Disney Says Film Studio’s Expenses Weigh on Current Quarter

0:00Hello, I'm Stephen Carroll. I'm in Brussels where many of Europe's biggest decisions get made. And I'm Caroline Hepker in London with the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday keeping an eye on what's happening across Europe and around the world. We do it early so the news is fresh, not recycled and so you know what actually matters as the day gets going. From Brussels, I'm following the politics, policy and the people shaping the European Union right now. And from London, I'm looking at what all that means for markets, money and the wider economy. We've got reporters across Europe and around the globe feeding in as stories break.

0:37So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens. It's smart, calm and to the point. And it fits into your morning. You can find new episodes of the Bloomberg Daybreak Europe podcast by 7am in Dublin or 8am in Brussels, Berlin and Paris. On Apple, Spotify, YouTube or wherever you get your podcasts.

1:02Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's move on here because we're talking about how the Dow Industrial is outperforming the NASDAQ 100 for a third straight day. So that move to go beyond MAG7 is certainly taking place here, at least recently. Although I look within the downedust drills, it is really Amgen and Cisco leading the way. And the biggest drags on that measure are Caterpillar and Disney.

1:45So let's talk a little bit about Disney right now with our very own Geetha Ranganathan. She is our U.S. media analyst for Bloomberg Intelligence. And Geetha, you took a look at Disney's fiscal fourth quarter results and your verdict is good, not great. Yeah, that's exactly right, Scarlett. It came off as a little bit of a lackluster report. I mean, everything, if you look at the fundamental drivers of the company, which is really the parks business, brings in about 60 percent of profits. Things seem to be going pretty strong there. We saw a 13 percent jump in operating profit for the fiscal fourth quarter.

2:18Again, the guidance for, you know, 2026 seems pretty good as well. But really, you know, Disney really has this very, very tough balancing act. So on the one hand, they have the parks business, they have the streaming business, which is doing really well from a profitability standpoint. But to drag it down, you have the linear TV networks, and then you have the hit and miss nature of, you know, the Hollywood studio business. So, you know, they have to contend with all of those different moving parts. And I think that the drag down from the TV networks and the studios is kind of weighing a lot on the narrative today.

2:50Keith, talk to us about some of their bundling of all their streaming services, particularly that ESPN app that really put a lot of the real valuable sports programming on that ESPN app. How are the early results in terms of subscriber growth? So they didn't give us any hard number there, Paul, in terms of the number of subscribers that they got on the ESPN Ultimate product, which is priced at$29.99 a month. But they did talk about, in general, that the traction has been pretty good. They talked about the whole bundling strategy because that is where Disney really wins. I mean, if we've seen some of the numbers, you know, from Disney, we know that 40 percent of new subscribers actually take the Disney bundle.

3:29And this is really going to be the strategy for them going forward. Right. You get people in with the bundle and that's how you kind of stem churn. You're able to take price increases. So it's really going to be the main driver for earnings growth for them going forward. And that's exactly what they indicated on the call as well. Paul, I can't remember who said this, but it's so true that the history of media is about bundling and unbundling. We went through this period where everyone cut the cord and everyone unbundled. And now we're back to bundling again, although it's, you know, in these discrete groups where Disney might bundle Disney Plus and ESPN Plus together.

4:03And then if you are a T-Mobile subscriber, you might get some other options. But here's my point. That's fine. Is the consumer better off? And my answer is absolutely not. It's too confusing. It's way too confusing. Interesting. Geeta, when it comes to bundling, how much more can they do, though? I mean, I see what you're saying about how it's paying off right now, but I mean, can they continue to innovate on their bundling or have we reached the limits of it? I don't think we've reached the limits at all, Scarlett. So I think what they're ultimately aiming for with their ESPN product, and they just introduced the streaming product a couple of months ago, I think ultimately they wanted to kind of become the premier sports destination.

4:41So ultimately, I wouldn't be surprised if you see a Fox or an NBC or, you know, even maybe an Amazon kind of feeding in all of their apps so that you go to this one-stop shop for, you know, ESPN and you're able to see all different kinds of sports content because you're absolutely right. There's way too much of fragmentation. It's becoming a great source of friction for, you know, the average consumer. And so I think they're going to seek out a lot more different bundling opportunities. We're already seeing them kind of do something with ESPN Ultimate and Fox One, which is Fox's streaming product that they also just introduced a few months ago.

5:14So they're going to look to partner with different media platforms across the ecosystem. And I think that is going to be a source of, you know, a great upside opportunity for them eventually. Is everyone willing to play ball on something like that, Geeta? Or is there someone who's going to say, you know what, you can't get me in here and I own or I have the rights over X number of NFL games? So actually, that's what we're seeing right now. There is the standoff going on between Disney and YouTube TV. And it's really all, again, it's just a game of chicken here. So when it comes to sports content, I have to say Disney has the upper hand a little bit.

5:52So if you just kind of look at sports viewing in the United States, Disney has about 40 % of sports viewing just with marquee rights tied to all major leagues, college football, NFL, NBA, MLB, they have it all. So I think it becomes a little harder to say no to them. But again, never say never. All right, Keith, I'm reluctant to ask this question, but I feel like I have to. What's the latest on Bob Iger's succession plan? Yeah, this is the big thing that we're all looking at in fiscal 2026. So James Gorman, who's kind of heading up this whole succession planning committee, Paul, has said that, you know, the board will be out with the decision by the end of March.

6:32So Bob Iger's contract comes to an end by the end of 2026. So hopefully we do have some kind of clarity on that. Right now, it's really looking like it's going to be internal candidates. I mean, there was some, you know, rumors and buzz about whether they were looking externally, but I think they're going to kind of keep it internal. Stay with us. More from Bloomberg Intelligence coming up after this. This is Special Agent Regal, Special Agent Bradley Hall. The time is approximately 11.15 a.m. About to start consensual telephone call with Dr. Daiwa Zhang. China's Ministry of State Security is one of the most mysterious and powerful spy agencies in the world.

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8:16You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Let's talk about some of the big movers in the market today. And one is an old school name that we've been talking a lot about, and that's Cisco. Coming out with results that show that it's definitely a part of this AI conversation. Woojin Ho is the Bloomberg Intelligence Senior Technology Analyst. He covers Cisco. And Woojin, you are looking at this beat and raise quarter for Cisco and thinking that the outlook is maybe even a little conservative and Cisco can do better than what it's promised.

8:58Yeah. Hey, Scarlett. Thanks for having me on. I'll tell you, they did raise their outlook off of the first quarter beat and the second quarter guide. But when I look at the second half of the year, you know, they were$100 million below consensus expectations. So given the strong momentum that they've already had in the first half of the year, I don't see why it can't get any better. All right. The stock's hitting a 52-week high today. And I put up my GP chart, which graphs out. I go all the way back to March of 2000. I think they've just set a new all-time high that was set back in March 31 of 2000.

9:35So after 25 years, they've gotten that market cap back. So good for them and their patient shareholders. So, Wuj, talk to us about the competitive landscape for somebody like Cisco here. How has that changed and how are they stacked up? Yeah, so we've got to look at it in two or three different buckets, right? On the core networking side, there's still the 800-pound gorilla there. And that's actually been doing a lot better than I had anticipated. And they have this tremendous upgrade cycle that they're going to grow off of for the next couple of years. And given that they have the largest networking base out there, there's a lot to upgrade.

10:18And that's going to be supplemental growth. Now, the AI is actually the cherry on top of this. They're relatively a newer player to AI. They've been more known to the enterprise base. And that's been growing quite nicely. $1 billion in revenue in fiscal 25. They said on the call yesterday they're on pace for$3 billion in revenue,$1.3 billion in order in this quarter alone. And they have the products to win. So who do they come up against on the AI front? Arista on the networking side, Broadcom on the chip side, NVIDIA on the switching side. So they are coming up against some heavy hitters. And Cisco has the balance sheet, importantly, the balance sheet to help support their growth.

11:07In terms of M &A, are you looking for them to do anything? I was just checking, and it seems like they did buy software maker Splunk in 2024 to diversify into security products. Is now a good time for them to kind of build out their empire a little bit more? Yeah, and this is one of the things that I'm waiting for, right? The Splunk M &A was more of their, hey, let's switch over to a recurring revenue software

11:37base era, right? I think the phase three of M &A is going to be more on the AI side. Now, I will tell you, the acquisitions they made about a decade ago is actually started to come into fruition here to help some of their infrastructure. But, you know, some of the interesting things that they've invested in over the past, I would say, year or two, they've been investing in some AI infrastructure guys, such as a Cohere. and I believe they have a little piece of core weave as well. So I'm curious where they go with that going forward. But it's going to be, they're going to start leaning into the AI side is my guess, but it's going to be small and unlikely large.

12:25Stay with us. More from Bloomberg Intelligence coming up after this.

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13:16All right, let's talk a little bit about the retail sector and athleisure because that was a big thing a couple of years ago, but it seems like it's had its moment. And you just look at Lululemon shares and how they've done and that kind of tells you what's happened to the athleisure trend. Lululemon shares down by 55 % in 2025. Poonam Goyal is senior U.S. e-commerce and retail analyst here at Bloomberg Intelligence, and she is here with Moore. And Poonam, you recently authored a report about how Adidas may lead athleisure in 2026, but how big is that athleisure market right now? The athleisure market is still big and growing.

13:54So when you think about who dominates it, it's still Nike, right? At over$40 billion in sales annually. Adidas is the second. And when you think of Lululemon, it's far behind. It's still, you know, expected to be at$12 billion in the next year. So it's more of a specialist. It is, exactly. But in terms of the market, when you think about athleisure and you think about the broader apparel market, athleisure is still growing faster than the broader apparel market. What are the growth rates? The growth rates, if you look at Nike, Nike is clearly under a turnaround. But if you look at the average growth rate, you're looking at the single digits.

14:27It's in the high single digits to mid single digits. And if you think about it next year, we're looking at low single digit growth rates for the whole year. But that's because there is turmoil between the names, right? There are some names that are losing share, especially the smaller names. Like when you think of Allbirds, right? Allbirds has gone through a whole transformation or is trying to. And it's really not resonating with its shoppers like it planned to. When you think of Lululemon, the issue isn't the brand. The issue is the product. product. It's the product that isn't resonating as well as it did because there isn't just much of a difference between what we already see out there.

15:05And then Nike, I think, is doing a phenomenal job right now to turn around its business. So we do expect it to gain traction in the second half of next year. I haven't seen you in forever, Poonam. I used to see her every day. Now it's been forever. Poonam was actually literally one of our first analysts we hired back in the beginning of BI. Pretty incredible. I love it coming together. Poonam, is athleisure a global marketplace? Because when I went over to Italy a few months ago, my friend who lives in Rome says, do not bring any of that athleisure stuff. We don't do that here in Italy. We dress like adults.

15:39Talk to us about the global trends. It is a global trend. Now, yes, Europe is probably more on the dressier end of it, absolutely. But I think it's a growing trend in Asia, which is a very important market for athleisure. China especially, still very important while trends have been mixed there for the last few years. We do think that as people begin to explore the outdoors, begin to explore fitness and health and wellness in a more meaningful way, that market is growing in that region and it is very important to growth. Where does a company like Under Armour fit in here? So Under Armour is one of those companies that I've kind of went back and forth with.

16:20this might be, I've seen them trying to turn around their business several times in the last 20 years. So Kevin Plank is back in the seat. They're focusing on the right things. When you look at their playbook, they're focusing on product. They're focusing on reducing wholesale penetration and off price where you really dilute the brand. And they're focusing on bringing marketing and endorsers as athletes back in a more meaningful way. Sounds great. Except we've heard it before. We've heard it before. So I think execution is really key here. And then just sticking to it, right? Because it's very easy to fall off the product cycle.

16:57And for retail, irrespective of everything that we talk about, product is still king. You have to have the right product. You have to have the right customer connection. And Under Armour is trying to build that. I'd say that in the early signs of it, they're doing what they need to do. It's working. But I'm not sold yet. I need to see it play out and stay. It needs to be sustained. I think that's the key here. I think that business is just so competitive. I mean, there's so many good brands there. And I mean, you almost forget about a Puma, you know, who's been around forever. And they're struggling.

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