In this podcast, Motley Fool analyst Jason Moser and host Ricky Mulvey discuss:
- Highlights from Disney's quarter.
- The future of ESPN.
- Amazon's new discount shopping venture, Haul.
Then, Motley Fool analyst Yasser El-Shimy joins Ricky for a look at Rocket Lab, why investors are getting "euphoric" about the company, and risks to watch.
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Ricky Mulvey: The Mouse takes a victory lap, you're listening to Motley Fool Money. I'm Ricky Mulvey joined today by Jason Moser. Jason, how are you doing on this fine Thursday?
Jason Moser: Ricky, doing great. How about yourself?
Ricky Mulvey: I'm doing pretty well. Let's talk Disney earnings. The mouse reported this morning. Yes, it did. I beat expectations, revenue was up 6%, but here's the thing. It's adjusted earnings were up 40%. The big headline for me here, J Mo, is efficiency. How did Disney get so much more efficient?
Jason Moser: Well, I think it's in a number of ways. Clearly, they've been working on cutting costs in regard to the business. If you remember, last year, the company announced a goal to eliminate 7,000 positions in an effort to reduce those costs. Ultimately recently they actually raised that target to 8,000. That is part of it. One way to become more efficient is to eliminate some of those costs. I think another thing that really does impact margins with this business is something we're starting to see play out at least a little bit. It's in regarding to the streaming business, and as they start to add those incremental subscribers, those become higher margin as they go along. We've seen that they do continue to build out that streaming business. I think it's a couple of things. They are doing a good job in cutting costs, but they are also doing a very good job in building out a business that is ultimately very scalable in that streaming side of the business.
Ricky Mulvey: Let's get into some of the highlights from the call. Iger, quick to point out the biggest movies of the year coming from Disney so far. That's Inside Out too, and Deadpool, and Wolverine. We'll see if both of those keep that mantle, with Wicked coming out in a couple of weeks. Disney Plus as you mentioned adding millions of subscribers, there's your incremental margin, four million subs. Now, that stands at 120 million subscribers. Also, I thought this was interesting, it is going to more than double its cruise fleet. The Disney Cruise lines grow into six ships and also has seven more in development. Looking into those business details, J Mo, what are your highlights?
Jason Moser: Well, we know the travel industry is a lucrative one. To see them building out that fleet of ships is not surprising. I have not been on a Disney Cruise personally, but I can only imagine that it's one heck of an experience. I think we could probably actually ask Mac Greer about that because I think he has been on at least one, if not more. If I recall correctly, he was very happy with the experience. They really enjoyed it. I think that in regard to the quarter, to me the movie performance was noteworthy, particularly in an age where you consider movies just don't hold the same opportunity that they once did, at least as it pertains to going to the theater. To see Disney performing well there, we know that can be a very lumpy part of the business. Sometimes they put out hits, sometimes they put out duds.
But over the recent past, they were criticized somewhat heavily for leaning a little bit too much into the political fray and doing things that maybe viewers didn't really want. I think it's encouraging to see that they're listening to what consumers want, going back to what butters their bread, what they do so well. I think these movies really prove that. I think from that perspective, those are the two things that really stood out.
Ricky Mulvey: I found one thing. This is less business related. I found this interesting, J Mo, there's another headline for the Disney Report which is Local Man trash is X, buys more boats. [laughs] That's because if Bob Iger out here, he's just going out of his way to throw potshots at Bob Chapek, saying, "Our renewed strength is a result of the extensive work we began two years ago to restore creativity to the center of the company." I appreciate what they're doing with the movies. They're putting out a lot of sequels. A lot of people like going to see Disney movies. But what is this? It's two years from now. You already got the W, Bob Iger. Why are we still doing this? It seems the slights are just continuing years later.
Jason Moser: It seems a little petty, and I think it's worth noting, a lot of Disney's problems that they're dealing with today are not problems that started post Iger. These are issues that began while he was still in that executive suite. To me, I don't know. Are we getting a little Iger fatigue here? It does feel like Iger failed to pull the jurors, because Sand's writing going out on a high note. I'm getting tired of him, my God. Let's figure out a way to get beyond him. Let's get Disney beyond Bob Iger because this is a tremendous business, tremendous brand with so many assets and so much potential. It's going to be very interesting to see how they figure out this leadership solution. The solution to this leadership picture here in the coming years. I know we saw headlines recently that they intend to at least have a new CEO named by early 2026, and that's terrific. Now, I'm not trying to be an Iger hater. I think he's done a lot of tremendous things with this business, and frankly I admire the man. He's been very good at controlling the narrative, and I think he's earned a lot of goodwill among investors, and I think rightly so but Disney is going to have to move past him. I do continue to wonder if an internal hire is actually the best idea. But I guess we'll see.
Ricky Mulvey: I'm a Disney shareholder and overall it's Bob Iger is a smart guy, but Jason I appreciate you giving the CEO of Disney management advice from George Costanza, a man who also has famously tried to quit his job and then immediately come back the next day hoping that nobody forgot. Maybe that's also a little bit of what's happened at Disney. Let's get into the ESPN stuff. I thought this was pretty interesting because ESPN is splitting into these different entities. There's going to be a direct to consumer offering. Disney Plus is growing with Hulu and also an ESPN tile. Bob Iger is saying that this is going to be, "The best product the consumer has ever seen in sports." The vision he's building is essentially an AI powered Make your own Sports Center. Are you buying this vision for ESPN? This seems like an undisruptable brand, even though it primarily or lives a lot on cable right now.
Jason Moser: Well, I do like the idea. I think that ESPN is a very powerful brand in regard to that word, undisruptible. I certainly wouldn't use the word undisruptible in regard to ESPN today, but I do think ESPN has been a bit more resilient than many had anticipated. It still really does hold a very large share of that sports market. Now by the same token, we've seen over the past several years, sports have become more fragmented, particularly in the entertainment side of things.
You look at properties like Barstool Sports, for example. That's just one of many, where those are properties that start to resonate strongly with younger audiences. Part of that I think is because of distribution. They're figuring out other ways to get that distribution out there with that set. I think you've got other big platforms. They're making big investments as well in this space. Look at Netflix, for example. You've got this big Paul-Tyson fight that's coming up. It's garnering a lot of interest. They're really doing a good job promoting this. We know that Netflix, for example, is also going to, I think they're bringing two NFL games on Christmas Day. I would argue today that for example, Netflix to me is a larger, more well known brand than something like ESPN for most.
I don't think that ESPN is in a position where it's just a no-brainer and that they own this market. But by the same token, I do feel they've done a good job of maintaining their position and proving that value proposition. My wife and I were talking about this over the weekend, and it was really interesting. She and I both went to very small colleges. She went to Furman, I went to Wofford, Go Terriers. But back in the day, we would never be able to really catch sporting events. We would never be able to catch those events.
The Southern conference games, for example, unless for some reason, they were just highlighted for whatever reason on a channel. Now, pretty much every week, we can watch those games if we want to. I think that's something ESPN has done very well, is they've really broadened that catalog. They've broadened that offering so that if you are a sports fan, no matter where you went, no matter who you support, it really does give you a lot of options as to how to watch those games. That can be meaningful for a lot of people. In this direct to consumer age, and that's the direction we're going, make no mistake, it does feel they're making the right moves in making this content more accessible for a wider audience, and that ultimately is the goal. Get as many eyeballs as you possibly can.
Ricky Mulvey: Let me push back a little bit, because I think there's an element of ESPN. Undisruptible, you're right. That's not holistically correct about ESPN. The commentary stuff, for example, you're seeing companies like Barstool Sports continuing to take share. But I think decades from now, people are going to be watching live sports on some form of ESPN. I see Netflix getting into this space. They're getting some NFL games. Yes, they have the WWE. They're still nascent there, and I think ESPN still has a Lindy Effect type relationship with these live sports offerings where people want to see big games on ESPN. I got, you know what? This Paul versus Tyson fight? Mike Tyson's like 60-years-old. This is not going to end well. If this is your first foray into combat sport, Father Time is undefeated, and it's not going to be good. There's a reasonable case that this could be a brutal disaster for Netflix when they end up showing that this weekend.
Jason Moser: It absolutely could be. There's no question about that.
Ricky Mulvey: I want to get to this breakfast news question. So breakfast news is this offering we have to members. Also, if you're a listener, you can catch it in your email address. Sign up, have it hit your email inbox each morning at breakfast.fool.com. Here's the question for today. Jason, not you personally, but we're going to make it more personal. If you, Jason, were CEO for a day, and you have a binary choice in front of you, would you greenlight more money toward Disney movies and streaming or more money to Disney parks experiences and products? Why?
Jason Moser: That's an interesting thought exercise. A little bit of a tough one. I think when you look at the park side of the business, to me that's the more undisruptible part of this business. It's very difficult to replicate what they've done there. They all ultimately serve the same purpose. I'm not entirely sure what they could do with the park side other than continuing to introduce new experiences. But to me, the entertainment side of things are really terrific driver of getting people to those parks. I think given the opportunity in streaming, seeing where the park is headed, so to speak, to me, it makes more sense to continue building out that content library. It's going to be an investment that is never ending. They're going to have to make a commitment to understanding. This going to be something they can never really pull back on. But to me, building out that content side, the streaming side of the business, that would be ultimately what would reap rewards for the longer haul.
Ricky Mulvey: If you look at the conference call, Iger quick to point out the movies are a great return on investment because this is the thing that feeds into all of our parks' experiences, that kind of thing. It all starts there. I'll take that answer, as well. Let's get to this Amazon story. Amazon launched a discount store. It's called Haul. If you have the Amazon app, you go into the search bar, you type in Haul that is H-A-U-L. It's a place where you can buy like, necklaces, phone cases. You can get a rainbow dinner spoon, if you want, for under $10. The catch is that shipping could take two weeks. That's a bit of a departure for Amazon with its prime speed shipping. Not seems to be. It is inspired by Shane and Timu. J Mo, why is Amazon making a play here? They're getting away from their brand a little bit, it seems.
Jason Moser: Well, I think this does line up with their brand, generally speaking, in that they're just trying to sell more stuff, and they're trying to offer value to consumers. But I'm with you. When I saw this initially, immediately the first thing that came to mind was five below. This is just a focus on low price stuff. If you go through, you look through the whole section of the app there, it's a lot of junk. I don't know, it's a lot of stuff that's terribly compelling. But by the same token, it is value focused. We have to remember that. I think in regard to Amazon, one thing to remember about Amazon, I've been a shareholder of Amazon for the better part of, I guess it's going on 15 years or so. This is a company you can't be sitting still. If you're sitting still, then people are passing you. I think this is a business where they have always taken that approach with Jeff Bezos leading the way, now Andy Jassy.
The idea generally is that you just can't be sitting still. You have to try new things. I think this Amazon Haul is just another good example, at them wanting to try something new. With that said, it doesn't seem all that terribly compelling that shipping stipulation you mentioned there is very unattractive because it certainly is a lot easier just to drive to a store and go pick something up. But I guess we'll see. It's still in Beta Form, so it's obviously a very new concept.
Ricky Mulvey: You're telling me this isn't against the brand. It is a little bit. Let's say we got Rick Engdol behind the ones and twos today. If you want to get him a lovely Christmas present of a rainbow dinner spoon, two for three dollars, I think, and it takes two, maybe three, maybe four weeks to get there, that's the Amazon promise. The Amazon promise is I go on the website, and then it shows up the next day.
Jason Moser: I think you make a great point there. The one thing Amazon has done so well over so many years is they basically changed the consumer's focus to really appreciate more convenience. It's not just about low prices, but it's about convenience. It's knowing that I can order something today, and I could probably have it delivered today, if not tomorrow. When you start talking about this two-week delivery timeline, I'm not so sure that's terribly compelling for a lot of people, particularly when you consider the price range, the nature of the goods that you're buying. See I think from that perspective, it doesn't seem it's something that necessarily should gain all that much attraction, but it could, I guess.
Ricky Mulvey: Maybe. Amazon's shareholders certainly seeming to not think that it might gain that much attraction. Stocks basically not moving on the launch of this new service. Why don't you think the Amazon shareholders like you, Jason, are caring about the launch of Haul?
Jason Moser: I said this plays into something they already do very well in e-commerce, and this is going to be very low margin stuff. I think, on the one hand, it could add incrementally to the top line there. But by the same token, the keyword there is incrementally. I don't think it's something that is a material driver of the business. Now, maybe it's something that brings in new prime members or new Amazon users, maybe it keeps people coming back, but I don't think it's going to be something ultimately that drives big time results for the business. Again, going back to the shipping side of things, that's just not a very attractive prospect. I don't blame them for trying new things. I was very, I don't want to say against the fire phone there, but I certainly had some questions when they did it. But I also understand why they did it. I know they took some lessons away from that effort. My suspicion is this is something that they are going to try. I don't know that it's something we should expect to see lasting, but maybe we'll take some lessons away from it.
Ricky Mulvey: You're right. If Amazon's able to take some learning about how to make shipping better for the next 5-10 years from launching this experiment, then it'll work out well for them. They've got a couple trillion dollar in order to make these bets. Jason Moser, appreciate you being here. Thanks for your time and your insight.
Jason Moser: Thank you.
Ricky Mulvey: Up next Rocket Lab, the end to end space company, recently reported a blow out quarter. The stock is up about 80% just over the past month. As investor interest takes off, I checked in on the business with Motley Fool Senior Analyst Yasser El-Shimy.
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We do take requests on this show, and we got a couple of comments on Spotify asking us to talk about Rocket Lab one from CL Thompson, 1979. We also got a question with Rocket Lab and also if Elon Musk in the White House is going to affect this company. I'm going to focus on Rocket Lab because, Yasser, we got no idea on the other side. I think we'd be getting highly speculative about what is already a highly speculative company. I came close to a spiffy pop with this thing, and this is only a stock that I've owned for a few months. There's a lot of excitement about Rocket Lab, this holistic space service company with satellites and rocket launches helping folks. I want to start with the business before we get to the investor excitement. In the latest quarter for Rocket Lab, there was a lot of growth around its space systems unit. For listeners that are less familiar with Rocket Lab, they know they're sending things into space. What is the space systems unit, and what's driving all this growth for Rocket Lab right now?
Yasser El-Shimy: A lot of people, when they think of rocket lab, they think of just the rocket launching business. But in fact they have been building what you can call an end to end space company. They are not just building the rockets that are carrying satellites into space. They also have the space systems business that you just mentioned, and that's almost like the unsung hero here. They are helping build the satellites that their clients want to have placed in the space. They're also selling satellite components. They're also selling software to run the satellites once they're in space and manage them and so on. They're building satellites, they're building spacecraft components, they're offering on orbit management, and they're launching the rockets. Hence, the end to end space company thing that I was just talking about. Now, what's driving the growth? Well, there's huge demand for small satellites and components. We're seeing more companies and governments looking to expand their presence in space.
Maybe some of you would have heard about a lot of telecommunication companies are actually interested in having service that is space-based effectively launching lots and lots of small satellites into lower space orbit and therefore, never losing your cell connection anywhere on Earth, really, and you don't have to build those good old towers every couple miles. There's a lot that's going on here. Telecommunication is part of it, defense is part of it. There's even new missions for in-space manufacturing. That's supposedly going to be the new frontier. But they're also helping government departments like NASA, for example, do space missions that are aimed at collecting samples from the moon or from Mars and so on. They've been busy. Let's put it that way.
Ricky Mulvey: Space manufacturing sounds easy to write off, but if you're a company that's on the cutting edge, and first of all, you want a data center that can cool down very quickly, putting some stuff in space will do that. Also, if you want to get the highest quality like glass with no imperfections, they're going to be able to manufacture that in space hopefully, and we'll get some cool advancements there. Rocket Lab has also been building around this electron vehicle. It's a smaller rocket compared to what it's been building. It's made 12 missions this year. One that investors are focused on is the neutron rocket. Someone who's less familiar with this game, I know the neutron rocket is bigger. What's it going to be capable of, and why are rocket lab investors so interested in it?
Yasser El-Shimy: This speaks actually to the very business model of Rocket Lab and when it started. There were a host of rocket launching companies that all started up around the same time in the mid 2010 and trying to grab a piece of that business. The idea was that we just need a small rocket that's cheap to build, and we're going to send a few satellites or a couple of satellites within that rocket and viola, and there you go. Now, as the space economy grows and as the needs for more space assets become greater, we found that SpaceX, for example, has a big advantage in this respect with their Falcon 9 rocket, which is able to carry a much heavier payload. We found companies that are interested in launching an entire constellation of satellites at the same time, as opposed to the piecemeal approach of a small rocket.
Rocket Lab very astutely decided to change course pretty early and not just focus on the electron, which has been pretty successful compared to other space start-ups that have pretty much failed in being able to build those rockets and launch them successfully. But they've also gone off course a bit by trying to build a medium lift launch vehicle named the Neutron, which is capable of lifting about 13,000 kilograms to the lower Earth orbit, and a little less than that, if a payload, if you want to go to greater distance, it's also going to be able to support human piloting. If there is a need for a space mission going into, again the moon or Mars and so on and have astronauts on board that's going to be pretty cool. But what's really interesting here is that they're focused on reusability. They're planning for the first stage to return to the launch site, and that can really significantly reduce the cost. Investors are interested because Neutron, it's going to open up new markets for Rocket Lab that has just not been competing in right now, and it's going to be able to take on SpaceX a lot more directly in the future.
Ricky Mulvey: For those keeping track at home, that's 29,000 pounds that it's going to be able to take to space. If you want to visualize that, that's about seven Tesla model Xs, if we want to continue to mix those metaphors. About seven electric cars that this new rocket is going to be able to take to space. This is a company that I bought stock in a speculative thing. I mentioned earlier, where I'm not an expert on rockets here, but I'm I think the technology is really cool. I like this Peter Beck guy who's the CEO leader who was putting rockets on motorbikes, and he was able to basically bootstrap his own space company and getting into low Earth orbit before the Jeff Bezos back Blue Origin was. I think this is pretty cool. I love the story. I think the company is doing a lot of cool stuff. It's more than a three bagger, over the past year, and we're seeing interest from investors who are seeing euphoria happen to this company. First, what's your advice to the folks like me that are already bought into Rocket Lab, seeing euphoria happen to a company they already own?
Yasser El-Shimy: I think Euphoria is a pretty accurate description of what has been going on over the past couple of months or so for the stock, I think investors need to remind themselves that they should be in this for the long haul. They need to also remind themselves that this is going to be a highly volatile stock. They're going to witness massive price moves both to the upside and to the downside. If you don't have a lot of conviction in this company and its management and its business model, or it's total addressable market, you will be shaken out next time the stock falls by 20, 30%. You have to know what you invest in. You have to understand that probably if you're investing now, this is a lot of expectations, are baked in at this price. You were going to need to hold for a very long time.
But keep in mind, this is a nine billion dollar market cap or so compared to a SpaceX, which is over $150 billion, I believe. Last time it was valued at the private markets. Company is doing well. They just reported over $100 million of sale in the third quarter. They have a record backlog of orders of over a billion dollars. There is uncertainty still, even though that uncertainty has been diminishing about the Neutron rocket and whether or not it will launch in time. Now, we are getting more assurances that they've actually been able to build that thing, and they're going to start ideally deploying it in 2026. But we're going to need to see that test launch. We're going to need to see it in space and coming back before we think we give the all clear sign here.
Ricky Mulvey: You mentioned the electron is something with questions around it. Sorry not the electron, the Neutron rocket, it has a customer order, but it has not gotten to space and gotten back yet. What other risks are you watching with Rocket Lab, especially for investors watching this euphoria from the sidelines?
Yasser El-Shimy: I would also worry about the balance sheet and whether Rocket Lab can swing to profitability and positive cash flow by the end of 2026. A lot of analysts, including myself, expect that they would, but if they fail to do so and if the current rate of cash burn persists, I think Rocket Lab is going to have to tap into credit markets asking for additional loans, which could stress the balance sheet. Maybe they're going to issue equity and dilute shareholders. Again, you have to understand that this is not a slam dunk. This is going to be a multi-year story. It's a very long term investment, at least for me.
Finally, they are competing with the co-head of the newly created Department of Government Efficiency, Mr. Elon Musk himself. He owns SpaceX. SpaceX is a formidable competitor. But let's hope that the space race remains fair even when he's in government. Who knows, maybe it's going to be a tide that lifts all boats. Government is going to give a lot more attention to the space sector. We know that President Trump, in his first administration, created the space force. We know that there is interest in that area, and Rocket Lab can definitely become a beneficiary as well.
Ricky Mulvey: We are going to speculate on the Musk question. Maybe it will work out. We have no idea. Yasser, appreciate you taking a listener request. I enjoy following Rocket Lab. Interesting company to take a look at. Thanks for joining me on Motley Fool Money.
Yasser El-Shimy: It was a lot of fun. Thank you.
Ricky Mulvey: As always, people on the program may have interests 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 follows Motley Fool editorial standards and are not approved by advertisers. Motley Fool only picks products that it would personally recommend to friends like you. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jason Moser has positions in Amazon and Walt Disney. Ricky Mulvey has positions in Netflix, Rocket Lab USA, Spotify Technology, and Walt Disney. Yasser El-Shimy has positions in Amazon, Atlassian, Rocket Lab USA, and Tesla. The Motley Fool has positions in and recommends Amazon, Atlassian, Netflix, Spotify Technology, Tesla, and Walt Disney. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.
