Apr 11, 2022
It seems like just yesterday that the streaming market was dominated by a single player: Netflix (NFLX). This dramatically changed when new entrants such as Amazon (AMZN), Paramount (PARA), Comcast (CMCSA), Hulu, and YouTube (GOOGL) helped create a relatively fragmented and competitive market. The conjunction of all of these platforms and a shift in consumer preferences has put pressure on legacy television brands and forced conversion into streaming. Three years ago today, Disney (DIS) announced that their streaming platform, Disney +, would be unveiled just seven months later.
When DIS first announced the launch of its streaming platform, investor excitement was clear, as the stock soared 11.5% the following day, the largest single day upside move since May of 2009. DIS has the ability to source content from its existing brands, such as Lucasfilm, Marvel, ABC, The History Channel, Pixar, 20th Century Studios, A+E Networks, and more. Its unique setup allows the company to produce content from profit generating-entities, and further monetize said content by offering it to consumers on its streaming platform. DIS also owns ESPN and Hulu, which increases the attractiveness of the collective platform as a family package, covering everything from live sports to children’s programming. At the end of fiscal year 2021, Disney+ had 33,000 episodes and 1,850 movies on the platform, bringing the title total to about 35,000. On the other hand, Netflix had 50,000 titles in March of 2020, so DIS is slightly behind in aggregate content relative to the largest competitor in the sector. Since the start of 2020, the number of users on the Disney+ platform has grown at a compounded annual growth rate of 111.1%, growing from 26.5 million in Q1 2020 to 118.1 million in Q4 2021. The most recent quarter (Q4 2021) saw the slowest q/q subscriber growth in both percentage and nominal terms, as the service added just 2.1 million users (+1.8%).
Alongside the subscriber spike has, of course, come a spike in direct-to-consumer revenues realized by DIS. In fiscal year 2021, DIS booked $16.3 billion in revenue from its DTC segment, which was an increase of 54.7% y/y. In fiscal year 2020, DIS recognized a 38.0% increase in subscription revenues. Clearly, this channel has been growing significantly, and the pandemic helped to only propel further. Although this aspect of the business was strong in the midst of the pandemic, losses from cruises, hotels, and resorts hampered earnings results, which resulted in poor equity performance for DIS. Since the start of 2020, DIS has traded down by 10.6%, even as the headwind of COVID restrictions has eased, travel has picked up, and the DTC channel has experienced immense growth.
The relative strength of Disney’s stock has been even bleaker. Since announcing the launch of Disney+, DIS has underperformed the S&P 500 by a wide margin, and the relative strength reading is currently sitting at the lowest level since 2012. In its Q4 2021 earnings report, DIS reported slowing subscriber growth, which caused the relative strength to weaken even further. Moving forward, investors will be keenly aware of the performance of Disney+ as well as the performance of the parks, resorts, and cruises as pent-up travel demand continues to come into the market. Although the launch of Disney+ has gone relatively well, the platform has room to run in terms of penetration, subscriber counts, and international expansion. The stock has not moved in conjunction with subscriber growth as questions over revenues generated per user, a highly competitive streaming space, and the company’s exposure to still-suppressed industries still cloud the outlook. Click here to try out Bespoke’s premium research service.
Apr 10, 2022
Welcome to Bespoke Brunch Reads — a linkfest of the favorite things we read over the past week. The links are mostly market related, but there are some other interesting subjects covered as well. We hope you enjoy the food for thought as a supplement to the research we provide you during the week.
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The Masters
Augusta family next to Masters golf course keeps turning down millions for their 1,900-square-foot house by Cork Gaines (Insider)
The crowds at Augusta National often walk past the Thacker family abode at 1112 Stanley Drive, just across the street from Gate 6A. The Thackers have repeatedly turned down millions for the property. [Link]
Masters 2022: Anything but the green jacket — tales from player shopping sprees by Josh Weinfuss (ESPN)
What’s the point in attending the most exclusive golf tournament in the world if you don’t bring home some swag to prove you were there? [Link]
China
China’s $2.3 Trillion Infrastructure Plan Puts America’s to Shame by Tom Hancock (Bloomberg)
The already investment-intensive Chinese economy is going to plough another $2.3trn into infrastructure to offset slowing property markets and an economy wracked by COVID, high debt, and weak consumer spending. [Link; soft paywall]
Shunned Oil Piling Up Off China as Virus Outbreak Worsens (Bloomberg)
Amidst extreme oil shortages around the global economy, more than 20 million barrels of crude from Russia, Iran, and Venezuela are sitting offshore in China as domestic demand collapses thanks to interventions seeking to contain the spread of COVID. [Link; soft paywall]
Inflation
Shoppers Face ‘Shrinkflation’ at the Supermarket by Donna Fuscaldo (AARP)
In addition to raising the price of goods, companies are also reducing the size of packaged goods without changing the price. This shows up in official inflation measures (because they are adjusted for the weight or volume of a given item) but may sneak up on consumers at the store. [Link]
Inflation fears force Americans to rethink financial choices, CNBC and Acorns survey says by Michelle Fox (CNBC)
A somewhat hard-to-believe 48% of Americans report thinking about rising prices “all the time”. More than half of respondents to a recent survey reported cutting back on dining out, the most common response to inflation reported. Though that’s also tough to square with restaurant spending at a record level in February per BEA data. [Link]
New York
NYC’s Priciest Seafood Spots Skyrocket Further Into the $1,000 Stratosphere by Ryan Sutton (Eater)
Won’t someone think of the Nobu patrons? A dinner for two at Sushi Noz now costs $1k, amidst a wave of higher prices around the highest-end meals in New York City. [Link]
The world’s skinniest skyscraper is ready for its first residents by Lydia Armstrong (CNN)
The Steinway Tower at 111 West 57th is 24x as tall as it is wide, making it the third-tallest building in New York but at 84 stories it will be the most slender tower in the world. [Link]
NYC landlords filing so many eviction cases that firms for low-income tenants have run out of lawyers by Molly Crane-Newman (New York Daily News)
More than 10,000 eviction proceedings were filed in New York during the last two months, on top of more than 200,000 suits filed during the pandemic; there are so many suits that there aren’t enough lawyers to represent all the tenants. [Link; auto-playing video]
Social Studies
U.S. life expectancy falls for 2nd year in a row by Rob Stein (NPR)
Despite the country moving on from the pandemic, thousands of Americans are still dying of COVID, and provisional statistics showed that drove down life expectancy for the second consecutive year in 2021. [Link]
America’s internet is splitting along party lines by Sara Fischer and Scott Rosenberg (Axios)
Investors are betting on durable partisan splits in media consumption, as media consumers gravitate towards similar viewpoints at siloed sites. [Link]
The Workplace
This Is What Happens When There Are Too Many Meetings by Derek Thompson (The Atlantic)
White collar workers are increasingly finding productivity late into the night, with workers increasingly returning to tasks after dinner and before the end of the night. [Link; soft paywall]
“Great Resignations” Are Common During Fast Recoveries by Bart Hobijn (FRBSF)
Fast labor market recoveries generally lead to elevated job turnover, making the much-heralded “great resignation” of the current post-COVID jobs boom wholly unremarkable. [Link]
Bearish Bets
If Stocks Don’t Fall, the Fed Needs to Force Them by Bill Dudley (Bloomberg)
An argument that for the economy to slow as desired by the Federal Reserve, even more shock therapy is needed in the form tighter financial conditions. [Link; soft paywall, auto-playing video]
Crypto
The Metaverse Has Bosses Too. Meet the ‘Managers’ of Axie Infinity by Edward Ongweso Jr (Vice)
A dystopian vision of a crypto-fueled gaming future that outsources the hard work of collecting in-game rewards to workers in the Global South and exposes anybody playing to wild variations in market prices which have nothing to do with underlying game. [Link]
Conspicuous Consumption
The Real Yacht Rock: Inside the Lavish, Top-Secret World of Private Gigs by David Browne (Rolling Stone)
Some of the biggest paydays in music come from private bashes for the world’s wealthy: millions for a single quick show performed to a small private audience. [Link]
Drones
Amazon, Alphabet and Others Are Quietly Rolling Out Drone Delivery Across America by Christopher Mims (WSJ)
Consumers are starting to get deliveries from drones after years of promises that they are right around the corner. Air dropped packages, quadcopter deliveries, and rapid Prime from the sky are all part of the landscape. [Link; paywall]
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Have a great weekend!
Apr 8, 2022
This week’s Bespoke Report newsletter is now available for members.
The US equity market is facing big valuation headwinds from rapid shifts in expectations for Federal Reserve policy near-term and a market view that rates will be higher in the long term. With yields surging, the market has relied on ever-higher earnings estimates to stay afloat as we approach Q1 earnings. High earnings estimates make this season a unique risk for the market as the post-COVID bonanza in beats trails off. Foreign central banks are also getting in on the game as interest rates surge into positive territory in the Eurozone. We discuss French elections with the first round of voting this Sunday, as well as touching on policy in Russia and China. Global trade frictions appear to be easing, and used auto prices have started to fall, both of which offer a sunnier picture for inflation. We also look at earnings Triple Plays, credit markets, the strong dollar, the outlook for the Fed’s balance sheet, oil markets, big NASDAQ drops, equity market dividend yields, recession probabilities, and more in this week’s Bespoke Report.
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