Why Did Disney's Latest Earnings Cause Shares to Plunge? | Pivot

1. 0:00 – 0:30

   Disney streaming losses collapse, but investors fixate on parks slowdown

   1. KSKara Swisher0:00

      ... although he had some issues with the earnings, Disney earnings. CEO Bob Iger saw the streaming part of his business is on track to profitability. It's not quite there yet, but they only lost 18 million on streaming this quarter compared to over, this number is incredible, $600 million in the same quarter last year. That's a good thing, actually, because it looks like it's just like Netflix. It's moving to profitability. Um, investors weren't sold on that news. Shares sunk 10% based on some jitters around the parks business. Growth is expected

2. 0:30 – 1:30

   Streaming tactics: password crackdowns and sequel-heavy content strategy

   1. KSKara Swisher0:30

      to be flat there in Q3. The CFO is blaming higher operating costs, inflation, and quote, "Global moderation from peak COVID, uh, peak COVID travel for that." People went to the parks, jammed them, and now are back to normal behavior. Scott, let's focus on the streaming. This business is leaning into password crackdowns and sequels. Um, password crackdowns have worked really well for Netflix. Um, they, um, uh, they've been taking away passwords. My kids are depressed now because they can't my pass- my Netflix thing. Um, and now I have to pay for more of them. Um, uh, there, that, that helped Netflix a lot, so password, um, and making sequels. They've got a Moana sequel, one for Inside Out, and our favorite, Deadpool. Um, there's two Frozens coming up soon. They've sort of leaned out of the Marvel universe 'cause it's gotten, the MCU, because, uh, it's- it's- it's a little tired. So talk a little bit first about streaming and then where every... I think the parks will be fine. They'll be fine. They'll figure it out.

3. 1:30 – 1:52

   Scott’s read: the earnings report looked fine—so why the violent stock reaction?

   1. SGScott Galloway1:30

      This was really unusual because-

   2. KSKara Swisher1:32

      Yeah.

   3. SGScott Galloway1:32

      ... if I just read the earnings report, I wouldn't have guessed... Disney on its, on announcement of its earnings, it had one of its worst days, and it's usually not a very volatile stock, and it lost 10% of its, I think it was even 11% of its value at one point in one trading day. And what's interesting is I don't think they saw this coming because the market's been focused on their streaming losses.

   4. KSKara Swisher1:51

      Mm-hmm.

4. 1:52 – 2:20

   Parks as the ‘consistent gift’: post-COVID sugar high fades in forward guidance

   1. SGScott Galloway1:52

      And effectively, they're now breakeven. The streaming market is just an amazing case study in economics because overspending built a huge market, but there was, people were spending too much capital. Now it's being massively rationalized at an incredible clip. What they weren't expecting was that the analysts would get so jittery about the gift that was sort of the consistent gift that kept on giving, and that was the parks. And when they gave forward guidance saying, "Look, the sugar high of COVID or people wanting to get out-"

   2. KSKara Swisher2:19

      Post-COVID, yeah.

5. 2:20 – 3:41

   Activist pressure returns: what the drop means for Nelson Peltz and governance

   1. SGScott Galloway2:20

      ... "post-COVID is wearing off, and the parks might not produce the massive EBITDA," and it took the stock way down. This might, this might create some unnatural acts at the company because the bottom line is that if this stock goes sub 100 and underperforms, I don't think Nelson's going away, the activist. This was an activist investor who was trying to get a seat on the board.

   2. KSKara Swisher2:43

      He lost.

   3. SGScott Galloway2:43

      Typically what happens with activists is at the first board meeting, they lose, and then management has a year to get the stock back up, and if they get the stock back up, everyone's happy. If they don't get the stock back up, the activist gets a couple seats at the second board meeting. That's where we are now. And so I would imagine this was a really ugly earnings call for Bob because if the stock does decline over the next two quarters-

   4. KSKara Swisher3:08

      Mm-hmm.

   5. SGScott Galloway3:08

      ... Nelson's back.

   6. KSKara Swisher3:09

      Third time.

   7. SGScott Galloway3:10

      Nelson's back, and, and I think the board is gonna get very serious about a succession plan and trying to present a new strategy.

   8. KSKara Swisher3:18

      Which he's gotta be interested in.

   9. SGScott Galloway3:21

      But this is, th- there's just no getting around it. The market's reaction to this was surprising and ugly, uh, ugly for Bob because the only thing that keeps Nelson off the board, unless Nelson's already sold, which I doubt, is if the stock, uh, i- is if the strategy they've put in place seems to be getting traction.

6. 3:41 – 4:28

   Kara’s consolidation view: streaming winners, Paramount in play, and industry shakeout

   1. KSKara Swisher3:41

      Yeah, and they've got a lot of, uh, allies. It's, it's Nelson Peltz. I put him under... Elon is involved with them. There's a whole bun- there's a whole passel of people that are going to start agitating at Disney. That said, the, the streaming business is gonna, is gonna decline in, in losses and then become very profitable, I suspect, as the others... You know, you have, we have a company called Paramount that's in play right now.

   2. SGScott Galloway4:05

      Yeah, yeah.

   3. KSKara Swisher4:05

      May or may not sell. It's been a big mess. Um, there's a whole bunch of streaming consolidation about to happen, and the people that are gonna be standing are Netflix, Disney, um...

   4. SGScott Galloway4:15

      Time Warner.

   5. KSKara Swisher4:16

      And Time Warner.

   6. SGScott Galloway4:17

      HBO.

   7. KSKara Swisher4:17

      HBO. And even they are in, have some problems going forward. Um, we'll see. What would you do if you were him? What would be the move you would make besides Moana and Deadpool?

7. 4:28 – 4:49

   Scott’s prescription: shed legacy TV/broadcast assets and focus on parks + streaming

   1. SGScott Galloway4:28

      Um, I would probably shed the cable business and let someone roll up all the bad assets. The pro-

   2. KSKara Swisher4:35

      Yeah, the TV business. They don't have the cable business, right?

   3. SGScott Galloway4:36

      The TV business, excuse me. The TV business, the broadcast, the TV business, ABC, et cetera, and I would, I would, um, uh, focus on streaming and the parks.

   4. KSKara Swisher4:45

      Right.

   5. SGScott Galloway4:45

      Parks are your cash cow.

   6. KSKara Swisher4:46

      So-

   7. SGScott Galloway4:46

      Streaming is your goal.

   8. KSKara Swisher4:46

      ... the problem there, CBS will also be on the market.

8. 4:49 – 5:03

   Who buys the ‘bad assets’? Private equity roll-up and ‘bad bank’ logic

   1. SGScott Galloway4:49

      But I think what the opportunity there-

   2. KSKara Swisher4:51

      CNN possibly.

   3. SGScott Galloway4:52

      ... is for a private equity firm to come and take all of them-

   4. KSKara Swisher4:54

      Right.

   5. SGScott Galloway4:54

      ... and cut costs and go bad bank and consolidate all of them and just try and cut costs faster than the business declines.

   6. KSKara Swisher5:00

      So sell those off, all the cable-

   7. SGScott Galloway5:02

      Oh, yeah.

   8. KSKara Swisher5:02

      ... and- and ESPN, everything.

9. 5:03 – 6:02

   Conglomerate discount: why investors penalize Disney for owning declining segments

   1. SGScott Galloway5:03

      Yeah, because right now, those businesses, what they do is they create a lower multiple on the entire business.

   2. KSKara Swisher5:09

      Yeah.

   3. SGScott Galloway5:09

      Because typically when you're having a conglomerate, when you have a bunch of businesses, CEOs love it 'cause it creates a lack of volatility, and the bigger the business, the higher compensation. But investors don't like it 'cause I don't need Bob Iger to put me in the parks business. I can go buy stock in a park business, or I can go buy stock in a pure play streaming company called Netflix. So investors don't like it, and typically the way investors punish CEOs for being in a bunch of businesses that may or may not be unrelated, and some people would argue Disney has a flywheel, but typically in a conglomerate, investors will find the worst business with the lowest multiple, and they will assign that business, they will assign that multiple through the entire business.

   4. KSKara Swisher5:52

      Right.

   5. SGScott Galloway5:52

      So oftentimes-

   6. KSKara Swisher5:53

      Dragging them down. Right.

   7. SGScott Galloway5:54

      So I would imagine if the stock goes real- if the stock goes down to, say, 70 or 80, Nelson will switch his complexion to, "This company needs to be broken up."

10. 6:02 – 6:28

    Linear TV as a managed-decline cash machine: Kara’s ‘soak it’ argument and Yahoo analogy

    1. KSKara Swisher6:02

       Right, and Nelson will have to sell a part. He's gotta sell that. It's gonna be hard to sell a broadcast network right now, um, because there's so many in the, the money's declining so pres- but you can make a lot of money as you've noted on the decline, um, linear networks.

    2. SGScott Galloway6:14

       Per-

    3. KSKara Swisher6:14

       You can soak them till the very end and, and keep them in business. A business like Yahoo, I recently interviewed its CEO, is doing rather well now, if you can believe it.

    4. SGScott Galloway6:23

       They're great businesses. They're just in decline.

    5. KSKara Swisher6:25

       They're in decline.

    6. SGScott Galloway6:25

       They still, they still hemorrhage cash.

    7. KSKara Swisher6:27

       Yep.

    8. SGScott Galloway6:27

       They're just in decline.

11. 6:28 – 7:48

    Succession brainstorming: external CEO picks and the Sheryl Sandberg debate

    1. KSKara Swisher6:28

       Yep, yep. Or you can do something, bring the cost in line, and then it's not even in decline. It just is maintaining in a lot of ways. That's what's happening at Yahoo. Um, we'll see what's happening. Pick me one CEO for that company off anybody you could pick.

    2. SGScott Galloway6:40

       Disney?

    3. KSKara Swisher6:41

       Disney. One... Not the ones that are necessarily in contention within, with Dan and Walden, um, uh, who's had some problems at ABC, uh, Ja- uh, Jimmy Patera who's had some problems at ESPN, the parks guy who now has some problems.

    4. SGScott Galloway6:55

       Um-

    5. KSKara Swisher6:55

       Pick anyone outside the company.

    6. SGScott Galloway6:57

       Evan Spiegel or the guy who runs Fubo, Fubo TV. He seemed pretty bright to me.

    7. KSKara Swisher7:03

       Okay, someone like that.

    8. SGScott Galloway7:04

       Well, Evan is incredibly talented, incredibly creative. I think he's pretty good with shareholders. Snap is actually doing pretty well. I think they need, quote unquote, "Some youth" at the senior management level.

    9. KSKara Swisher7:15

       All right.

    10. SGScott Galloway7:16

        I don't know.

    11. KSKara Swisher7:16

        I'm gonna give you one that you're gonna love.

    12. SGScott Galloway7:17

        Yeah.

    13. KSKara Swisher7:17

        Sheryl Sandberg.

    14. SGScott Galloway7:18

        Sheryl Sandberg to run Disney?

    15. KSKara Swisher7:19

        Mm-hmm. She was on the board.

    16. SGScott Galloway7:21

        Well, I, I... Well, look, I think-

    17. KSKara Swisher7:23

        Things have calmed down enough around her, except for with you.

    18. SGScott Galloway7:25

        (clears throat) I think anyone who does that kind of damage to the mental health of young teen girls should have that type of opportunity.

    19. KSKara Swisher7:31

        Okay. (laughs) All right. I'm just telling you. She's a good operator. She knows all those businesses. Okay, yeah. You let all the men return. She's gonna return just like the rest of them.

Episode duration: 7:48