Key Points:

• Disney’s streaming services face tough competition with limited pricing power.
• Theme park revenue is declining due to high prices and economic concerns.
• Movie studio performance is inconsistent, with potential layoffs on the horizon.
• Forget Disney, instead look at ‘The Next Nvidia’ as the stock to propel your portfolio higher in 2025

Douglas and Lee delve into the challenges Disney (NYSE: DIS) is currently facing, particularly with its streaming services and theme parks. They express concern about Disney’s ability to compete in the advertising-heavy streaming market, where giants like Netflix (NASDAQ: NFLX) and Amazon (NASDAQ: AMZN) dominate with massive inventory, leading to poor pricing power for newcomers like Disney+. The discussion shifts to Disney’s theme parks, which contribute significantly to the company’s operating income but are showing signs of weakness. High prices at the parks might be deterring visitors, especially in a softening economy, and this could be a long-term drag on earnings. They also note the inconsistency in Disney’s movie studio performance, where hits are offset by significant flops. Both agree that Disney is not performing well overall and anticipate potential layoffs if the situation doesn’t improve. They plan to revisit the topic after Disney’s next earnings report to see if any positive changes occur, particularly in the streaming and theme park segments.

Transcript:

So the thing that I don’t like about Disney Plus and Hulu is that the advertising part of streaming is not dominated by Netflix and Amazon.

They have almost unlimited inventory, which means if you’re coming into a business where there’s already unlimited inventory, your pricing power is awful.

So I don’t like that.

The thing that I really dislike right now is the theme park business stuff.

The operating income from theme parks is about 56, 57% of total Disney operating income.

Revenue lower.

So they’ve had good leverage there.

They missed a little on the new earnings.

And then the CFO said, you know, in CFO speak, this is going to be soft for a while.

Soft for a while is going to be a drag on EPS.

The theme park business, what it tells me is that along with the fact that Universal said that their theme park revenue was down 10%, it either tells me that you’ve got a consumer problem and you’re heading into a slower economy, or in Disney’s case, you’ve upped your prices too much.

Or it could be both.

Yeah, and I’ve seen…

Articles saying that per person, you’re looking at $150 to $200 per person.

Now, how does your average family do that?

Well, it’s the same reason they can’t go to an NFL game.

How do you go to an NFL game if you’re a hardworking family with two or three kids and tickets are $140 a seat?

And those are not even good seats.

So you’re forcing yourself out of the theme park business.

You know…

When you got Nelson Peltz in there and, you know, they were going to raid the company and kick people out, you know, the stock, people said, well, maybe they’ll get better management.

But, you know, Peltz cashed out and claims he made a billion dollars.

He lost the proxy war. He made a billion dollars.

If so, good for him.

But what’s happened at Disney is streaming has gotten a little bit better and theme parks are starting to get worse.

So this is not a company that’s firing on all cylinders.

Well, and their movie studio business has been real hit or miss.

Either it’s been really big or just absolutely horrible.

And you just can’t have a slew of movies that do that.

Because every time you have a big hit, you know, you’re giving it up or half of it on another one that fails horribly.

Yeah, so…

Again, they’ve got some good movies right now.

But your point is, is you don’t want to live on the studio business because it’s feast or famine.

They may have some great stuff now, but they’ve also…

They also went a long time in a dry desert on that.

So I’m looking at Disney.

I’m saying to you, I don’t like it at all.

Yeah, I agree.

I don’t either because I don’t see anything changing anytime soon.

And I don’t see anything that’ll really push the envelope higher for them unless the economy just booms.

If the economy booms, maybe they do better, but I don’t see that coming anytime soon either.

It doesn’t look like we’re going into a new boom.

So look, we can come back and talk about Disney when their next earnings come out.

What I’ll be looking for is have they been able to hold their tiny margin or improve on it in…

Right, streaming.

But more important to me is what do they say about what they call experiences, which is theme parks and, you know, the boats you get on and cruise around in.

Right.

What do they say about that?

Both how does it do and do they guide worse than they did for the quarter that just ended, or do they guide a little better?

Yeah, and are they going to have to do what everybody else is doing?

Are we going to see a big layoff at some juncture?

I bet it’s coming.

You just did it at Paramount.

So, you know, at least there’s a precedent.

So let’s come back to this when they announce again.

Sounds good. See you then.

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