Apr 22, 2022
This week’s Bespoke Report newsletter is now available for members.
Early Thursday morning, investors were feeling pretty good about the trading week. At that point, the S&P 500 was up 1% on the day and about 2.7% week-to-date, and the index had actually just pushed back above its 200-day moving average.
There was nothing we could identify in the news that caused the S&P to peak around 10 AM ET, but from that point through the closing bell on Friday, the index fell 5.3% in basically as straight of a line lower that you can draw.
Fed Chair Powell did, however, make comments in a speech at the IMF mid-day Thursday where he confirmed that a 50 basis point hike was “on the table” for the May meeting. Markets have been pricing high odds for 50 bps hikes for some time now, but Powell’s comments basically cemented them (for now).
The Powell Fed is known for its jawboning and transparency when it comes to the path for rates. The chart below of equities and fixed income in 2022 tells you what these two asset classes currently think of that jawboning:
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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.