Disney reports a surprising profit in the first quarter as the number of Disney + subscribers soars. Gerber Kawasaki CEO Ross Gerber joins Yahoo Finance Live to discuss.
Video transcription
AKIKO FUJITA: Let’s get our first guest in for the hour. We have Ross Gerber, Gerber Kawasaki Wealth and Investment Management CEO. And Ross, we expected big numbers from Disney +. But 96 million, 95 million subscribers, well above the 90 million The Street expected. Were you surprised?
ROSS GERBER: I was not surprised with the Disney + songs because the content is so good. I mean when you think about what we were watching at Christmas, between ‘The Mandalorian’ and ‘Soul’ which was just a great, beautiful movie, it’s an extremely compelling compliment to Netflix, which is basically filled with many kinds of violent movies and TV shows and murder shows. So it’s great to have the Disney + content for our kids and for myself too, because I just can’t watch a murder show every night. So that part was not that surprising.
ZACK GUZMAN: What about the other names in that portfolio? We were talking about ESPN + and Hulu. The ones that are also relatively strong there are exceeding expectations in terms of paying users. How important will they be as we proceed?
ROSS GERBER: Super important because, first of all, Hulu has done really well in terms of advertising. So they have subscribers. But they really grow from an ad-supported. Not everyone wants to pay $ 5 a month. And people think that’s fine. So they have a solution there too with Hulu and live TV solution.
And ESPN + has done really well, much of it powered by UFC. I am not a big UFC fan because of the violence. But I get it. And it drives a lot of very engaged viewers. And it really helped double the size of ESPN +.
But when you look at a recurring revenue model these apps have created, it’s a much, much better system for the entertainment companies in the long run. And so Disney successfully adapted this new model. And it is really exciting for the company.
AKIKO FUJITA: So Ross, if you look at the entire streaming portfolio, we’re talking 146 million, about 150 million subscribers. Look at the numbers from Netflix, it is now at 204 million. What do you think is the catalyst for Disney to move to that next level?
ROSS GERBER: I think it’s just about opening up new markets. I mean, every family in the world with kids pretty much watches Disney content. So as you open up more markets and more exposure builds up, I think that’s driving sales.
But I think the next step is actually to reopen the theme parks as all their products are synergistic. And so the more people in the theme parks, the more people buy Disney +. And then more people watching Disney +, more people driving to the theme park. So the fact that the real profitable engine of their business is actually shut down, and they are profitable or break even, is really testament to Disney’s great management. Bob Chapek does a great job and, of course, Iger up there, looking down, does a great job.
ZACK GUZMAN: Ross, let’s talk about valuation here too, though, because we saw Bank of America raise their target price from 192 to 223. We talked about the parks and what kind of boost that will have when they reopen and let people in full again. . But how do you put their 32% year-over-year profit, I think, in the context of what we saw in the broader market?
ROSS GERBER: Well, I was pretty happy with that because Disney was the worst stock I had last year. So I had a lot of things working last year, except Disney. And of course, at the end of the year, we got a great doll. We appreciate Disney where it is now.
Frankly, it is surprising that the stock has done so well with so many of their profitable factors actually closed. And frankly, it will be some time before these assets really get back to full speed. So I think the market is saying that when Disney is back, it’s actually a much better company than it was before the pandemic.
And I think we see this in valuations at many different companies, including MGM Resorts, where the physical activities have now been adjusted with an online component. The hybrid end of these businesses, when this is all over, will be much better than it was before the pandemic. So sometimes these massive shocks to our society make for more adaptable businesses. And Disney is going to be one of them, I think.
AKIKO FUJITA: I mean, having said that, if you look at parks and experiences in the neighborhood, we’re talking about an operating loss of $ 119 million. And yes, we’ve been talking about this for several quarters now because of the pandemic. But if in fact things are opening up again, especially where you are in California, how important is that to the stock, especially when you consider that a lot of this is currently trading at the momentum of Disney +?
ROSS GERBER: Yes. And I think that’s priced in. I think stock is priced in. That stuff will open in the summer. And we will get much better results with Disney this year. So look at it this way. The worst is behind Disney. So I have no doubt that the worst is over.
Now, currently in LA, we don’t have a vaccine. So we are not making any progress. 200 people died in LA today. No vaccines to spend. And it is really painful. And this is the legacy of the Trump administration’s failure. But Biden insists. And I expect that by the summer we will have a lot of society vaccinated. And they will be back in these parks, as many people as they can have.
So I think that’s priced in stock already. But I think if we go on, boy, the profits can really go up in 2022. And we’ll have to see what happens.
ZACK GUZMAN: Ross, I also wanted to ask you about cannabis stocks because it has been a crazy week for those names, especially if you look at the Canadian names today. Tilray recovered from that nearly 50% loss yesterday. But year after year or even year so far, the Canadian ETF is still at 75%. What do you think of the movements?
ROSS GERBER: Well, unfortunately you know this industry well. I mean the Canadian players are not the game. It’s the USA. I mean, legalization is coming in the United States. And the impact of this is enormous.
If you go back to 1933 and you could invest in alcohol companies, how do you think you’ve done it for the past 80 or 90 years? You did a great job. So here you can go to this great company that is far less harmful than tobacco or alcohol, which already has tens if not 100 million users in the United States. And it’s just the greatest opportunity I’ve seen in a traditional company in my career.
So we are heavily invested here in the US MSO operators, not Canadian players. So if you are just looking at chat boards and you don’t know what you are doing, please pay attention to what you own as you will definitely want to work in US cannabis companies.
ZACK GUZMAN: That was also the surprising thing for me, watching Wall Street Bets, the Reddit forum there, talking so much about Sundial, Tilray, the Canadian names. And I think it’s because these are trading over the counter. So people don’t know the names.
ROSS GERBER: They just can’t buy them. They cannot buy them.
ZACK GUZMAN: Yeah, so I mean, looking at that and the possibility in space, what is the timeline for you? Because still a lot of question marks. We hear from Democrats who say they want to promote legalization and solve these problems. But they’ve been saying that for a while. I know they just got a check in the Senate. But how do you see it playing? Because Canopy’s David Klein says this is the year federal laws will change.
ROSS GERBER: I absolutely agree 100%. So here’s the order. We are, of course, dealing with the betrayal we have seen in our country. That is happening now. And then we have to get money for people in need. That is happening now. And then the next issue is social justice in this country.
If we look at what has happened to the Black Lives Matter movement over the past year, which is really a bit bigger, which is the ongoing racism and institutional racism in our country that is claimed by Jim Crow laws such as cannabis. I have no doubt that when you look at the history of cannabis law, it’s common to oppress African American communities, minority communities. It has been used for this since the Civil War.
And it is time for it to end. And I won’t stop until it ends. And we have to delete records. Kamala Harris gets it. Joe Biden gets it. The Senate gets it. The house gets it. We must create fair banking laws. Cannabis is not heroin. It’s absurd. So this Jim Crow law will end. And the sooner the better.
AKIKO FUJITA: Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management, it’s good to talk to you. Good weekend.