPN+, which was ahead of expectation. They’re close to 120 million subscribers. Now, that compares with Netflix which is at $200 million, slightly different proposition, but they’ve reached those targets very quickly.
Now, they kept the granularity somewhat limited. There’s going to be a big investor day coming up in December. That’s going to be the big outcoming of their new strategic targets. I think we’ll see a lot more expectations of profitability targets there and so forth.
But to your key question, they do have a foot in both sides, the reopen trade and maybe the traditional stories coupled with the upside now and the incremental optionality of the earnings in the next two to five years coming from streaming. And that’s a powerful combination when you’re looking for something where you’re not sure where the economy is going right now but you’re feeling somewhat more bullish going into the next two, three years given the potential for reopen to come back.
AKIKO FUJITA: And, Markus, even with some of the successes you’ve highlighted, there have been job losses. ESPN cut 10% of its workforce. You had Disney cut about 28,000 from its parks. What’s your sense right now on how much more there is to come, or is this pretty much it in terms of the pain from these job losses?
MARKUS HANSEN: Absolutely. Look, together they had to cost resize or right size their costs. They actually referred to this on the call.
Part of the issue is still there’s a bit of a combination of political and economic backlash going on with the California park. Actually, Bob [INAUDIBLE] was pretty open about his disagreement with the rules coming from California given they’ve shown what they’ve done in Florida fairly successfully without any issues to date. I think if you get California coming back to a reopen, that will bring a significant number of the jobs.
I think they’re also retooling how they’re doing this. Coming out of this like a lot of companies, they are learning that maybe in the new world of streaming and the pivot to streaming there maybe is less of a need for the amount of core employees that they had in the past.
Streaming is a very high-leverageable business. You have your fixed cost come in, and then you drive the subscribers. And if those numbers keep ramping, the profitability can be significant. So I think that will change.
But hopefully the parks reopen. That employs a lot of these people who have been laid off. I think they’re ready to bring these people back. It’s a special place to go. And going forward, their hope is it’s not just the most fun place on the planet but also be the safest and the cleanest one to visit as well.
AKIKO FUJITA: Yeah, certainly a lot of people hoping that. Markus Hansen, portfolio manager at Vontobel Asset Management, good to talk to you. Thanks so much for your time.