Wall Street Unplugged
Episode: 993January 12, 2023

Nelson Peltz won’t save Disney

Disney

Daniel joins me to discuss today’s biggest headlines, including the latest Consumer Price Index (CPI) data and activist investor Nelson Peltz’s fight with Disney (DIS).

Today’s inflation numbers came in as expected, with inflation at 6.5%. But the bigger story is still the Fed. I explain why the market is misinterpreting a pause in rate hikes with rate cuts… and how investors can not only protect themselves, but make a fortune as markets move lower from here

Next, Daniel highlights a few inflation numbers that stood out to him and explains why he doesn’t think the Fed has beaten inflation yet.

Turning to Disney, shares popped after activist investor Nelson Peltz said he’s fighting for a board seat at the House of Mouse. I share why I’m surprised the stock is moving higher… why Peltz has an uphill battle… and what it would take for me to recommend DIS to subscribers.

Inside this episode:
  • Today’s CPI was a “nothing burger” [1:15]
  • The best strategy for a painful market [3:40]
  • Daniel’s highlights from the inflation report [5:05]
  • Why the Fed won’t stop raising interest rates [11:00]
  • Nelson Peltz won’t save Disney [13:50]
  • What needs to happen for me to buy DIS [24:00]
Transcript

Wall Street Unplugged | 993

Nelson

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: What’s going on out there? It’s January 12th. I’m Frank Curzio, host of the Wall Street Unplugged podcast, here to answer all your questions and tell you what’s really moving these markets. It’s Thursday, and I brought Daniel Creech back. We have the CPI number out today, wanted discuss that and the big, big CPI inflation. Waiting for this number, it comes out this morning. And holy cow, it came in exactly as expected. No surprises. Dow fluctuating up and down. We’re doing this podcast early. Daniel, what’d you think? What’d you think of the number off the bat?

Daniel Creech: It’s good overall because it’s showing that inflation is moving in the correct direction, which is lower. Market reactions, I want to get into that. It’s interesting to me that the market was heading higher so much into this print, as you talked about yesterday on the podcast, but the volatility… Do you want to get into it right now on what’s going on?

Frank Curzio: Well, by the time we finish this podcast… It’s kind of funny because we’re doing this about 15, 20 minutes right after CPI.

Daniel Creech: Exactly.

Frank Curzio: So, by the time you get this, the Dow could be up or down 700 points.

Daniel Creech: Yeah.

Frank Curzio: I wouldn’t be surprised if I had a guest right now… I like to do this because I like to just throw myself out there with predictions instead of saying to everybody, “You’re playing Monday morning quarterback.” But I would be surprised if the markets stay higher because the expectations for this number… We used to call it the whisper number, Dan, when we were younger. And I remember when Dell used to report was big back in the day and stuff and all these companies are like, “Well, here’s the whisper number. Here’s the numbers, but here’s the whisper number. Here’s the number that’s really expected.”

Frank Curzio: The number here was supposed to be much lower even though it came in. You have the consensus assessment, but even JP Morgan came out, and JP Morgan’s like, “Listen, there’s a decent chance,” and I don’t know if it was 20% or 30%, “that it’s going to come in a little bit lighter.” And 6.5% was the number, and it hit that right in the head. But they said if it comes in below 6.4%, it’s like 6.3%, there’s a good shot that the S&P could rise over 3.5%, 3%, 3.5%, in the day, right? And we’ve seen that, right?

Frank Curzio: But every single time in the CPI we see, almost the past few months… And I said this yesterday. And again, don’t quote me on it, I’m almost positive though. I think it’s three to four months now, that we saw, going into the CPI, the market was coming down, because the expectations were for a much higher number and it came in lighter. This is the first time I saw that where expectations were, “Okay, lower, lower, lower.” And they should be, because inflation has no place else to go but lower. It has to go lower. With as fast as we’re raising interest rates, it better go lower. But with this number, it indicates that the Fed’s not stopping, okay?

Frank Curzio: The Fed’s not stopping and, guaranteed… I don’t know what the percentages are. I haven’t looked because we’re doing this, again, right after the CPI was announced, a few minutes later, in terms of the Fed fund’s futures, but you have to expect at least two more hikes, right? So, we’re looking at a terminal rate of above 5%.

Frank Curzio: But, Dan, I don’t know if that’s the big story here. Because the biggest story to me is, everyone’s focused on the CPI and it’s coming down. It’s going to come down. Inflation’s going to come down. It’s not going to come down to the 2% anytime soon, but it is going to come down probably to the 4% level, 4.5% level, 3% level maybe by the end of the year. But there’s this consensus out there that once the Fed stops, they’re almost immediately going to cut, once they stop raising, and that’s not happening anytime soon.

Frank Curzio: And I think we really need to understand that, especially if you’re low in this market, because that’s a scary thing. And I feel like that’s not priced in, where you have this constant destruction of demand that’s taking place, and it’s getting deeper and deeper and deeper and worse every single month. And now, you have these high interest rates. And now, you have the Fed, which I don’t know why nobody’s talking about anymore in terms of QT, quantitative tightening, just hundreds of billions of dollars, shrinking their balance sheet every quarter. And that’s going to happen for the next 12 to 18 months at least.

Frank Curzio: So, constant money being removed out of the system, where interest rates are going to be relatively high, it’s hurting Americans. You’re seeing it from retailers, you’re seeing it in the best companies in the world, like Olay and Lululemon, whose margins have pricing power forever. They had that pricing power forever. You’re even seeing those companies say, “Okay, whoa, we got to pull back a little bit.”

Frank Curzio: So, consumers are closing their wallets. And if you think they’re closing their wallets now, they’re going to continue to close them at month over month over month as their savings continue to shrink, because that’s going on right now. And that I don’t think is factored into the markets right now in terms of earnings and earnings expectations, which is still well, well, well over $200. It’s still $225 earnings expectations, which is insane. I think it’s going to be more like $180, and that’s not factored in. That’s why I’m really worried about this market, and that’s why I’ve been telling you to buy puts, long-dated puts.

Frank Curzio: But I am surprised that, as I’m looking at the market right now, and it’s not open yet, but the Dow is up 140 on an end line number, which is pretty surprising. But, for me, I’m buying long-dated puts. I think there’s a lot more pain ahead and, again, it’s the CPI number that just came in exactly as expected.

Daniel Creech: So, the good news is not necessarily good news now, right? Because again, this is positive for markets and inflation in general. Not to rain on this parade along with the overall market in futures, what stood out to me, Frank, is, I’m crazy on energy, the index for gasoline was by far the largest contributor to the monthly all items decrease, more than offsetting increases in shelter indexes. This is from the Consumer Price Index Summary government website.

Daniel Creech: I point that out because we’ve had a great pullback in energy prices, which is helping this number. Under the radar though, shelter actually increased. Now, we’ve talked about this in the past, and Jeremy Siegel… Am I saying that right?

Frank Curzio: Mm-hmm, Siegel, yep.

Daniel Creech: He was on CNBC earlier this morning, and he was reiterating what he said a couple weeks ago or a month about how real-time data is actually negative or showing… It’s much different than what the Fed is looking at, a lagging data, in the shelter index.

Daniel Creech: My whole point to that is to say, a couple months ago I went out on a limb and said, “Listen, inflation is going down, you’re exactly right. I’m not ready to throw in the towel that it’s going to continue to trend lower because of this: Energy was…” Six months ago, Frank, a barrel of oil was around $100, okay? Today, it’s in the $70s, but that’s up over the last couple of trading days because… Well, forget the reasons why, but oil is trending higher again.

Daniel Creech: The issue I have with these reports, and to bring us all back down to reality, inflation is still running, on the government’s stat, at 6.5% year-over-year.

Frank Curzio: That’s crazy.

Daniel Creech: Hell, that’s a lot better than 9%, don’t get me wrong.

Frank Curzio: Oh, yeah.

Daniel Creech: However, 6.5%, the longer that stays as the new normal, the longer that stretches out, it’s only going to squeeze more and more individuals. And to your point, it’s going to cause changing habits. It’s going to cause how people think about the future going forward in sentiment. As you pointed out a lot in the past, sentiment, just like expectations with this number, is what drive markets. We’re all emotional, and that’s what’s happening.

Daniel Creech: The crazy thing for me is seeing the market sell off… And I told you right before we started this, Bitcoin was up $500, $600, a couple percent, to over $18,000 before this printed. It wouldn’t have shocked me or, I think, anybody else, once that number hit and the markets and everything else sold off, Bitcoin pulled back a little bit. And again, this could all change by the time you guys get this, but the fact that gold is continuing to hold onto gains, the fact that Bitcoin is continuing to hold onto gains, and energy is holding onto its gains, that is something that you want to think about in going forward on how to position yourself. Because as you just said, we joked about this yesterday, even if this number was in line with JP Morgan estimates and the market took off and absolutely rallied 1%, 2%, 3%, or 4%, that doesn’t change a single thing that’s going to happen in a couple weeks.

Daniel Creech: When the Fed meets at the end of this month, it’s not going to change a single thing as more sanctions go across geopolitical ties in oil and energy, it’s not going to change a single thing about all the hot wars and rumors of hot wars going on, as normal. We get to talk about this all the time, one of the difficulties is trying to wait until those events. But it’s good overall. I am a little surprised that the market sold off as quickly as it did on an inline number because that just means expectations are way out of line with the Fed and the coming policies.

Frank Curzio: Yeah, you said a lot of things there, where, no, the expectations are a lot of points. It’s like the expectations, for me, this tells me going in… So, this is a monthly number. So, it didn’t do anything, right? It would’ve been really nice to see a number coming down sharply because now, you can have expectations, “Okay, the Fed’s finally going to stop.”

Frank Curzio: I mean, after this number the Fed’s not stopping. It’s definitely at least two more hikes, probably three, and who knows? Because if next month is like this and we’re still seeing over 6%, then you’re looking at 5.5%. And that’s an important number to understand because that means it’s 5.5%, 6%. That’s getting thrown out there, 6,% as a terminal rate. That’s how high short-term rates are going to be. It’s very dangerous, the higher we go, because they’re going to stay there for a long time, and that’s what’s very, very dangerous.

Frank Curzio: So, I thought that this number would be much better. Again, shelter is kind of wishy-washy. I covered that. I went through it, the math and everything and how the Fed made sure of that. They changed the way they calculated that since the ’80s. This way, they can manipulate inflation and keep it lower forever, probably so politicians could spend as much as they want and keep inflation low, right? But now, it came back to bite them in the ass because we’ve never seen real estate go up, rentals go up, the way they went.

Frank Curzio: We saw real estate go up high during the credit crisis, just before with all the bullshit leverage and everything. But now, we’ve never seen rentals go up. Like 13%, 15% year-over-year, we’ve never seen that and that’s not supposed to happen. And now, it’s biting them in the ass because shelter’s such a huge component and rental’s such a huge component of CPI. And that’s why they’re going to probably fix it again and then change the methodology, and that’s what Siegel’s talking about.

Frank Curzio: But we have to be careful. Because if you remember, six months ago I was telling you how the Fed needs to slow down. I was telling you how there’s a lot of deflationary indicators and pointing them out. But there’s still inflationary indicators; the Fed can’t stop. And I’m going to say, the way I hear Jeremy Siegel talk on TV is like there’s zero inflation out there and it reminds me of another economist that locks himself in a room and doesn’t… I don’t know if that guy ever took a plane in the past six months. I don’t know if he’s went to Vegas. I went to Vegas last month, okay? I went to Vegas-

Daniel Creech: Still talking about Jeremy?

Frank Curzio: Yeah, Jeremy.

Daniel Creech: Okay.

Frank Curzio: All right, I went to Vegas last month. If you’re staying at a hotel… First of all, the hotel I stayed at, as soon as I got there, I didn’t even know, they charged me $100 extra per night for incidentals, that were no incidentals, okay? There was nothing there. I mean, they’re banging you out.

Frank Curzio: You’re looking at flights, you’re looking how much flights are, the travel industry. I’m pointing out some of the things that are not coming down. You’re not seeing food prices come down tremendously, right? Energy prices have come down because, miraculously in Europe, it’s not cold in Europe right now, but that’s changing. That’s changing. They’re talking about Davos and everything and how it’s going to be pretty cold next week. Because they’re all going to be there in CNBC in nice little coats and heaters and stuff, and how cold it’s going to be with these big heaters on them.

Frank Curzio: But the CPI, and even with Jeremy Siegel-like point, there’s still inflation in the market, okay? And there’s no signal, there’s no indication that, you know what, the Fed’s going to come here and say, “All right, we need to slow down,” or, “We’re not going to raise anymore,” they already said they’re going to slow down. There’s no indication of that. And we definitely got at least two more hikes on the way, maybe three, and that’s what surprised me about this number.

Frank Curzio: So, the market’s doing okay right now. I don’t know where it’s going to finish, we’ll see. And again, this is all trading and back and forth and algorithm shit and everything, but, long-term, I think the fact that it’s still 6.5% at the core, I mean, it came in in line. People will say, “Well, we’re trending in the right direction.” We’re not trending in the right direction fast enough, based on the data that they look and how they calculate it, which that’s all that matters.

Frank Curzio: I don’t give a shit what Jeremy Siegel says, I don’t care what any economist says, the only thing that you need to understand is the Fed is looking at the CPI or the core CPI and it’s not really coming down as fast as they want. And that’s what they’re looking at, meaning they’re going to continue to raise rates. That’s what you need to focus on.

Frank Curzio: You could look deep into the data and come up with your own thesis, and it doesn’t matter. It’s that simple. What does the Fed look at? They’re looking at CPI, looking at wages. Those two, stumbling high; inflation’s stumbling high. Meaning that they’re not going to stop, I don’t think, before March. Definitely not before March, and it could be even longer after I see this number.

Daniel Creech: Right. I mean, they’ve already said they’re getting to over 5%. They’re at 4.5%, 4.25% to 4.5%, excuse me, right now. So, we know they’re going to raise at least another half a percent or one full percent. To your point, Frank, food at home year-over-year is growing at 10.4%. That’s literally eating at home, just like it sounds. Food away from home is growing at 11.8% year-over-year.

Frank Curzio: Amazing.

Daniel Creech: To your point, eating out in Vegas. One last thing before we get to your favorite whipping boy, Frank, you want to talk about inflation. This hike in inflationary times is, quote, “a financial hardship for many.” The Irish Prime Minister, I’m not even going to try to butcher his name, is upset because Guinness is raising the price of a pint by 12 Euro cents per pint. Now, that’s under the 17 Euro cent increase that Heineken did, so at least you can point to your neighbor and say you’re better than them.

Daniel Creech: But the Irish Prime Minister says this could cause financial hardship on many. And they are trying to get the Diageo plc, parent company, to move it back. They’re saying, what, Frank, “Hey, we can’t absorb these rising costs and inflation anymore; we have to pass them on.” And of course, Bloomberg comes in as a whack-a-mole and says, “Diageo reported a profit of $4.1 billion during the last fiscal year.” Those evil, greedy corporations, Frank.

Frank Curzio: Unbelievable.

Daniel Creech: So cheers, everybody, even though it’s a little bit more expensive. All right, let’s get to your favorite whipping-

Frank Curzio: You can raise alcohol and cigarettes as much as you want and people are still going to pay for… The vices have unlimited pricing power.

Frank Curzio: All right, so the other story I want to get to is Disney. You guys know how I felt about Disney for a while. And as wrong as sometimes I am on other things, that was one of the ones I got to pat myself on the back with, saying that Chapek was going to get fired, Disney lost its way, and the stock was going to crash, and streaming was terrible, or whatever. But now, we have Nelson Peltz out there saying that he wants a board seat because he accumulated 9.4 million shares. I think that’s around… I forgot how much it’s a percentage of a company. I think it’s maybe 4% or something like that, I’m not too sure. I think it’s almost a billion dollars’ worth.

Frank Curzio: So, he wants a board seat, which they have 12 board seats. And now, they eliminated one, so there’s only 11, and they’re not getting another board seat. What they did is they promoted… Who was it? The Nike chairman, who he’s the executive chairman of Nike, Mark Parker, they elected him the new chairman of Disney. And Nelson Peltz, because he has a stake in it, wants a board on it. I mean, he wants a seat on the board, which Disney’s up a little bit on.

Frank Curzio: I don’t know how people interpret the news. Nelson Peltz is still a very big name out there, I get it, and he deserved it, but I’m going to tell you what you’re not going to hear on CNBC, okay?

Daniel Creech: Here we go. Here we go.

Frank Curzio: All right? They don’t tell you this shit on CNBC, thank God, because if they do, then these people will not come back on.

Daniel Creech: I don’t have any popcorn, but I have coffee.

Frank Curzio: But I’m sorry, I got to say it. So, his fund try and fund… They only have like four long positions, I think, in the portfolio, and Wendy’s and GE are two of them. And GE-

Daniel Creech: He’s been in that for a long time.

Frank Curzio: He’s been there since 2015, okay? He’s owned GE, and it’s been a disaster for him. And I know better on GE because I lost money on GE a while back and, yes, I took my lumps for that and I always talk about it as a learning experience or whatever, right? So, I believed the CEO, that they were going to earn over $2.20, and they earned, whatever, 30 cents. And it was just restructuring, it was terrible. But the whole entire time, he’s had that one since 2015. I mean, you could have basically bought any single stock in the S&P 500 since then, and you would’ve outperformed GE. I’m talking about 499 stocks. You’re pretty close to that. Maybe it’s 498, maybe? Maybe I’m wrong by one stock, but you could have bought any stock.

Frank Curzio: So, what happens in 2017… And this is what you have to look at, right? Because it’s like Michael Jordan. Michael Jordan’s the greatest basketball player in the world, he’s unbelievable, he’s great, but it doesn’t mean he’s going to be the greatest baseball player, right? And just like when you look in the markets, where… I love when economists start talking about stocks, or you have a guy that works for the CIA and all the sudden, you think he’s a stock analyst. He doesn’t know nothing about stocks, right? If you’re a bond expert, you don’t want to listen to him about equities, right?

Frank Curzio: Nelson Peltz took a board seat. And this is why I look at it. Well, what happened last time he took a board seat, okay? When someone takes a board seat, makes these changes, and turns it around… Remember, Ford and Mullaly? I mean, Ford was going to go bankrupt and, I forgot, it was 2000 during a credit crisis. And man, he just came in and said, “Everybody’s freaking fired. This is what we’re doing,” and turned the company around and whatever. It was unbelievable. They got someone from the outside; unbelievable what he did. I mean, he made a fortune doing it and that’s great. So, if he went to another company, you’d be like, “Holy shit, this is a turnaround guy, you should buy it.”

Frank Curzio: But you got to go back to the history of him being on the board. The last time, he was on the board in 2017, gee, what happened? It’s still shit. So, he wants a board on Disney and because he’s not happy with what’s going on. I love these guys who accumulate this big position and then they shit on the company. It’s just ironic to me. Like, “Oh, this company’s…” Well, why’d you buy billion dollars’ worth?

Daniel Creech: I like it better when Icahn does it.

Frank Curzio: Why’d you buy a billion dollars’ worth?

Daniel Creech: Yeah, exactly.

Frank Curzio: “Well, I want to change the whole thing.” Well, if it’s shitty… Because that’s what he’s doing. He’s saying, “Yeah, I try highly to believe the poor strategy operations, poor capital allocation, recent performance conflicts, the hard truth, that the company’s in crisis.”

Daniel Creech: Check, check, check.

Frank Curzio: This is what they’re saying and you’re buying a billion dollars of worth, which I love, all right? That’s hilarious on its own. Listen, I’m going to tell you something, and it’s this simple. If Disney continues to put streaming at the forefront and goes all in to streaming, this is companies… I don’t care if you have… Excuse me, I’m Catholic, because I can say it. I don’t care if you have Jesus Christ on the board.

Daniel Creech: Now, Frank.

Frank Curzio: If Disney continues to stay into streaming the way they’re into streaming right now, his stock should not be bought. It’s a $60 to $70 stock, okay? The money that’s going to pour out of that company into streaming and the value that they get out of streaming, it’s not there. They don’t know streaming. They don’t know how to do it. They’re not Netflix. Their best content cannot come out on streaming, which puts them at a significant disadvantage, okay? They’re not at HBO, which you’re seeing Time Warner do great. You’re seeing other streaming platforms start to pick up steam here, where Netflix is up, I think, 100% from its low; it just got upgraded today.

Frank Curzio: They haven’t figured out streaming. Their new content, their greatest content, whether it’s Pixar, whether it’s Marvel, it comes out in the movies, they generate billions of dollars for it, and then their streaming platform gets like… Okay, you can go to Mandalorian was good, a couple… But the amount of money, and what you have to pay these actors, and what you have to do to get on the streaming platform, and the competition, you have no pricing power in it. You have zero pricing power. That’s why it was at $4 for average revenue per user. It’s a terrible business for them. If they buy Hulu, short the shit out of this stock even at $100. They should be getting rid of Hulu, which has been around forever and still loses billions of dollars every single year, okay? Which shows you that it doesn’t work. And Hulu’s one of the better sites with very good content next to, I would say, Netflix and HBO+ when you’re looking at that.

Frank Curzio: Streaming is a terrible business for them. They had to get into it. We understand, they had no choice. I know Chapek lied to us and said, “This is the greatest thing ever. We’re going to have a multiple like Netflix.” You had no choice, okay? Everything was shut down. You got hurt more than anyone, other than Boeing, when it came to Covid.

Frank Curzio: So, what I’m looking at Disney here with Nelson Peltz, one, you’re trashing a company, you’re buying a billion dollars’ worth, you want a board seat. What are you going to do, right? Unless you get out of streaming, that company’s going to bleed cash and continue bleeding cash. Their balance sheet is terrible. I’m surprised their credit ratings aren’t getting cut right now. They’re never going to pay a dividend again. Again, Disney isn’t a great, great company. You have to get out of streaming. It’s the greatest marketing company in the world. They have great properties. Streaming is a disaster for them. You have to get out of it, and hopefully Iger sees that. Not only that, get out of political world. I know it’s very hard to do, but that’s your core market. This isn’t ESPN, which is a different market, and you could go as left as you want and that’s your market. When you’re talking about families and things like that, get out of politics because it’s affecting you.

Frank Curzio: I know personally because, even a lot of my friends in New York, they’re like, “I’ll never go to Disney again,” who are super conservative, because they hate Disney and that stance. You don’t want to be political. Especially kids, you don’t want to talk about. That’s their bread and butter, kids, children going to these parks, taking your families there. Stop talking about families, stop talking about politics, get the hell out of politics. They should stop talking about it immediately because it’s hurting their company and it’s going to continue to hurt that company.

Frank Curzio: So the initiatives are there, the writing’s on the wall. I don’t know why it’s going up on Nelson Peltz. Especially a guy that owns four stocks, GE, Wendy’s, and stuff like that, and hasn’t made any difference being on a board at GE at all, I don’t know what he thinks he’s going to do with this company, but they have to get out of streaming.

Frank Curzio: Maybe he gets on and he tells him to get out of streaming. I know he’s close with Iger and that’s why he might get a board seat. They’re saying, “No,” but for me this isn’t news. And he’s actually on TV right now, I’d love to hear him, but what he is going to say just would not convince me at all. And I’m being honest with you, he just-

Daniel Creech: Let’s play devil’s advocate here. I think that the stock is rallying because, you just made a lot of great points, investors have to, I would assume… You know what that does when you assume. How do you not think he’s going to come into the… Let’s say he gets a board seat. He has to push for cutting some assets. Now, I don’t know if he’s going to want to spin off ESPN, or if he’s going to put a stop to buying the rest of Hulu, or if he’s going to get out of streaming, or whatever, but I would have to say the investors must think he’s going to shake some things up. He’s going to go back to his old roots.

Daniel Creech: And I read a headline about he backs a plan for a new CEO within two years or in two years, because Iger was brought back in just as a temporary guy and all that kind of stuff. I’m sure he wants a say in who the next CEO is and why and what they’re focused on. I’ll be honest with you, I don’t understand. I mean, listen, he’s a great, respectable guy. I have two questions for you. One, how do you think he’s managing his huge positions? I got a lot of respect for guys that pick a very limited number of stocks and make big concentrated bets. Buffett does it, Icahn does it, Bill Ackman does it, a lot of people do it. If you’ve held GE since then, the stock price there, you got to be doing something with options. You got to have some derivatives. You got to do something, you would think, to kind of balance that.

Daniel Creech: Anyway, that’s not really what I want to ask you. I want to ask you is, what would it take for us to recommend Disney in a newsletter? Would they have to just say, “Hey, we’re out of…” Because the most exciting thing about finance… One of them, not the most. One of them, to me, is that you hate the stock price, not the stock or the company; it’s not personal. You talk about that a lot in the past. My point is that there could be a time in the future where events change, data changes, and we change our mind.

Frank Curzio: Absolutely.

Daniel Creech: And that’s what’s fun to think about in terms of just a big picture thing. So, let me set this up for you. They’re going to have a new CEO within the next couple years. Do you need to see a complete commitment to getting out of streaming altogether? I guess, quickly, what do you need to see to where it’s like, “All right, this is what’s…” And I know getting out of politics and all that kind of stuff, but is it just the streaming thing? “Hey, if you guys tell me you’re out of streaming or you’re not committing $10 billion a year to this ridiculous idea to compete with the other guys that have your lunch…” You just need them to get back to their core: Run parks, make movies, stream your content, pay a dividend, and be quiet, right?

Frank Curzio: It’s a good question, Daniel. I’m not telling them to just get rid of streaming. I’m telling them that it can’t be your growth model, because it’s not growing. The easiest thing for me to buy, if I would tell you to buy the stock, I think immediately one is you just spin off ESPN. It’s an incredibly valuable property. Sports will always be incredibly valuable because it’s one of the only things in entertainment that’s unscripted and people are going to watch forever no matter what, right? It’s just the entertainment-

Daniel Creech: Plus, they’re going to watch it live. They’ll sit through commercials.

Frank Curzio: Yeah, they’re watch it live, it’s unscripted… I mean, that’s one of the things that’s massive, right? And I feel like streaming hasn’t really figured that out yet. You know what I mean? You’re starting to see it now with football, where YouTube just bought the NFL package. You saw it with Amazon, where they’re streaming the Thursday night football, which is good. And you’re seeing the difference.

Frank Curzio: I mean, Amazon, that was a great deal. They paid a shitload of money and a lot of billions of dollars to it, but that’s a great deal because they added tons of Prime members. They’re figuring out a good marketing strategy. What Disney needs to do, and nobody is calling for this… Even today I heard Faber say it. Because they work for NBC Universal, who owns a part of Hulu, so they’re like, “Yeah, they’re going to pay,” whatever, “$8, $9 billion.” You know what? Sell Hulu to Comcast, that’s what you need to do, and scale down.

Frank Curzio: That’s going to bring in billions and billions of dollars. That’s going to help your balance sheet. Now, you spin off ESPN. And now, your balance sheet is very, very strong. Now, you become the acquirer, right? Now, you become that Disney. Now, you become that powerhouse. They’re nothing without that balance sheet. They’ve never had this much debt on their balance sheet in the company’s history. No one’s talking about it. It’s one of the only companies in Dow that hasn’t got back and returned a dividend.

Daniel Creech: Right.

Frank Curzio: It’s one of the only ones, right? Because they can’t. Because they don’t have the money for it. Because they have bleeding, bleeding, bleeding, bleeding cash, bleeding billions of dollars, and that’s going to continue with streaming. You’re going to see those numbers come down. They fooled everyone out there showing that, “Oh, we have 100 million new subscribers,” and nobody cared about the average revenue per user, which, eventually, that’s how much money you make and flows to the bottom line, nobody cared. Now, everybody cares. So, nobody cares about the 10 million of international clients you’re going to add for $1.50 a client. Nobody cares about that, okay? Especially when the average revenue per user is $11, $12, $13, $14 for a lot of your competitors.

Frank Curzio: You can’t compete on that level just because you can’t have your best content. So, that puts you at a significant disadvantage right off the bat. It’s not like, “Hey, I got this cash, and I’m Apple. I’m going all in on streaming. I don’t care if I lose money because I have a great balance sheet.” You don’t have a great balance sheet; you can’t afford this. If you sell that stake and you limit Hulu, now you go into streaming, now you make it more specialized, right?

Frank Curzio: And now, not only that, everyone, all these streaming platforms, what do they need? They’re in dire need of content. You are a great content producer. License out this content. You can make a fortune off of it. Why do you have to become the actual provider of streaming for all this stuff. All the Disney content, all the Star Wars content, I mean, that’s what a little bit keeping that streaming, Disney+, alive a little bit. But imagine being able to put that on other platforms and how much money they’re going to get. I mean, they’re dying for content and it’s very, very expensive. So why… I don’t understand the model of the billions and tens of billions of money that you spend, which is actually $30 billion they said they were going to spend on streaming and new content this year, and then you’re charging people an average revenue per user of $4.25. It doesn’t work, the numbers don’t work.

Frank Curzio: But you have assets there. Spin off ESPN, you’re going to get your balance sheet great if you sell Hulu and keep Disney+ and the rest of it, that’s fine. But if you’re really going to… I don’t know where they’re going to get the billions. They could obviously raise money in the debt market and stuff like that and further crush their balance sheet, but if they’re going to continue to go into streaming, just admit it, “We’re wrong.” Because that stock will go to $200 if they do this over the next 18 months, probably two years, if they would do that. But they’re not going to do that, and they continue to pour billions and billions and billions into streaming, which really only one company has figured out, which is Netflix. But I don’t see that happening. And the reason why, they’re very controlling.

Frank Curzio: Disney is a controlling company. I told you that when I did the back tour, or whatever, where J.K. Rowling wanted to put, what was it, Harry Potter, the whole Harry Potter thing in Disney Because he’s like…

Daniel Creech: Right?

Frank Curzio: Yeah.

Daniel Creech: Yeah.

Frank Curzio: Well, no, the world, the whole, entire world, right?

Daniel Creech: Oh.

Frank Curzio: So, like they have in Universal, they have the whole… It’s beautiful there, and it’s one of the biggest attractions. Universal, it’s amazing. But the reason why, they went to Disney first, and they said, “Hey, we want to put this in Disney Park.” And they said, “Okay.” And Disney said, “We’re going to put Disney everywhere, all over it.” She said, “No, I don’t want that.” They were like, “Well, the hell with you, we don’t want you then.”

Daniel Creech: Yeah.

Frank Curzio: Okay, they are control freaks. People forget, Dan Loeb not too long ago wanted a board seat. Same thing, billion dollars, wanted a board seat, they gave him the finger. “Nope.” Now, Peltz, it’s up on this. They’re not going to give him the board seat. But even if they did, here’s a guy, got a board seat in GE in 2017. What did he do since 2017 in GE? Nothing. It’s not like this guy… If Icahn got it, it’s different. You don’t want to mess around with Icahn. There’s changes that he makes. And he has that track record of, when he gets on a board, significant changes are made and those companies do better. That’s different.

Frank Curzio: But you have to look at Peltz’s history of taking a board seat. It’s not that good, right? So, I don’t know why this news is good. And that expertise or coming in, I mean, he’s talking right now. I’m just interested in hearing his comments. Because now you have a… This is what’s funny, right? And Dan Loeb did the same thing. I’m sorry to go off on this, but this is interesting, right? You take a billion dollar stake in the company. He’s on there trashing the company. I can see the headlines right now at CNBC. You’re going to trash the company. I just read it, he’s trashing the company. So, does that mean if you don’t get the board seat, you’re going to sell it, right?

Daniel Creech: Just going to sell that.

Frank Curzio: You got to sell it out of the position. So, is that a negative? I don’t know.

Frank Curzio: But he’s not going to get the board seat. They’re not going to give it to him because they don’t like people controlling them. They want to control themselves. And it’s very, very bad, especially when things are bad, when you don’t want outside help. And that’s why Iger had to come back. He didn’t want to come back. Are you kidding me? The guy’s free. Why would he want to come back to this? Are you out of your mind? That guy’s got the greatest life ever in the middle of nowhere. He’s got to come back and fire this guy that they just signed a three-year contract six months ago, it’s Chapek, because he’s all over the place and he’s lying through his teeth, which I told you about, for nine months.

Frank Curzio: But I think this is no news, but it’s a good question, Dan. For me, it’s all about… I don’t hate Disney. I hate where it’s trading. It’s trading at 23, 24 times forward earnings. Why do you deserve that premium before when you have a crappy balance sheet, you can’t really grow earnings right now? To me, buy Netflix. It’s much, much better. It’s cheaper. It’s growing. They can put their best content out, which people run home to watch. And you don’t do that for Disney. Disney doesn’t have that power; that stuff has to come out in the movies.

Frank Curzio: But overall, things need to change. You have to get out of streaming. Streaming, I understand why they did it, they had to do it. They sold it like it was this great thing and then it wasn’t that great. It’s something you had to do because you weren’t generating revenue from… Parks were closed, theaters were closed, cruises were closed, Broadway was closed, parks, everything across the board was closed for them. And it was closed much longer even when things opened, with the capacity constraints and stuff.

Frank Curzio: So now, you have a chance to get out of it. Stop going with something that’s not working. Stop being stubborn, okay? It’s the biggest flaw of very brilliant people. You have this stubbornness, and you think you have to go. Just take a step back and see it’s not working. The numbers are there. It hasn’t worked for a year and a half, streaming. Stop doing it and then Disney will be a buy. For now, avoid it. If you really like this, go to Netflix.

Daniel Creech: Buy Netflix, I like that.

Frank Curzio: Netflix is much cheaper, it’s better, pure streaming, great company. There’s too much nonsense going on here. There’s just too much nonsense going on here.

Frank Curzio: But I can’t wait to listen to what Peltz is saying. Again, I have a respect for Peltz. That shouldn’t be relevant news, of a guy taking a billion dollar position, trashing the shit out of the company, and then, if he does get that board seat, he doesn’t have a history doing anything when he does have a board seat, especially with that company. Man, I can go on and on about this. I really could.

Daniel Creech: I know you can.

Frank Curzio: I feel bad because he’s-

Daniel Creech: It’s good though. It’s timely, it’s in the news. I like it. Yeah.

Frank Curzio: Yeah, and I stopped talking about it-

Daniel Creech: I can’t wait till they make some changes and we write that up and our subscribers open it up and be like, “What?”

Frank Curzio: I’ll be the first to recommend it. It’s not personal. That’s the thing. I’ve learned-

Daniel Creech: I know, and I’m not saying it is. I’m just saying, this is the fun back and forth about it.

Frank Curzio: And that’s what I learned, and I was fortunate to learn that with my dad kind of being a perma-bull. Cramer was a… Perma-bear, my dad, and Cramer was a perma-bull. And having both of them and seeing, this is the way they are all the time, there’s a big middle. I mean, you got to be willing to change on a dime in this market, okay? And if you do, especially in this market, where every news matters now and it gets CPI numbers out. One second, the whole world, the whole market’s up 300 points, down 300 points, that you got to be willing to change, especially if the thesis changed.

Frank Curzio: The thesis for why Disney’s coming lower? It hasn’t changed. They’re still going on and streaming, they’re losing a fortune, their depositions horrible. Nothing has changed with that company, other than Iger, but let’s see. He just got there. Let’s see what’s going to happen, let’s see what he does, let’s see if he’s able to change the culture. Because right now, it’s still too early to buy that stock. It’s going up along with the rest of the market. But overall, when that company reports earnings, you’re going to see those earnings continue to be horrible going forward.

Frank Curzio: Daniel, thanks for coming on today on a Thursday. I really appreciate it.

Daniel Creech: Yep, thank you. Always great to be here.

Frank Curzio: And thank you, everyone. Nice to be back in town after Vegas, gone for a week, and get some electronic show stuff and everything. Turned out two newsletters this week, so hopefully you guys enjoy all of the research and the hard work we’re all doing over here. And if someone wants to get in touch with you, Daniel, to yell at you, what’s your email address?

Daniel Creech: Dan… I was going to make a comment, daniel@curzioresearch.com, daniel@curzioresearch.com.

Frank Curzio: Or you can email me, frank@curzioresearch.com, guys. Thanks so much. Thanks for all the support. Have a great, wonderful weekend, and I’ll see you guys next week. Thank you.

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 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.
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