Wall Street Unplugged
Episode: 974November 22, 2022

Disney just replaced one bad CEO with another

Disney’s (DIS) board of directors listened to me and fired CEO Bob Chapek… But they replaced one bad choice with another: former CEO Bob Iger.

Meanwhile, the media is shocked over Disney’s dismal streaming results and stock performance—but no one should be surprised.

I explain why analysts refuse to downgrade the stock… what Iger should do as he takes back the “House of Mouse”… why the next few quarters will be terrible for Disney… and how I would play the situation.

Best Buy (BBY) is in rally mode following a better-than-expected earnings report. I highlight what’s behind the earnings beat… what the results say about the consumer… and why you should expect crazy deals this Black Friday.

Inside this episode:
  • Happy Thanksgiving week! [0:30]
  • Why Bob Iger is a bad choice for Disney’s CEO [1:57]
  • Why Wall Street loves Disney [7:10]
  • Iger has some tough choices ahead [16:45]
  • Best Buy’s results aren’t as good as they look [31:28]
Transcript

Wall Street Unplugged | 974

Disney just replaced one bad CEO with another

Announcer: Wall Street Unplugged looks beyond the regular headlines heard on mainstream financial media to bring you unscripted interviews and breaking commentary direct from Wall Street right to you on main street.

Frank Curzio: How’s it going out there? It’s November 22nd. I’m Frank Curzio, host of the Wall Street Unplugged podcast, where I breakdown headlines and tell you what’s moving these markets. Happy Thanksgiving week. Hope you’re not working too hard, at least this week. Spending time with your families, enjoying the kids, being home the entire week. When did that happen? When did kids start getting off the entire week for Thanksgiving? It wasn’t like that when I was going to school. It was maybe a half a day on Wednesday, off Thursday and Friday, then back to school. Now it’s the whole week off. Imagine that. Planning all this stuff, everybody coming to your house, cooking. How do you do that with your kids in your face all day? It’s not easy.

Frank Curzio: The Thanksgiving plan, we had it all scheduled. It was agreed upon decades ago. Locked and loaded. Hey, Thursday and Friday, that’s it. Not the whole week. Man, but I think most schools, at least through Florida, probably a lot of other places have off the entire week, which I guess is pretty cool. They figure a lot of kids were taking off Monday, Tuesday, anyway, going away, but it does get a little hectic. Hopefully, you guys are having fun.

Frank Curzio: Anyway, the market’s still open. You have Black Friday coming up. There’s going to be clear winners and losers. One of the biggest names in Black Friday names is Best Buy. They just reported, one of the large electronic retails in the world. Stocks up 9% right now. Break that down in a minute. We should be buying this name or taking profits.

Frank Curzio: But first, I want to talk about the big story that broke this weekend, which is Disney, who just fired CEO Bob Chapek. This is a surprise to many. Everyone talking about it, all the media and TV. Surprised because Disney just signed Chapek to a new three-year deal in June five months ago. A new three-year deal. So, don’t feel bad for Chapek getting the boot because, man, that guy got off making a lot of money and probably getting paid for those full three years. Plus, when it comes to Disney and CEOs, there aren’t many. They’ve only had seven CEOs in its nearly 100-year history.

Frank Curzio: So, the media’s surprised, I was surprised. You know what: You shouldn’t be. So, they’ve talked about it numerous times, some of that had to happen, just not the right fit for Disney. There’s numerous times… Stories say how internally, they just didn’t like this guy, the way the company was run. Put the handcuffs on creativity, which is the worst thing you could do. Hollywood was not a fan of him either. So, it’s not easy to get the best talent to work for you if they don’t like you. And let’s face it: Disney is a disaster. It’s been a disaster for 18 months. Chapek did a good job telling a story, which is what Disney does, and is fantastic at doing that and entertainment.

Frank Curzio: I mean, you’ve got to give the guy some props: Everybody bought into the story. Subscriber growth streaming, it’s the greatest business ever, look what we’re doing… They got into streaming because they had to. They had to get to streaming, especially during COVID. Everything was just done. There was no way for that company to make money; everything was impacted.

Frank Curzio: And he set that tone, which Wall Street bid into, saying that we just need to add subscribers and subscribers and subscribers and subscribers. Everyone’s like, wow, they’re more subscribers. They’re beating Netflix. No one said, well, they’re not really paying for the service. Most of them are coming from Hot Star, which are paying like a $1.50. The average revenue per user is below four. Netflix is… Netflix is near 12. It’s showing that you’re basically giving this away the service for free. People don’t like it. And now, what are you looking to do? Put ads and raise prices. Good luck.

Frank Curzio: Just had to look a little bit under the hood, but everyone on Wall Street bought it. No sell ratings from these guys? Get to that in a minute. But the biggest surprise for Disney is who replaced him? Bob Iger, former CEO, transformed Disney to his 15-year tenure, buying Pixar, Marvel, Lucas Films, which Star Wars… So, all this just amazing, amazing acquisitions. Always had a great relationship with the Hollywood actors and… Which is important in this industry. Something that, again, Chapek did not have. And if you look at it, I mean, it’s something, right? It had to happen, and I’ve been ranting on Disney for over 18 months, nobody looking under the hood.

Frank Curzio: You look at the stock, steadily moving lower, and then the numbers really started to hit them. Billions and billions, you’re losing on the service, which shows you that every subscriber they added, they were losing money on, which is a bad business model. That’s not a good business model because I know you can look at it and say, okay, they’re losing money now, but what’s the future value? That future value, right?

Frank Curzio: So, when you’re advertising, you have your return on ad spend, it should be 30 days, one year, two years, long-term value of a subscriber, okay? They basically gave this service for free looking at their 60-day, 90-day, one year, at, wow, we’re going to make a ton of money. And what happens is, these people weren’t upgrading, they weren’t buying, they weren’t able to sell them new products or new things. And now, you paid a fortune. It’s okay to pay the fortune up for those names if you have the research to AI everything done, showing that these names are going to shoot money over a certain period of time. But it’s 18 months and you’re losing more money. So, it hasn’t happened. It means you have no pricing power in that division, but you’re going to raise prices, which is interesting. Let’s see how that goes. And create a worse service by putting ads all over it.

Frank Curzio: But now, you know, you look at it, streaming, you take… You basically took the company’s growth model out of play for a stock that’s is trading over 25 times forward earnings, and you’re in trouble. And you keep going in digging deeper, digging deeper. Something had to happen.

Frank Curzio: Anyway after these big changes, which is Chapek out, Iger in, is now a reason to buy Disney? Actually, it’s probably a good time to buy long dated puts here. Stock grow 6% on the news. But everyone is now bullish on this stock. Oh, I shouldn’t say now. They’ve been bullish the whole entire time, which I find laughable at watching analysts, media puns on TV all day yesterday, early today. So, he’s going to say, Disney never deserved to be trading at a crazy multiples, stocks should never have traded at 170. It’s below a hundred now. That’s just saying now, right, these same guys… I mean, it’s horse shit.

Frank Curzio: You look at the analysts, I want to say maybe one downgrade. I mean, there was one by Barclays in January, which everybody ripped the guy because it was the first. I’m pretty sure that was the first downgrade on Disney in three years. And that was through COVID. We’re talking about 2022 first downgrade, and now, I think we got another one or two. Hey, one after last quarter’s disaster, which Chapek did announce layoffs and now, all of a sudden, he allowed layoffs. And still these analysts 30 plus or so, no sales on Disney, no sales at all on Disney forever?

Frank Curzio: Watching this stock where it went… You’re looking at the numbers. These guys on the numbers better than everybody, but it’s why everyone hates Wall Street and things have full of shit… Because most of these analysts know that Disney has to raise money. We’ll get to Hulu in a minute. This, saddled with debt, they maintained their buy ratings, talk optimistically about the company constantly as the thing crashing. Why? Because they want their investment banking business. That’s how it’s done. Huge conflict of interest. What does that do for you?

Frank Curzio: It crushes you. Because every time you put on TV, people tell you to buy Disney, buy Disney, buy… But it’s sad because the numbers are in plain sight for everyone to see. It was right there. And if you get it wrong, it’s okay. You’ll hear me get it wrong. I’ll come out of here and say I messed this up… My fault. You have to be right more times are you wrong, or I’ll do something else for a living. Just expect maybe a few apologies from analysts media puns pushing this to individual investors for 18 months as losses mounted, as the grow plan made no sense. But expecting apologies from Wall Street… My fucking mistake. That’s never going to happen.

Frank Curzio: It said the analysts who were bullish are now saying, hey, I told you so. It was a disaster for a while. You guys should have been cautious. What? I’m actually hearing that. Guys that were just all in on Disney are coming back and saying, well, you shouldn’t never trade it that hot. Yet, they’re running big problems. This… And that wasn’t what you’re saying nine months ago, six months ago, three months ago. Give me a break. Just own it. It’s not a big deal. Just own it if you’re wrong.

Frank Curzio: That’s how you get credibility in a space that has very, very little. That’s for Disney. I’d buy long data puts here. I mean, Iger being an amazing executive, had a few… His last couple of years were pretty bad. And that was heading into COVID. And he was a huge supporter of streaming oversaw the launch of Disney Plus in 2019. I get why he became more bullish on Disney Plus, especially during COVID, since his high business was impacted. Every single part of their business was impacted, and impacted much longer than lots of other companies with people in.

Frank Curzio: They couldn’t open up the parks. You had to wear masks to 90 degree heat in Florida. Cruise lines, Broadway, movie theaters took a while before you got back to that full capacity, and they were hurting; streaming filled the gap. Made sense. But there’s a way to generate buzz or create a great growth story, which again, Disney’s great at doing around his streaming platform. Don’t worry about the rest of the shit not working. It’s going to work when it comes back. But this is the growth model. We’re going all in on it. I also bought Fox’s entertainment assets. He’s the one that bought those assets for over $70 billion, which he thought was a genius heading into COVID. Thought it’d be a huge boom to its streaming business. That’s why the company’s sitting in $35 billion in net debt. It’s the most debt. Disney had its balance sheet since the company was founded by Walter Roy Disney in 1923. So, a hundred years ago.

Frank Curzio: And Iger is a genius in certain aspects in many of the aspects in media. You can’t deny it. I mean, the business that he acquired built this company. Unbelievable. I mean, he transformed this company tremendously. I mean, other people helped build it, but just a transformation of what he’s done with Pixar and Marvel and Lucas, holy cow, and Star Wars is incredible. But Iger knows a little bit about the streaming market. I don’t think he understood or understands now, especially then, by buying Fox assets, that streaming is not about your current library, which Disney has the biggest and the best. It’s 100%, 100% about new content. People don’t go on streaming platforms to watch old movies. They just don’t. They don’t have time. They want to watch new stuff.

Frank Curzio: And when you have to produce new content, it costs a fortune. I mean, it’s about running home to see the next version of Ozark, Cobra Kai, Stranger Things, Dead To Me, which by the way, that last season just came out. Christina Applegate, just diagnosed with MS. I love her, I grew up with her, watching her all the time. But man, that last season, I mean, if you jumped off a roof, a 50 story roof, it’ll be less painful. It was actually good. It was just extremely, extremely sad. But I’m not going to give anything away.

Frank Curzio: But that’s what you do is streaming. You go home and you’re like, wow, I want to see this season just came out. Okay, let’s go. It’s not like, oh, I’m going to go, all right, let’s go watch a movie. We sort… No, there’s too much new stuff going on. You can watch regular TV for that. Not to mention Disney’s best content, I’ve said this numerous times, is Marvel, Pixar, which goes directly to the theaters first before Disney Plus. It doesn’t happen on a lot of other streaming platforms, especially Netflix. The best stuff comes out on their platform. It’s not in the movies first and then goes to streaming, which is a big disconnect. It significantly lowers the value for its streaming subscribers. Or, the reason why Disney Plus has one of the lowest average revenue per use… Under $4 compared to almost $12 for Netflix.

Frank Curzio: So, why you cheer Iger, and I get it, and that’s definitely step in the right direction. I mean, Iger kind of left this ship to Chapek in 2019 and Chapek really, I mean, messed up. He really… This Scarlet Johansson thing. She’s one of the biggest, most influential actress in the world. Also, part of the Marvel franchise. And you were going back and forth with her, accused her of COVID. I mean, come on. Are you out of your mind? I mean, this gets back to everybody else who’s who plays a character in Marvel franchises. She’s huge. How do you do that? How do you go out publicly and insult her? Also, supported the Woke agenda, which very few parents support. Parents, which is Disney’s bread and butter customer.

Frank Curzio: Not to mention Disney owns 25,000 acres. There is state, Florida, with six massive parks of 22 resorts, where Florida made it very clear in this election that they do not like the woke agenda where all cabinet level statewide position, both senator and governor have gone Republican for the first time since a post-Civil War era, the Reconstruction era.

Frank Curzio: I don’t care which side of the aisle you’re on, it doesn’t matter. We’re talking about the stock here. We have the biggest company in Florida that’s been exists for over a hundred years. That’s supporting a political agenda that’s not welcome in its home state, which is responsible for over 70 billion economic activity. Not so much economic activity to create that needed a change. It’s like working at the New York Times or MSNBC and supporting Trump. You’re dead in the water as an employee or a company. I don’t care what side of the line you’re on. Those are the facts.

Frank Curzio: It’s hurting shareholders. Now with Iger supporting streaming, bringing streaming to this company, what’s the next steps? Because there’s a lot of big steps coming. You’re going to buy the remaining stake you don’t own in Hulu? Disney owns 67% of Hulu. Hulu is still losing money. But one of the best streaming platforms next to Netflix. Comcast owns the other 33%. Disney has a right to buy back Comcast stake has an option to do, which would happen before 2024. So, all of next year. And that’s being valued just at stake at around 10 billion right now. If you want to spend another 10 billion on an asset, you’re having loads of trouble making money on… 10 billion?

Frank Curzio: That’s a lot of money to this company. Not easy to spend that much given their massive debt position. Lack of meaningful cash flow because of how much money you’re losing in streaming. And your commitment to spend, as Chapek said, 30 billion on new content this year, just in streaming. If you look at Hulu as 44 million subscribers, less than 10% a Hulu Live, which commands a much higher average revenue per user. But think about it because here’s a dilemma on Disney, and listen up because this is important for you to understand. If you think about buying Disney or buying puts on Disney, you’re shorting out, right?

Frank Curzio: Because right now, everyone’s looking as an investor turn around streaming operations asap. How do you do that? Well, maybe you’re successful at doing it over the next nine months, starting to generate average revenue per users going up. Things are better. But you know what that’s going to do? It’s going to increase the value of Hulu. In other words, Hulu’s going to be worth even more which means that that 10 billion payment to purchase remaining 33% could end up being 12 billion or even 15 billion. It’s almost like a football team that’s not going to make the playoffs. Do they start putting in all their subs? It’s the way they get a better pick? Or do they keep fighting with hopes of maybe crossing that line and getting into the playoffs, right? I mean, this is a big dilemma. Also, if you purchase that stake and you own Hulu outright, all NBC content, Comcast is now going to be removed.

Frank Curzio: We’re talking about great content. People like to watch Chicago PD, Chicago Fire, Law and Order SVU, and it’s going to be featured exclusively on Comcast, that’s the Peacock streaming platform. If you don’t purchase a remaining stake and say, okay, we’re not going to do it. You save the 10 billion but you have to share a lot of the revenue, which is including the bundling services with Comcast. So, both of those options kind of suck. That’s the position they put themselves in.

Frank Curzio: At the end of the day, I don’t know how Disney can actually pay for the rest of Hulu right now. They could take out debt, but it’s not going to be pretty. Increase debt right now? 10 billion’s, a lot of money. But what about its parks? And recession is imminent, and you’re raising prices like crazy on parks. I can’t tell you how many people I live in Florida, and even when I go to New York… The whole Woke thing that pissed off a lot of people. There’s people that are like, I’m not going to Disney anymore. Why? Because you have a big competitor. Universal has lots of parks in Florida… Also owns their own hotels and properties. I’d like to see those numbers and see how they’re doing on that side.

Frank Curzio: But even with a recession coming and you right the ship, will you still be able to command these higher prices? I don’t know if you guys know what the price is for a one-day ticket? It’s now $159 to $179. They have like five tiers. Four tiers means you can’t go to the park, and the fifth tier is like, okay, you go whatever you want. So, if you’re looking at the peak season, right, that’s what you’re going to pay for because that’s most people outside of Florida. That’s when they’re able to go and take their kids on vacation, not in the middle of a week of a school week. They can’t. They’ll do it during the same weeks, which is where they command the highest ticket prices. Very smart.

Frank Curzio: And to put that perspective, tickets were below $125 five years ago. So, you’re raising prices over 8% annually, much higher than the average inflation rate. And prices are increasing every single year. That’s what Disney does. But if you think about $179 per day, per person for just one park, do the math on that. Don’t worry, you don’t have to. I did it. But a family of four is spending close to $5,000, which includes the Park hopper. You want to go from one park to another and back and forth. It also includes like going on there Genie app and able to skip the line on certain rides and also parking. $5,000. But you know what that doesn’t include? Food, souvenirs, or… How the hell you get to Florida? Air travel.

Frank Curzio: I mean, adding those costs, it’s seven grand for Disney World on average? I mean, you could take a cruise and have connecting rooms for a family of four exclusive everything, and it’s going to cost you less than $4,500. So, I’m not sure how Disney can continue raising its prices. Not to mention how much of a cost this is for foreign travelers, which is huge when it comes to Disney. Again, I go to Disney a lot. I go to Universal a lot because I live in Florida, get special deals and packages and stuff. And half the park is speaking in different languages, which is cool. But with the dollar where it is, how expensive it is for people to come over… Asia, Europeans, I mean, holy cow. You can see demand full for this especially into next year as people closing that, while it’s clear evidence, you’ll listen to most CEOs and retail companies are all saying it. They’re seeing it right now… Walmart, Target, Amazon.

Frank Curzio: Now, what would be the solution? How can Disney turn itself around? Let’s cover that really quick. My advice, which is worth nothing. Sell your entire stake in Hulu to Comcast. That’s what they should do. You’ll probably get 25 to 30 billion for it. It sends a message that you’re throwing in the towel on streaming in terms of it being your growth box. Still, keep Disney Plus. Shrink it down, make a better version of it, a smaller version of it. Instead, now you could choose to license all of your amazing content in library, which every streaming company is dying for. Sell a stake in Hulu. The move’s going to fix your balance sheet and SNGA’s going to go down those… The expenses going to go down incredibly. And now, you can focus on parks, merchandise, movies, licensing your amazing content and storytelling, the things that you’re great at. If you keep Disney Plus, ESPN and sports, that’s where the future of streaming is.

Frank Curzio: Amazon just paid 1 billion a year to stream Thursday night football. I think it’s a 12 billion deal for 12 years. People like these guys are nuts. They’re crazy, they’re insane. They got 15 million viewers on the first Thursday night game. More important, they had record signups to Prime, which is over a hundred dollars. I talked early how return on ad spend and things. You track it over time, where you know you want to get people to your platform, you’re able to upsell them and put them through the grinder, and they’re going to buy a whole bunch of products. Think how much money those Prime members are going to spend on Amazon in the years ahead, which Amazon knows every single number.

Frank Curzio: Not only that, the commercials and marketing during the shows is easily going to cover these costs for Amazon. Why is it such a huge success streaming sports? I mean, sports, football is the ultimate new content with no script. You don’t know what’s going to happen. Everyone watches it, especially in football, even if it’s a shitty game. Since tens of millions of people play fantasy football and have guys on every single team, and they like to watch that game just to see their guy in fantasy. You sitting on ESPN, stream it, forget about the ESPN Plus make it this big streaming platform with… And they do. They have some games and such some college games.

Frank Curzio: But even with your properties ABC and the rights, that’s where you can make an absolute fortune. And the sports part is streaming. Maybe keep that part of Disney. You still going to see SG&A costs come down significantly. I mean, sports program is much more expensive, but you could see the results. People watch it. I mean, some people got their ass kicked with buying the Olympics during COVID. That hurt. I think that was NBC. But so many sports, come on. People love it. They watch it no matter what.

Frank Curzio: Provide in that model, in a smaller model for the best talent to make movies where maybe you give them a higher percentage of that sales instead of paying so much money up front. Signed deals with big names like Netflix, stay with Chappelle and Adam Sandler. Whether they liked them or not, people love their stuff and watch their stuff, all the time. So, maybe keep a smaller version of Disney plus, much better, new content. Stream those live sports through it. More condensed.

Frank Curzio: That provides a lot of the new content. Maybe do that, maybe that works. Or get rid of streaming altogether and just license your content out. Everyone’s going to buy it, and you’re going to have premium prices and buy it. It’s a free checks coming in and your cash flow’s going to go through the roof. Now you can acquire new businesses, get into whatever you want. Now your balance sheet is strong again. Also, Disney has 150 million subscribers, names, emails, addresses. They’re not paying for Disney Plus because they don’t like it. But there are probably very attractive competitors like Apple, even Amazon, who could easily monetize those names through their platforms. Iger was on the board of Apple. Apple’s also seen a slowdown in growth. Apple could compare their names, deal those Disney names to their list, sees any crossover. But Apple could benefit from Disney’s incredible marketing power best in the world will have tons of content for its own streaming service.

Frank Curzio: But it doesn’t make sense because you have too much debt. You have to get it down significantly. I mean, Apple needs to see a business model that could one day become profitable, just spit out tons of cash flow, which Disney Plus does not have. And what that said is someone who covered Apple and Disney for decades, these are two of the most guarded, stubborn companies on the planet.

Frank Curzio: I mean, I truly believe Apple would not be in its place if it still had Steve Jobs. I’m not picking on someone who’s passed away. I’m just saying that Steve Jobs was very guarded. He didn’t like to do deals with other companies or anything. And Apple opened up a little bit to that Disney as well. I told you I started with Disney when I went there. I went to Universal, where Harry Potter and originally they went to Disney, Rawlings went to Disney and said this is what we want. We want exactly this. Said nope, we have to put all of our merchandise all over this thing and do everything our way. And she said, nope, I’m not doing it. And she went to Universal.

Frank Curzio: Disney needs to do things the way Disney does. Apple needs to do things the way Apple does. They like doing things their own way. Hate and not big fans of partnerships. They prefer ownership. And Disney would be willing to hand over the reins totally to Apple. I don’t know. I have to look at the share structure of what’s going on there and how maybe they can maybe they could offer a price that shareholders is going to accept.

Frank Curzio: But I’m only saying the Apple thing because people are throwing it out there. But again, your balance sheet is terrible. So, I can’t see Disney getting acquired by anyone right now because if it does, it needs to clean up that balance sheet. Have a strong long term growth model, which it doesn’t have. But selling Hulu is huge, I think, because Iger becoming the chief again, it creates more uncertainty for Disney. And I’m going to say the line, I love to say, uncertainty is a death of stocks. But it does what’s going to happen? The guy just has a two-year contract. Well, he’s a media god with a great track record. He dropped the ball terribly in picking a successor. Well, he has to do that again in 18 months.

Frank Curzio: When’s Iger intent on speaking to the public about Disney’s strategy? When’s that going to happen? Because it seemed like a very quick move. He just fired Kareem Daniel, that’s the chief of media and entertainment, who’s in charge of Disney Plus, just fired him today. But when do we hear the new growth plan for Disney? Investors need to hear that. If you’re an investor you need to hear what the plan is before going in at this price because it’s not cheap and there’s no plan right now. You’re probably not going to hear that for a while. But if I’m looking at the numbers for Disney over the next two quarters, they’re going to be horrible.

Frank Curzio: If you look at Disney stock, what’s going to drive it, profits the strategy, which includes a clear cut plan one-year, three-year, five-year, this is what we’re going to do. And right now, you don’t have any of this. You’re not seeing huge profits which are expected 18 months ago from streaming, still losing billions. Send those strategy a game plan right now. So, it’s very tough to own Disney here while it’s trading at 20 times forward earnings. And those are earnings that are pretty aggressive right now, in my opinion. But the next couple quarters are going to be bad for this company.

Frank Curzio: You will see sub numbers start coming down. Let’s see if average revenue per user goes up a little bit. Not sure I fail as an advertiser. Remember Chapek said, well, we got so many advertisers lined up to advertise in Disney Plus. Well say if that was me and I’m an advertiser and all of a sudden this change just happened and I don’t know the strategy going forward. I don’t even know if Disney Plus is going to be a part of their future five years from now. But I was one of those tons of avatars that Chapek said, signed on to advertise on Disney plus, I’m probably going to wait to see the strategy for paying to advertise on a platform. That’s just me. Why wouldn’t you? There’s a lot of uncertainty now after this change and with the recession imminent, is Disney still going to have the ability to raise prices in its parks and merchandise?

Frank Curzio: I mean, you could see traffic start to slow and given the price that families have to pay to go to Disney is borderline unaffordable to most. But I think long dated puts are a great strategy just from the uncertainty. If this stock breaks below 85, look out. If you look at a chart dated all the way back to the credit crisis, this was the low. It hit this low, continue to hit this low and always bounce off it. Done a credit crisis COVID recently. But if you break below that, who knows what’s going to happen. Where’s the bottom? If you’re a technical analyst and knows this stuff, email me. I like to know where’s the bottom under 85, if it breaks that.

Frank Curzio: So, Iger probably is a step in the right direction. I don’t know if Iger was the right person. And again, he’s just like the replacement for now because they felt like they had to get rid of Chapek. But for them to get rid of Chapek this fast, this quickly, I mean, even after the layoffs that he just announced, means that they looked under the hood and things are probably a lot worse. I’m surprised… I mean, they could have let this play out another two months and really can’t… With a stretch for them to do it this quick. Have the guy on the call and this quickly, this quick of a decision, there’s something that’s not right. I mean, they could have let this stretch out and let two, three months into the next quarter. They didn’t. And that’s what bothers me. There’s probably a lot more going on under the hood than you could see with just the numbers and what I highlight.

Frank Curzio: So, just be careful with this thing. I hope they’re able to turn around. I love Disney, the company. The stock is overvalued. You don’t know what the business plan is. Who knows who’s part of the woke agenda, who’s not. Are these employees going to leave or not? What’s going on there? Nobody knows. Uncertainty is horrible, horrible, horrible when it comes to stocks.

Frank Curzio: Now real quick, I want to cover Best Buy. It’s up 9% today, reported Q3 2023 fiscal earnings. Keep that in mind, I’m saying that for a reason. So, it’s Q3 2023. So, that means they report oil 2022 ready. Earnings came in very, very strong. A $1.38 which was 36 better than consensus, 36 cents better than consensus revenues fell 11% though to 10.5 billion. Domestic revenue fell 11%. Same store sales declined 10.5%. So, why would the stock go up? Because these estimates were better than the numbers best way provided in May when it warned significantly.

Frank Curzio: And actually, they warned that same store sales would decline by 13%, and the stock took a pretty big hit and that followed its January warning. But Best Buy said, it’s said same story sales of the year, we’re only declined by four and a half percent. Well, they’re down 10 point half percent, which is better than 13%, and that’s why the stock is moving higher.

Frank Curzio: The company just continues to lower their growth forecast quarter after quarter. This is the first quarter, I think, that people didn’t lower it again because it’s significantly lowered the bar. I mean, how many big retail companies you know that say they’re going to report a 13% decline in same store sales? And by the way, same store sales is a huge metric in retail. It’s the one that matters the most. More than anything. It measures sales with stores open 12 months or longer. That is huge. And you’ll see companies being on earnings, being on sales if they miss the same stores sales numbers or whatever. And you would think that automatically should go up, but sometimes it doesn’t. Maybe a lot of sales are coming from stores that are open less than 12 months, which usually you see a boom in sales, right? Because they just open and everyone goes there and it’s happy. Holy cow, there’s a new Best Buy in the area.

Frank Curzio: But same store has a down, you’ll see the stock get hit. Same store sales came in down 10%, better than three down 13% they predicted six months ago, well five months ago. And that’s why stocks going higher. But let’s go over the outlook really quick. Because company expects 2023 comparable sales to decline. 10%. 10%. So, last year they were down, right? Down 10%, 2022 and now another 10%, they’re going to be down 2023. And management said on the call, promotional environment includes, right? It’s going to continue to include considerably more intense than last year. Like Q2, the level of promotional in Q3 was similar to pre-pandemic levels, and they cited how computing revenue is up 23% and applying to revenue is up 37%. They said the average selling prices will likely continue to be lower on a year-over-year basis as promotional activity that was largely absent during much of the pandemic has returned.

Frank Curzio: Translation, people are spending less money. They’re looking for sales. Also inventory is high. Okay? That’s what happens. That’s what that translates to. So now, what can you take from the quarter? Best Buy numbers were not good. They just beat the estimates, which was significantly lowered ahead of almost every quarter this year. I mean, 2022, again, they reported their full 2022 numbers reported Q3 2023. But at 2022, Best Buy generated over $10 a share by far our record for the company by far. I mean, 2020, the year before was 7.90, went over $10. I think 7.90 was actually the record. So. 7.90 turned out to be the record. When you look at it so huge. But in 20, 23, 2024, the next two years, it’s going to generate less than $7 a share. So, you see growth cut significantly, and that’s why Best Buy stock is down 50% from its high, around 140.

Frank Curzio: So that begs a question: Is a 10% decline in the same store sales that they’re expecting? And also, the price down so much… Is that already reflected? Is that news already reflected in that stock being down so much? I don’t know. It’s trading at 12 times forward earnings, which you may say, Frank, it’s such a big discount to the overall market. Yeah, you’re right, it is. But that’s the average PE. It’s actually a little bit higher than the average PE the stock traded at over the past 10 years, since 2013… Except during those times earnings were growing, while you’re trading at 12 times earn.

Frank Curzio: Now, you’re trading at 12 times total earnings, and it looks as if earnings keep going lower and lower and lower, you look at two things that did great, right? Computing revenue surge another 20% plus, you think it’s going to happen next year. You think appliances are going to search 37%. I put my appliances in Best Buy a couple years ago, but with the housing decline coming down significantly, going to be worse next year. How many appliances are you going to sell?

Frank Curzio: So, I would stay away from this name and look to sell this rally, which may continue into December, right? We got just a little momentum going December. The next couple quarters going to be tough. I don’t think they’re going to be a big winner. And the last takeaway, I would say from what they said in the quarter, which this morning, you’re likely to see some amazing Black Friday deals. The management said, they said, they’re going to have to lower prices become more promotional. Now that Best Buy is competing with hundreds of other companies that sell TVs, computers, phone accessories, who is sitting on massive inventory right now, they’re going to have to significantly lower prices as well. So, you see this big competition. If you’re, looking buy things for the holidays or just yourself. Black Friday is going to provide some of those incredible discounts that you’ve seen in years as so many companies send a massive inventory.

Frank Curzio: They have to dump this stuff. They’re going to have to compete to get your business and to do this, they’re going to have to lower prices significantly. So, have fun Black Friday, start looking now. Buy two for one TVs, and I’m sure you’re going to see pretty soon… Especially next week, I think we’ll see how much is being sold. But I think price are going to come down even further. They’re going to try to sell them. They’re going to realize they’re not being sold for Black Friday, and then they’re probably going to lower them even more because they have to get rid of that inventory. Let’s see what happens. As a Best Buy, I think I’d say it’s a neutral stock right now. There’s other retailers like Ross, TJX that are seeing momentum, even Walmart, that have pricing power are in better shape. And Best Buy is an amazing, amazing, amazing company.

Frank Curzio: I love the company, I love their Geek Squad, which provides a necessity because when you buy this stuff, you need it hooked up. And that’s what you do with businesses. I mean, how many years, over the decades have we seen how many electronic retails go out of business? They all go out of business except for Best Buy. Good for them. They know what they’re doing. Got a strong balance sheet.

Frank Curzio: However, again, a company that’s going to struggle growing next year, do you really want to buy a company that’s not expected to grow? Same source sales are going to decline 10% year-over-year, because I don’t think that number’s going to get better. I think it’s going to get worse. And if it does, the stock probably can get hit a little bit more. So guys, covered a lot today. Lots of questions, comments feel free to email frank@curzioresearch.com about Disney or about Best Buy.

Frank Curzio: Going to cover some more companies tomorrow with Daniel. There will be no podcast on Thursday or Friday, so Frankly Speaking podcast. Little vacation time, hanging out. Enjoy. We’ll be back tomorrow with Daniel. Cover more stocks, more sectors, and have some fun on a day before Thanksgiving. Thanks again for the support. I’ll see you tomorrow. Take care.

Announcer: Wall Street Unplugged is produced by Curzio Research, one of the most respected financial media companies in the industry. The information presented on Wall Street Unplugged is the opinion of its host and guests. You should not base your investment decisions solely on this broadcast. Remember, it’s solely your money and your responsibility.

Frank Curzio
Frank Curzio, founder and CEO of Curzio Research, is one of America’s most respected stock experts. His research is regularly featured on media outlets like CNBC’s Kudlow Report, The Call, CNN Radio, ABC News, and Fox Business News. His Wall Street Unplugged podcast—ranked the No. 1 “most listened-to” financial podcast on iTunes—has been downloaded over 12 million times.

P.S. Our office will be closed Thursday and Friday to celebrate the Thanksgiving holiday. I hope you enjoy some great food and time with your loved ones.

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