Disney reports a surprising first quarter profit, with the number of Disney + subscribers increasing. Gerber Kawasaki CEO Ross Gerber joins Yahoo Finance Live to discuss.
Video transcription
AKIKO FUJITA: We will bring our first guest of the hour. We have Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management. And Ross, we expected big numbers from Disney +. But 96 million, 95 million subscribers, well ahead of the 90 million that Street expected. Were you surprised?
ROSS GERBER: I was not surprised by the Disney + numbers because the content is very good. I mean, if you think about what we watched at Christmas, between “The Mandalorian” and “Soul”, which was a great and beautiful movie, it’s an extremely attractive compliment for Netflix, which is basically full of many types of violent movies and TV shows and murder shows. So it’s great to have Disney + content for our kids and me, too, because I just can’t watch a murder program every night. So that part was not so surprising.
ZACK GUZMAN: What about the other names in this portfolio? We were talking about ESPN + and Hulu. Those also showing relative strength there, reaching above expectations in terms of paying users. How important will these be as we go along?
ROSS GERBER: Super important because, in the first place, Hulu did very well on the side of the ads. So, they have subscribers. But they are really growing out of ad support. Not everyone wants to pay $ 5 a month. And people are fine with that. So, they have a solution with Hulu and a live TV solution there as well.
And ESPN + has done very well, in fact, much of it driven by the UFC. I’m not a big fan of the UFC because of the violence. But I understand. And that attracts many very engaged viewers. And it really helped to double the size of ESPN +.
But when you look at a recurring revenue model that these apps have created, it’s a much, much better system for long-term entertainment companies. And so Disney has successfully adapted this new model. And it’s very exciting for the company.
AKIKO FUJITA: Ross, when you look at the entire streaming portfolio, we’re talking about 146 million, about 150 million subscribers. You look at the Netflix numbers, it’s 204 million now. What do you think is the catalyst for Disney to reach the next level?
ROSS GERBER: Well, I think it’s just about opening new markets. I mean, every family in the world with children watches a lot of Disney content. So, as you open more markets and there is more awareness, I think that drives sales.
But I think the next step, in fact, is to open the theme parks again because all of their products are synergistic. And so, the more people in the theme parks, the more people buy Disney +. And then more people watching Disney + take more people to the theme park. Therefore, the fact that the real profit generator of their businesses is really closed and they are profitable or break even is really a testament to the great management at Disney. Bob Chapek doing a great job and, of course, way above that, looking down, doing a wonderful job.
ZACK GUZMAN: Ross, let’s talk about the valuation here too, because we saw Bank of America raising its price target from 192. to 223. We’ve already talked about the parks and what kind of momentum this will have when they reopen and allow people to come back more fully. But how do you put the 32% gain year after year, I think, in the context of what we saw in the broader market?
ROSS GERBER: Well, I was kind of happy about it because Disney was the worst action I had last year. So, I had a lot of things working last year, except Disney. And at the end of the year, obviously, we had a big pop. We value Disney where it is today.
Frankly, it’s surprising that the stock has done so well with so many of its profit drivers really closed. And, honestly, it will be some time before these assets really return at full speed. So I think what the market is saying is that when Disney comes back, it will actually be a much better company than it was before the pandemic.
And I think we are seeing this with the evaluations of many different businesses, like MGM Resorts too, where the brick and mortar business has been changed with an online component now. The hybrid end of these businesses, when this is all over, will be much better than before the pandemic. Sometimes, these huge shocks in our society create more adaptable businesses. And Disney is going to be one of them, I think.
AKIKO FUJITA: That said, when you look at the quarter for parks and experiences, we are talking about an operating loss of $ 119 million. And yes, we have talked about this for several quarters because of the pandemic. But, when things actually go up again, especially where you are in California, what is the significant increase that this brings to stocks, especially when you consider that a large part of them are being traded now at Disney +?
ROSS GERBER: Yes. And I think it has the starting price. I think the stock is at the starting price. These things will open in the summer. And we will have much better results from Disney throughout 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. Therefore, we are not making any progress. 200 people died today in LA. No vaccines to distribute. And it is really distressing. And this is the legacy of the failure of the Trump administration. But Biden is in it. And I hope that by summer, we will have a large part of society vaccinated. And they’ll be back in those parks, like, as many people as they can have.
I think it’s already priced in the stock. But I think that, as we go, boy, profits may really skyrocket in 2022. And we’ll have to wait and see what happens.
ZACK GUZMAN: Ross, I also wanted to ask you about cannabis stocks because it’s been a crazy week for those names, especially when you look at the Canadian names here today. Tilray recovered from that almost 50% loss yesterday. But year after year, or just until today, 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, Canadian players are not the game. It’s the USA. I mean, legalization is coming in the United States. And the impact of that is enormous.
If you go back to 1933 and could invest in alcohol companies, how do you think you have done in the past 80 or 90 years? You were amazing. So, here you can get into this big deal that is much less harmful than tobacco or alcohol, which already has dozens, if not 100 million users in the United States. And it is the biggest opportunity I have seen in a traditional company in my career.
Therefore, we invest heavily here in the US MSO operators, not Canadian companies. So please, if you are just looking at the chat forums and don’t know what you are doing, please pay attention to what you own, because you want to be in cannabis companies in the USA, for sure.
ZACK GUZMAN: This was also surprising to me. Watch the Wall Street bets, the Reddit forum there, talking so much about Sundial, Tilray, the Canadian names. And I think it’s just because these are sold over the counter. So people don’t know the names.
ROSS GERBER: They just cannot afford to buy them. They cannot buy them.
ZACK GUZMAN: Yes, I mean, when we look at that and the opportunity in space, what is the timeline for you? Because there are still many question marks. We heard from Democrats saying they want to push for legalization, fix these problems. But they have been saying this for some time. I know they just controlled the Senate. But how do you see it? Because David Klein of Canopy says this is the year when they will see federal laws change.
ROSS GERBER: I totally agree 100%. So here’s the order. We have to deal with, obviously, the betrayal that we saw in our nation. This is happening now. And then we have to bring money to people in need. This is happening now. And then the next issue is social equality in this country.
When we look at what happened last year with the Black Lives Matter movement, which is really a bigger thing, which is about persistent racism and institutional racism in our country that is alleged by Jim Crow laws, like cannabis. I have no doubt that if you look at the history of cannabis laws, it is simply to oppress African American communities, minority communities. It has been used since the Civil War for this.
And it’s time to end. And I won’t stop until it’s over. And we must eliminate the records. Kamala Harris understands. Joe Biden understands. The Senate understands. The house understands. We need to create fair banking laws. Cannabis is not heroin. It’s an absurd. So this Jim Crow law is going to end. And the sooner, the better.
AKIKO FUJITA: Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management, is delighted to speak with you. Have a good weekend.