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The market is falling again. So what should investors be thinking this week? Motley fool money starts now. Everybody needs money. That's why they call it money
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are
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free but you can give them to the.
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From Fool Global headquarters. This is Motley Fool Money.
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Welcome to Motley Fool Money. I'm Travis Hoy. I'm joined today by Emily Flippin and Lou Whiteman. And guys, we've got to talk about the topic of the week. We have this, we have this war, conflict, whatever you want to call it in Iran that started last weekend, started impacting the markets on Monday. We're down significantly early on Friday as we're recording. Lou, I, I want to just get your general thoughts on what do you think as an investor in times like this, what signal what's noise? Because it seems like the market goes from, you know, panic to, to, you know, the market shoot up every 15, 20 minutes and it's hard to make sense of things.
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Yeah. So the first thing I want to give everybody a free pass to do nothing. Because you know, I mean it, it, it's always fun to be able to brag six months later like I caught the low and I bought something and you know, I, to be opportunistic, that's fine. But I think it's good enough to, for your long term wealth creation to just not panic, sell. And so, you know, I mean the world is changing. Things could be fundamentally different after this than they were before. Good companies tend to survive these things. And you know, so yes, I think there's every reason in the world to watch this, to monitor, to think about it. I haven't seen much of a reason to say, oh no, everything I thought two weeks ago isn't right. Look, even with today's sell off, we're down 1.5% for the year in the market. So I mean, I do think it's hard to take a long term perspective in this moment, but to not take the second by second perspective, at least you can do a long way towards preserving what you've worked for.
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Emily, do you have similar long term views on kind of what to do on weeks like this?
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Yeah, and actually I have some numbers to back it up too. And in fact there is, to Lou's point, a lot of data that supports the idea that patience wins out whenever there is geopolitical volatility like this. And panicking does not and will not help us. And history tells us that stocks actually do go up after these types of events, weirdly enough. And we can debate about why that is, but there's some good data here from the Morgan Stanley Wealth Management Global Investment office that the average return of the S&P 500 a week after a geopolitical shock is actually positive. One month out, it's around one and a half percent. And then when you zoom out to a year, it's over 8%. And if you look at that, the median return after a year, it's even better at over 10%. So it goes to show that panicking generally after an event like this has already happened by either selling your stock, selling the market broadly, really isn't the best way to go about handling, managing risk or volatility in your portfolio. But I say that not to be blase about the risk of what we're seeing and certainly what we're seeing happening in Iran and particularly with the Strait of Hormuz like that is very, very concerning and can be concerning for very specific industries and certain businesses. So I think the bigger question, whether there's two separate ones, I should say there's question of, oh my gosh, I'm the average American investor. I have a lot of money in index funds. I have a lot of money diversified across the market, across many different industries and businesses. And I'm panicking because of this geopolitical event. What do I do? And of course the answer is sit on your hands, be patient, do nothing. And then there's this question of, oh no, I'm seeing the fact that, you know, 20% of global oil consumption is flowing through the straits, there's the potential for further conflict in the Middle East. And now I think some of my particular stocks or individual companies may be exposed. And that's when you have to go back, back in and start evaluating those particular businesses and exposure in those specific instances. And there are some cases that I think are worth reevaluating in this scenario.
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Lou, going to those specific points, one of the things that we, we talked about early in the week a little bit, and maybe we're seeing this, you know, as, as the week rolls on. Is there specific risks related to the economy? Because Emily brought it up this, the straight of Hormuz, there's a lot of oil flowing through that area. Oil is a big expense for a lot of people in the US and around the world. If we're already at this kind of weak economic position, particularly in the, you know, this K shaped economy that you keep talking about, could this be the straw that breaks the camel's back?
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Yeah, it really could be. And I do again, you know, you talk about, you don't want to be too, like Emily said, you don't want to be too just dismissive or ignore. We already had headwinds. We already had some percentage of the US Consumers out there who are struggling. Adding a dollar to a price of a gallon of gasoline could be the tipping point that sends just so many consumers that we do see just a real pullback in spending that then spirals into a pullback in commercial spending and becomes a recession. Even here. It's good to recall that this is part of the cycle. Even if it comes from an unexpected event, we are probably due for one of these. And again, I think as a long term investor we try and know, wait it out, look for opportunities. So even there, I don't want to panic, but I do think that it's at least a reasonable worry to say, I mean, I don't think that the conflict is going on, that's going on can't be resolved in some way that we can. You know, like this changes everything. But I do think we have to, you know, look at where the economy may go from here and at least prepare ourselves for. We've been talking about it forever. Maybe this is what does it.
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The good thing about the United States in particular is that we're relatively energy independent. And so there is some insulation that happens here. And the good thing about the conflict in the Middle east that we're seeing is that there is going to be pressure from both OPEC and the UAE and other countries that depend upon this strait for other shipments to probably resolve this problem sooner rather than later. And it's not to say that we haven't seen massive infrastructure issues that's going to take, you know, months, if not years to fix. That is a very real headwind. But I do think that the world we're living in today is different than the world we used to live in where a lot of the geopolitical events like these, when we saw conflict, it was, for lack of a better word, something that was months and months in print planning. And in this administration, we see an administration that is more willing than ever to try new things and then also walk them back quickly if and when they don't work out. So things are more volatile, more quickly shifting now than they ever have been. And I think that's part of the reason why, you know, we're heading into the weekend here. There's a lot of volatility in the stock market just today because people are trying to price in how much can change just in the next 48 hours. For the markets open up again on Monday. So there is a lot going on here that I think people are trying to price in. But the good news is, is that I actually think there's a lot of pressure to get this conflict resolved relatively quickly. America in particular is pretty well insulated here. And in my opinion, the most actionable advice I have for anybody who's looking at their portfolio and is thinking, what do I do in this scenario? In my mind, and this is just my opinion, I kind of think energy might be a trim here. It's the best performing sector in The S&P 500 so far this year. We're seeing oil obviously spike up as a result of this conflict. And a lot of people, I think, doing a bit of panic buying, in my opinion, that's a good time to be a little bit contrarian. If your exposure is too high and you're seeing all these assets appreciate in value, now might be the time to consider exposure. I would personally take a little bit off the table. And then if and when we see the price of oil or gas come back down, that might be the time to buy back in.
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Well, let's talk about some of those contrarian ideas. Lou. Where are you looking for opportunities in the market? And as you guys are talking, I'm thinking through the stocks that I own. And I focus. I focus a lot over the last year, a lot on balance sheets. You know, what companies are sitting on a whole bunch of cash. That gives you the optionality that, hey, if there's a moment like this, maybe you just say, okay, fine, I'll buy back 20% of the shares outstanding, or I'll acquire a company that's in a little bit worse financial position. You know, these. These dislocations don't necessarily last forever, but if you were able to play offense in these, these moments, then that can be a good thing. But how are you thinking about maybe putting your money to work or. Or like Emily said, taking things off the table at a time like this?
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Yeah, look, I mean, I. I'm a believer that there's always opportunity somewhere. And I don't think that changes now. But. Yeah, like. Like how does that change? I think you're right. I think there's a lot of. I mean, but to me, it's more just recession thinking I go into now, like. Like what companies are being beaten down but can weather this and still thrive long term? Just, I mean, very simple things. I don't think we're there yet, though. Again, you know, I mean, we're Basically flat for the year. I unfortunately, I think that for this to really become a buyer's market across the board things have got to get a lot worse, which I don't know if I love that. To Emily's Point, I agree 100% on oil. Oil, if I had energy exposure I'd probably be looking to takes them off there, you know and other things too. Like I, I think across the board just even I, I own some defense stocks. I actually think the reaction that has been to the upside is probably overstated there. I'm not actively looking to trim because it's, you know, the long term is opportunity there. But I honestly think there's more opportunities to think about do I want to hold this through a recession right now than there is opportunities right now to say I want to buy.
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Emily, how are you thinking about maybe if you're taking some of that energy money off the table, where are you looking for, looking for opportunities or what characteristics are you looking for?
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I just love indiscriminate selling, the panic selling that other people do. I just view it as great opportunistic chances for patient long term investors. Like everybody who's listening is, yeah, I,
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I, one of the things I do early on days like this is I'll look at the market and I'll go, okay, is everything red? Is everything down 2, 3, 4% or is it something specific? And this is not a SaaS apocalypse this week. This is just everything was down at least a couple of these trading days like today.
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Yes, exactly. You nailed it, Travis. Which is to say this is the reason why I say I love to keep a watch list of companies, you know, if you don't have necessarily the assets to buy everything you want to buy in any given day, it's great on days like today if you have a little bit of cash on the sidelines, if you're taking your trimming, say a little bit of energy today, you're thinking where can I invest having that watch list of businesses that are being indiscriminately sold off. And it's not necessarily saying okay well I know software is down big, is there's seeing massive AI based disruption, now's the time to buy in. Because there is still this really big question mark and obviously it's a case by case basis here, but those are companies that maybe there's a reason why they sold off. But on days like today where the indiscriminate selling and you see great companies that have maybe existed on your watch list. For me there's a lot of great consumer goods facing names, which I'm sure we'll talk about later in the show. These types of businesses are the ones where it's like, okay, I see a pullback here. Maybe I'm waiting to get in. Today's the day.
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When we come back, we are going to get a little update on earnings before doing a deep dive on a company Emily and I have been talking about a while. That's Disney. Stay tuned for that. You're listening to Motley fool money. Have you been sleeping on your mattress a little too long like I have? My back's getting sore more than it used to and I feel like Homer Simpson with my body shape imprinting on the mattress. But like you, I'm busy with a job and kids and who wants to go to the mattress store with the family only to deal with a pushy salesperson? That's why I was excited to learn about Leesa and their premium mattresses that you can shop for from the comfort of your own home. We wanted stability and comfort, so we went with the Legend Hybrid. It has over a thousand individually wrapped springs for extra support. But here's the great thing. It virtually eliminates motion transfer. Just in case one of us has a restless night. No matter how you sleep or your budget, Leesa has a mattress for you. They're made from premium materials right here in the US With a focus on using sustainable materials like recycled steel. Check out which mattress is right for you@leesa.com for 20% off. Plus get an extra 50 off with the promo code fool exclusive for our listeners. That's L EE E S a.com promo code fool for 20% off plus another 50 off. Support our show and let them know that we sent you after checkout. Lisa.com promo code fool. Welcome back to Motley FOOL money. We got a number of earnings reports this week and one that we wanted to talk about a little bit because there's so much involved is Broadcom. Broadcom talked about you know, 100% increase in their AI related revenue. We don't typically think about them, Emily, as a company that is on par with Nvidia, but they, they really are. And if, you know, if you're not aware of them as an investor, now's the time to at least look at it. So what did we learn this week?
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Oh, my gosh, Broadcom, first of all, one of the largest companies in the world. I think it's over one and a half trillion dollars in terms of market cap. And it's amazing to me, we give a lot of focus to Nvidia, but Broad is kind of a sleeper agent in the world of AI and their quarter was pretty stellar actually. I think part of the reason why we so both Nvidia and Broadcom, I will say, since they are serving the demand that exists due to capital expenditures of hyperscalers, these large tech giants, there's very little surprises in my opinion that come out of these quarters because we've already had quarters from their largest customers who said, hey, we're 3xing the amount of money we're spending on CapEx for data centers this year. So of course we're going to see great demand for Nvidia and Broadcom and these other types of chip maker chip players, I really should say so these companies, we already had an idea that their quarters were going to be good. And the reason why I think we saw a response that was positive for Broadcom's quarter but a little bit more muted for Nvidia's wasn't because, oh, Broadcom's better than Nvidia. It was because of some of the guidance around gross margin that I think we got previously for Broadcoms, some of their newer initiatives which they thought management said, hey, maybe our gross margin will be a bit lower came out this quarter. Leadership basically shut all that down, said gross margins are great. The market was like, okay, great, wasn't necessarily pricing that in. So the price movement there is less about our are Broadcom and Nvidia competing head to head and more about the expectations baked into each of these businesses. But I do think it's interesting that as both these companies have grown and you make this good point, Travis, that they're maybe learning to compete more with each other right now. They aren't really competitors, they're complementary in terms of the services that they offer. Nvidia is selling the GPUs Broadcom can't really make. They're selling the switches and the chip infrastructure that helps make Nvidia systems run. But as we get more into these custom chips, there's going to be a question mark of okay, what is the software that ultimately ends up running them? And right now Nvidia needs that software to justify its valuation. And I think there is still this question mark about who wins the software race.
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Lou, we are getting to the point where Broadcom, Nvidia, their numbers are phenomenal, but we're not seeing stocks jump 30, 40, 50% anymore. Is all this we talk about everything being priced in. Are we at the point finally with AI where like Emily said, okay, we know what the CapEx numbers are going to be. We know how much cash flow so all the big tech companies can put to work not only next year, but in the future. We kind of know what these companies are going to be, even if it is 100% growth rate.
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Yeah, that's the thing. I'm old enough to remember when a quarter like Broadcoms was really celebrated and the stock was up, but it wasn't Both of these companies, Nvidia is actually the winner over the last six months, but both of them are basically flat over six months. And I do think to your point, that might be exactly what's going on. Not that we've become just. Just bored with these growth rates. I think we still love these growth rates, but there are limits to how much more we can accelerate from here.
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Right.
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I mean there has to be at some point a limit over on the private credit side just kind of these big hyperscalers going to the debt markets looking for creative ways to fund kind of continued growth. Questions about everything we talked about before about the war and everything. We still have to support $4 trillion in IPOs this to kind of keep this going too or so. So is there just. I think the market is concluding that while this is sustainable and these are great businesses, the growth year over year growth that we've seen that maybe that that is going to cool off. And since the market tries to be forward looking, since it tries to look for what from here, I do think that kind of the muted reactions across the board is just maybe conventional wisdom. Shipping to. All right, we've finally hit the point. Point that the question is can we sustain not can we double from here? Yeah.
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Do those growth rates continue to slow? Emily, as we were preparing for the show, one of the areas that I think is interesting that's held up well in this SaaS apocalypse so far in 2026 is cyber security stocks. What's happening there? This is an area that I cover. So give us an idea of what these companies are doing and why. Maybe investors are thinking about this differently than they are something like a salesforce.
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Yeah. In the world of enterprise software, everyone forgets that cybersecurity technically counts as enterprise software too. But the reality is, to your point, that AI is being weaponized against enterprises, like right this very moment it is happening and they're trying to commit security breaches at the same time, companies are trying to use AI to prevent those breaches. It's one of those things where it's kind of like you need the fire to fight with the fire. So it's hard to argue that despite the fact that it is a seat based software, enterprise software company, that cybersecurity needs are going away in the world of AI. If anything, I think the market belief right now is that AI has made cybersecurity companies more relevant. Even though I would argue that the quarter that we got out from CrowdStrike earlier this week, who is one of the largest cybersecurity companies and one of the largest, most highly regarded players in the market, doesn't necessarily back that up. And the thing that I'm watching closest with them is their CCP program. This is the program they launched to make customers whole after their outage over the last couple of years. I think it was about three years ago, if I'm not mistaken, two, three
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years ago was that the gift cards that they handed out, effectively what they
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allowed, allowed their customers to do was kind of add these add ons and not charge them for them. Right. So they're basically having a lot of customers that are underpaying the market rate for these cybersecurity offerings that they're going to, over the course of the next year or so start to lapse. I think investors are assuming, and CrowdStrike is assuming that these customers are going to come in and start paying full price for these modules. And I actually don't necessarily know if we have data to back that up. As important as mission critical as cybersecurity is, this is the industry that I'm probably watching most closely because we need evidence at the dollar based that retention rate for these customers that are churning through the ecosystem are actually going to renew at the higher rates needed to make the AI investments worth it.
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You know, it's really funny because I, I do wonder just kind of generally if if the greatest tool corporations have right now is even if they have no desire to replace CrowdStrike or something to when they get their annual renewal and it's a what, I don't know, 3% increase. Say this is great, thanks. We have to talk to OpenAI and then we'll get back to. And if that sort of just neuters the price increase, even if they don't want to go. So I mean, I think that that scares me more than, yeah, people ripping out the systems. Bigger threat here is that cybersecurity has been notorious like as the threats change, the companies change. I'm not saying CrowdStrike can't be the most relevant provider in five years in a world of AI, but I at least have to leave myself open to the fact that if history is a guide, as things evolve, so do the winners. So they have a lot of work to do. Not that they can't be a long term winner, but I think I'd be surprised if in five years the incumbents are still the incumbent.
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When we come back, we're going to talk about Disney. You're listening to Motley Fool Money.
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Welcome back to Motley Fool Money. In this section we like to have a little fun and actually want to do a deep dive. I've been talking with Emily about doing a deep dive on Disney for a while, so I'm going to lead in with some questions for you guys. See how well you know Disney and then we'll talk about their businesses. Let's start with the studios business. This is Disney Animation, Marvel, Star Wars, Pixar of the top five movies in the past three years. So 15 movies total. How many of them were made by Disney?
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Emily of the top five movies in
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the last three years each of the past three years. So 15 total options?
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I would say nine out of the 15.
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All right, Lou?
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I think so. This is Price is Right. I'm going with 10. Because I think.
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Because you think two thirds of the movies, the, the top movies come from Disney.
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Travis is like, this is not the
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direction I thought it's going. No, it's high. But it's, it's seven. So it's about half of the movies. But the thing that I think is interesting with that stat and specifically is the movie business has become a blockbuster business and Disney is, I think, the best at making blockbusters. Emily, do you think that's the case? Or is this, is this the best studio in Hollywood or, you know, a conglomeration of studios, or is there a better player out there?
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No, I actually wholeheartedly disagree. And I actually think that their studio business is in desperate need of a leadership overhaul. I think it's a depleting asset, or should say depreciating asset really, because of franchise fatigue. And Disney has been hitting customers, consumers, you know, even Disney enthusiasts, over the head so often with reboots of the same franchise over and over again that it actually, in my opinion, doesn't necessarily matter if they are doing well, quote, at the box office, right? If the biggest hits, because they spend so much money to make them, they end up being not that big of a profit driver for Disney as a whole. And I actually think the company, the more they kind of overuse the IP and the studio business, the worse it gets for Disney as a franchise as a whole. Because what they're doing is they're devaluing the value of that ip. If they were focusing on quality over quantity, I actually think that'd be better for their company.
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What IP do you think they're over utilizing here?
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That's a great question. If I actually knew any Disney movies, I probably would answer you. My concern is this is the narrative that I hear from the big Disney fans. You are not talking to a big Disney fan. But I assume it's all at the same. I mean, think about every major blockbuster name off the big blockbusters from Disney. They're all reboots of the same franchises.
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C
I'm just going to guess here, and I don't know either because I'm not really a movie person. But I'm going to guess that the normals like it a lot more than the people who are loud about it. But I have no idea. The thing I can't figure out here is like, so, yes, they have leaned in on franchises, but some of the movies that I'm guessing that weren't Disney movies that were on the top were like Despicable Me, I don't know, 34 or whatever, you know, so it's not like they only do that. Best is so subjective. Certainly Disney isn't the place to. You're even going to get like, I don't see why Oppenheimer or something was like, you know, a creative arts film. But, you know, yet Disney isn't going to lean in there.
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But.
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But they have won the global box office. Not in the last 10 years. Creativity really isn't the money maker. I think these franchises are great for other parts of the business. So I don't think this is a weakness or an Achilles heel. I think they know what they're doing and they may not win a lot of Critics Choice awards with some of this. But I think as a business, it is at least okay when you look at the sum of the parts.
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A
It's so interesting that you guys have generally negative views because I have little kids and Disney is the like, we will go see every single Disney movie, every, you know, Pixar movie. Disney plus is the one that they have basically complete access to because I can trust Disney as a studio to make movies that they're gonna, they're. They're gonna enjoy and are also, you know, gonna be appropriate for kids. So I, this is always one of those. I, I may know, know the fan that you're talking about, Emily, who on overusing Star wars in particular. That's what it does. You know, I star something, but that group of fans is so intense. And then you get the people who actually go to movies who are kids with their families. And guess what? Zootopia 2 was great. It was great.
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B
And actually I think Zootopia 2 to your point, outperformed virtually all of the Frozen franchises. So you're right. Maybe I am. Maybe I'm being overly dogmatic here by focusing on only a couple of the big franchises that they seem to reboot every other year. And to your point, Travis too, also, I am not the target audience for a lot of these movies. I don't have kids and I am not going to go see Zootopia 2. Although I have heard, to your point, heard great things.
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Shouts out, by the way, to one other franchise that I think was Disney Inside Out. Go see both of those if you have another one.
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A
All right, Speaking of, where, where do these movies end up? Well, they end up at the parks and they end up driving the parks. If you look at. We are actually going to go to Disney here in a month or two. And, and the amount of upgrades that they're making in Disney World and all the parks around the world is crazy right now. And it's all based on. Most of it is based on this newer IP. So in the last 10 to 20 years instead of the old IP. But since 2017, my question for you is how much has Disney's experiences revenue grown? So almost a decade. They changed the way that they reported, so that was the furthest it went back. So 2017, how much bigger is that business today, Lou?
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I couldn't even tell you. 10 years. I'm just gonna show my ignorance and say it's up. Like, I don't know it's up big. It hasn't doubled. I'll say doubled just to move on.
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Okay.
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B
Gosh, I. I'm just lost my breath there. Just realizing that 2017 was almost 10 years ago. Goodness gracious. I actually think that Lou's probably not far off. The parks is my favorite part of Disney's business. And I. I think they're probably close to. Probably close to a double. Maybe. Maybe a bit below that. Let's say 80% growth.
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You guys are right. 86%. My other fun stat is the cruise business doesn't get a lot of attention from investors because it's just, it's. It's a volatile business if you look at the cruise lines. But Disney has seven cruise ships and is actually launching another one next week. And that is an area of huge investment for them. That's one of the bigger drivers of the parks business. But ML definitely, when you look at Disney's business overall, how much does the parks business play into your thesis on the company?
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It's virtually everything to me. And I. Not to say that I think that Disney could just get rid of everything else and only be parks. And I'd be happy with that. I really do love the other aspects of Disney's business too. And I do think the IP that they're building with their studio business and streaming business is critically important to maintaining the demand for the park parks. So it all works together in one big ecosystem. But the parks, in my opinion, it's the bread and butter. I love the fact that Disney's new CEO is somebody who is formerly the head of parks, which is. I guess the name is. That didn't.
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That didn't go well last time though.
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Okay.
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I have.
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B
I have a bone to pick actually about this with Chapek, but we can get to that. I know we're gonna I presume you're gonna ask us about the streaming business and I'll, I'll give my spiel then. But I do think that having somebody who understands the core value of the parks is absolutely critical because if you over invest into less profit, then the reason why people are buying Disney shares starts to lose focus. And that's exactly what happened over the course of the whole Disney Plus. I think that was like the 2019ish era when Chapek came into power. And I think any money that the business chooses to reinvest into the parks, and I recognize that a lot of the investments they're having here are not necessarily going to just, you know, content build up. A good portion is, but a lot of it is maintenance of infrastructure. I mean, these are expensive, large beasts to run and manage. But I think it's money well spent here. I mean, this generates the lion's share of Disney's operating income. It's. It's more than 70% of total operating income from Disney just comes from the parks. The one red flag that exists for me, or actually I should say it's two. One is I hate the fact that they don't break out the cruise revenue as a different segment within parks because cruise ships are so expensive, hundreds of millions of dollars, and I'm sure they're very profitable, but I don't know.
- [30:09]
A
I think they don't do it because they're so profitable. Everything that I've seen about their, the pric of their. They have such pricing power in that market specifically that they're charging 50% more than other cruise lines. And so I think they want to hide that. I think. I hope that's the reason.
- [30:24]
B
I hope that's the reason. I wish I knew.
- [30:27]
C
Look, let's, let's be honest here though. The whole like parent criticism is, is that they, you know, lock you inside the park and then charge whatever you want for food, water, stuff like that. Imagine sending you out into sea and what, you know, like the pricing power they have then. So of course, well, people do it voluntarily. Yeah, I know, I know. Everything Emily said is correct. So I don't know what I can say more to that other than just kind of. See, from our discussion above, this is what justifies the movie theater. I mean, the movie franchises too, obviously. I mean, look, parks is a great business and it's a better business for them than it is for anyone. Are they better at it? Yeah, I think they're pretty good at execution and they think about it. But how much of it is just all of that IP that, you know, I mean, I don't think you want billions and billions of loss leaders feeding in. But to me, this is what justifies everything else going on. Everything just, you know, those parks, those are just where everything flows to that and it ends up. It's a big pile of money.
- [31:28]
A
Well, it seems like this is also the one that has the biggest moat. You know, you can't just, Netflix can't just go out and build a whole bunch of parks to compete with Disney. All right, let's talk about that streaming business that, that Emily mentioned earlier. My question for you is how many subs does Disney plus and Hulu have as of at least the last time they reported this? And I'm just combining those two because those are of the biggest thing they, they had ESPN plus. They're not. They split split off that app. But that's a little bit wonky. So we'll just go with Hulu and Disney plus streaming. What is, if you add those two together, what do you get to? Emily?
- [32:02]
B
Oh, I was really hoping to go to Lou first so I could have something to gauge my answer off of because I actually have no idea and it's embarrassing. I don't. I, I'm going to guesstimate 50 million.
- [32:14]
C
All right, I'm going much higher. But now, Emily, you scared me because again, I'm afraid I'm, I was.
- [32:19]
A
I'll go 1:50.195.7 million subscribers. Disney+ alone is 131.6 million. To put that into a little bit of context, the last time that Netflix reported, they don't report their, their total numbers now, but they've said that they're over 300 million. So they're not quite the same. But you're kind of getting into that territory. Emily, I'm going to lean on you here. First again, how do you think about the streaming business? Because this is a business that it, you know, you mentioned Chapek when he came in. That was the, basically the pandemic started. Iger said, I'm out of here. Chapek saw the growth going on at Disney plus and was like, I'm going to lean into that didn't necessarily work out super well. When Iger came back, he got the streaming business back to profitability. But as an investor, how do you think about that business? Is it just a tack on, is it a profit driver? Where are we going with this in the future?
- [33:14]
B
Yeah, you can tell how little I care about the streaming business based off my answer there. And great for Disney plus. Again, clearly not the target audience here. Although I do subscribe to Hulu, so maybe I should have factored that into my, my equation here. I will say I rewind back to when Disney was initially launched. And what happened at the time was Bob Iger set up the expectations for what Disney could be in terms of Disney getting into the streaming service. And I was being my classic self, very skeptical at the time because we saw the decades, decades, the many, many years of Netflix and other big streamers who burned cash trying to make the content game work. And yes, of course, Disney was sitting on a bunch of very valuable ip, but we know how expensive it is to make valuable content. And there was a lot of price compression for streaming at the time as well. And Disney plus was being launched and sold well below the price of the need to be. To be profitable. Of course, now Iger, they were practically
- [34:07]
A
giving it away in those days.
- [34:08]
B
They were practically giving it away for free. Exactly. Iger did all this. Let's be very clear about this. Iger set up the strategy and then he left and he said, I'm going to put Bob Chapek in charge. Chapek, the guy who ran parks, the guy who has all the experience with the biggest profit driver at the company, but very little experience with, say, streaming and content management. And then of course, when Disney plus proceeded to destroy Disney's financial performance over the next couple of years, they struggled to make that business profitable. Iger then comes in and says, wow, Chapek did a terrible job executing my plan that I set. I'm going to come in and fix it. So I have a little bit of a bone to pick. I think that Chapek was the right person to lead Disney as a company, but not the right person to be launching Disney plus to be using that as a corporate strategy. Now, since then, obviously, Disney has gotten its act together, raised prices on Disney plus, manage its content library. I think a lot of this, by the way, has come from Hulu and price increases with Hulu and benefits from espn, of course, massively under.
- [35:10]
A
They've been there bundling these now too. You're you. They didn't own all of Hulu when Chapek took over.
- [35:15]
B
Yes.
- [35:15]
A
So there's, there's advantages that they have owning that.
- [35:17]
B
Exactly. But I think all of that is the reason why the streaming service now is more profitable. And this now is. It's not quite making up, if I'm not mistaken, for the legacy networks business in terms of total Profits being driven to the company, but it's well on its way to making up for it. And in my opinion, that's all the streaming business needs to do for Disney. All it needs to do is make up for that nominal portion of sales that was being generated, generated by the network's business, make up for that capital there and then continue to build the IP so that people want to go to the parks. That's all I need.
- [35:48]
C
Yeah, spot on, spot on.
- [35:50]
A
Lou, I'm going to go to you first with this legacy question. Do you care about the legacy business? Abc, ESPN is part of this. They've got fx. If you have cable, you're paying a lot of money to Disney. Is that a business that you value at all when you're looking at their company?
- [36:09]
C
There is value, but it is the least important thing. I mean, there's some IP here too. So you do have some of that. I think that if any part of this business goes, it's this one. In fact, if you want to take look, there are so many of these kind of orphan businesses out there. I don't see Disney buying and adding scale here. It's not important enough. But it seems like you just spin this out. Maybe Disney holds on to 5, 10% of a merged networks business with the Comcat network business, has a sweetheart licensing deal. But yeah, this is the afterthought of the company.
- [36:45]
A
Emily, you agree?
- [36:46]
B
Yeah. If you thought I didn't know enough about say the studio portion of Disney's business, you're going to be appalled by how little I care about the networks part of Disney's business. In fact, I actually think the faster they do spin it off, the better. And now it does seem, given the benefits that we've seen from the Netflix and the attempted now Netflix deal with Warner Brothers and the spinoff of that studio business from the kind of legacy media business and the different content assets there now might be the good time for Disney to be thinking about, okay, you know, we see profitability picking up and streaming now is the chance for us to take this legacy networks business and find a buyer for it. Because I do think that the faster they get rid of it, the easier it is for this, this new management team, which by the way, we do have a new management team here to focus on what's most critically important for the company. But I recognize that it's much easier for me to sit here on a podcast and say this and much harder to turn this, you know, multi hundred billion dollar business around at the drive of the hat.
- [37:41]
A
When we come back, we're going to get to the stocks on our radar. You're listening to Mly Fool Money, Robin Hood and Little John walking through the forest, laughing back and forth at what the other has to say, reminiscing this and that, and having such a good time. Oodly golly, what a day. Never ever thinking there was danger in the water they were drinking.
- [38:07]
D
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- [39:16]
A
As always, people in the program may have interest in the stocks they talk about, and the Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content followers follows the Motley Fool's editorial standards and is not approved by advertisers. Advertisements are sponsored content provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. We'd like to end the show with stocks on our radar. Emily, what do you got this week?
- [39:39]
B
Stock on my radar this week is a company called Stantec. The ticker is stn. This is a Canadian design focused engineering consultant. Don't let your eyes glaze over because I promise you this company is a lot more exciting than it seems. They had a diversified mix of clients across infrastructure, environmental services, water, buildings and energy. Lots of mission criteria, critical projects. I really like this management team that's growing double digits on their top line while also expanding their bottom line through a combination of Both organic growth and acquisitive growth. And they have a track record that spans decades. I think it's trading at very reasonable valuations today as well. One of those babies with the bath water that's been sold off with the broader stock market.
- [40:17]
A
Dan, what do you think about Stantech? Did y' all know they have their own 66 story skyscraper in Edmonton called Stantec Tower? That's pretty cool. Cool?
- [40:27]
B
That seems now maybe a little excessive, Dan.
- [40:31]
C
I hope all the locals call it the Stan. Right.
- [40:34]
B
I hope they designed it themselves.
- [40:36]
A
All right, Lou, what's on your radar this week?
- [40:38]
C
Dan, I'm doubling down. I'm looking at Honeywell ticker, hon. But I'll be honest, I'm thinking about ge. GE was an underperformer for years until it split. And now two of those stubs are up 100% and 500%. Since Honeywell is doing a similar brand break up, I think it could do just as well. This week we got details about the soon to be independent Honeywell Aerospace business split pretty evenly between commercial and defense with a huge spare parts business that's great for margins, generating $3 billion plus free cash flow. I'll note they're going to take on a lot of the parents debts, so they do need to manage that. But post split, I think Honeywell Aerospace could be a top choice to take advantage of this surge in demand. I'm very intrigued, Dan.
- [41:19]
A
Does Honeywell have you intrigued? Honeywell is such an innocuous name and it's like they're a, you know, giant company with a ton of diversified business. Do you know their fingers are in a lot of different pies, gang? But then you hear Honeywell and you're like, oh, that sounds nice.
- [41:37]
C
You see, Dan, you're making my point though imagine how simple it's going to be once it's three companies and we'll know exactly what they do.
- [41:43]
A
I do like that. All right, Dan, which one's going on your radar or on your watch list this week? You know, I like simplicity, Travis, so I. You know, hopefully Honeywell does get a little more simple with how they name things. So let's go. Honeywell?
- [41:55]
B
Why not?
- [41:56]
A
It's worked out for ge. For Emily Flippen, Lou Whiteman, I'm Travis Hoyam. That's it for us folks. We'll see you here next time.