Disney Shares Slide as Profit Outlook Overshadows Streaming Wins

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2:07Geetha Ranganathan:One of my companies I used to cover, the Walt Disney Company, Mickey Mouse, they reported some numbers. better than expected numbers. So, of course, the stock's down 2.9%. So the Walt Disney Company reported better than expected third quarter earnings with continued growth at its parks and streaming business, overshadowing a tough climate for movies and traditional TV. Let's break it down with Geetha Ranganath. She covers all the media stuff for Bloomberg Intelligence. Geetha, it seemed to me like on the surface a pretty good quarter for Disney. What's the street a little concerned about? Yeah, really good quarter for Disney, Paul.

2:42A beaten race for sure. I think expectations might have been slightly high. And the fact that they didn't necessarily give us any specific guidance for fiscal 2026, they did point to a raised guidance for EPS growth for fiscal 2025, 18 % now instead of 16%. But they didn't necessarily give us anything specific for fiscal 2026. that could be a slight source of disappointment. Other than that, the only other thing that I think might be causing this reaction is that they did say that they will stop disclosing Disney Plus subscriber numbers. But again, this is not something totally unexpected. I mean, Netflix has stopped doing this.

3:20We're seeing this kind of move away from just subscriber numbers to greater focus and profitability. I want to zero in on parks because I'm still scarred by how expensive it was when I visited a couple of years ago as an adult. But how sustainable is their strong parks performance given the divergent domestic and international performance? Very sustainable, Isabel. So, you know, we saw domestic parks. And I say that because, you know, domestic parks actually coming into this year, coming into this quarter, there were a lot of worries. One, of course, about the general macroeconomic environment.

3:52But the bigger source of worry was really the opening of Epic Universe, which is, you know, Universal's big Florida theme park attraction. But the fact that it had absolutely no impact at all or very, very modest impact, if at all, is really amazing. And it just kind of speaks to the resilience in Disney's business model. They reported, again, very, very strong per capita growth, you know, in terms of food and beverages, in terms of concessions. So all of that doing really well. And the reason I'm so positive about this business going forward, first of all, it contributes about 55 to 60 percent of Disney's profits.

4:26So really, really important to their top line, to their bottom line, definitely. They have a lot of upcoming capacity. So the biggest source of expansion over the next few months is really going to be their cruise ships. They're launching two new cruise ships, their biggest ever, actually, which is going to come on board in November and December. One of them sets sail from Asia, and that basically takes the number of cruise ships to eight cruise ships, effectively kind of doubling their capacity in a span of just maybe two to three years. So that is going to really buoy, you know, both top line and bottom line going into 2026.

5:01And then beyond that, you really have this huge 60 billion capital expansion plan that is really going to play out over the next five to 10 years. So we're going to see a lot more attractions all over the world. We're going to see that new Abu Dhabi Park come out. So there is really a lot of, you know, sustained momentum that we can expect at the parks going forward.

5:20Geetha Ranganathan:Geeta, talk to us about that deal they just made with the NFL. It seems like a really positive development for the company. Yeah, it's really good, I think, from a Disney, from an ESPN standpoint, that they're so closely aligned now with the NFL. I mean, the NFL is absolutely the premium property, the gold standard, Paul. You know this well when it comes to, you know, sports properties in the U.S. And the fact now that they're going to be able to use all of this content for their upcoming ESPN streaming launch. I mean, that itself just kind of gives it a tremendous boost, I think, even before it comes on board.

5:55So it's great for the product. It's also great from a strategic standpoint because the NFL is obviously one of the most important sports properties. And this really gives them access or at least definitely gives them a little bit of an advantageous position compared to, let's say, an Amazon or a Netflix or an Apple if they want to ever outbid the current media partners. So definitely, I think, a strategically very, very sound move on the part of Disney. So it seems like we had a good quarter. Runway for growth is really just long and wide. What downside risks remain then, especially around the macro uncertainty and tariff exposure, do you see?

6:31Yeah, maybe a little bit of execution risk. So we still really don't know how this whole, I mean, obviously, everybody's very excited for the ESPN product launch. But we still don't know how exactly that's going to play out. Again, a huge source of upside is going to be the streaming business. Everybody is expecting huge cost savings when it comes to the integration of Hulu and Disney Plus. But again, execution is a little bit of a risk. And then you pointed out, you know, macro factors. Remember, Disney still obviously has huge exposure because of its parks business. And anytime we see kind of a slowdown in the economy, we do feel that in the parks as well.

7:03And, of course, advertising also. So, you know, they do have a substantial exposure to advertising because of their TV networks business. So there again, we can see a little bit of an impact. But overall, as it stands right now, the business seems to be in really good shape.

7:17Geetha Ranganathan:All right. Here are the problem, Charles, though, are the broadcast networks and the cable networks. What, you know, just because of cord cutting, they're just declining businesses. What's the company saying about what they're going to do with those businesses? They haven't said anything explicitly, Paul. So a few years ago, you know, this idea was floated that maybe they kind of spin off ABC, their broadcast network. Maybe they spin off their linear cable channels. All of that, you know, noise has kind of quietened down. You know, Bob Iger basically said, no, no, no, we need these businesses.

7:47They're all kind of integral to the whole Disney story. So we haven't heard anything recently. That being said, just this whole deal with the NFL, the NFL kind of taking an equity stake, it almost seems like they are prepping for ESPN to kind of ESPN and maybe ABC to kind of go solo. Remember, Bob Iger only has a few more months left. So at the end of 2026, he leaves Disney, or at least that's what he says. Yeah, we think. And I really think he kind of wants to get this deal done, so to separate ESPN, because it's not really core to the rest of the Disney properties. But again, it's a little bit of a wait and watch, but nothing explicitly stated from Disney management about what they want to do with the linear piece of the business.

8:34So ESPN is getting a fresh spin with an August 21 launch. it will be$30 a month for the new streaming app. What do you make of that price? Do you think people will pay up for it or is that steep? It's a high price point. There's no doubt about it. I think most people were kind of expecting somewhere in the$23 to$25 range. That said, we just ran a survey actually at Bloomerate Intelligence and what we found is that there's actually a lot of interest in this product. So we think that the uptake will be fairly strong and the uptake not so much as a standalone product, But when you bundle it with Disney Plus and Hulu, so they are running a pretty attractive promotion.

9:11So for the first year, you can get Disney Plus, Hulu and ESPN at a 30$30 price point, which which seems like really good value. So I think we're going to see a lot of people come in initially through the bundles, at least. All right.

9:27Geetha Ranganathan:Great stuff. As always, Geetha, thank you so much for chatting with us. Geetha Ranganathan. She's the media analyst, the media analyst at Bloomberg Intelligence, covering all those fun companies in the media space. 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. Isabel Lee, Paul Sweeney, we're live here in our Bloomberg Interactive Broker Studio streaming live on YouTube. We've We've been reporting all morning on the McDonald's print here.

10:01Geetha Ranganathan:I look at something called, which the analysts look at, something called like same store sales, sales at stores you've owned for, you know, like a year or so that takes out the fluctuations of buying and selling and opening and closing stores. So global sales at restaurants opened at least 13 months, rose 3.8 % in the second quarter, according to the company. And that's kind of one of the headlines there. Michael Halen, he looks at that stuff. He's a senior restaurant analyst at Bloomberg Intelligence. Michael, talk to us about McDonald's. It seems like whenever I see this company give me some positive same-store sales, that feels like a win.

10:35Yeah, it's definitely a win for overall industry same-store sales because it's such a monster. It also could be bad news for some of their competitors with 14 ,000 stores in the United States. Listen, man, they know how to run good restaurants. Right now in the U.S., they're starting to lap some easier comparisons. And, you know, that's showing up in the, you know, that's helping their results. They're also, you know, doing a good job with, you know, the menu, right? They're bringing back snack wraps. They're bringing back the McCrispy Strip. They just debuted a daily double. They've been pressing on value all year.

11:16That was a big thing since the first quarter. And so, you know, McDonald's has the scale that they can, you know, offer products a little bit cheaper than their peers and still and franchisees can still make a little bit of money off of it. Right. So, you know, they seem to really be hitting their stride and they're lapping easy comps in the second half of the year. So, you know, we're looking at a pretty good second half for McDonald's. And international markets led the company's growth. What regions of the world did they really push aggressively towards? Yeah, they mentioned some really good strength in Germany.

11:54They talked about some improvement in some markets that had been struggling like France and Australia. And so, you know, what they're doing overseas is similar to the U.S. playbook, right? But they're probably ahead of the game, ahead of the U.S. in terms of providing everyday value. Their value messaging has been on point and it's really helped them grow internationally. and that's why we've seen international grow faster than the U.S. for the last year or so. They also cited the fact that there's less competition overseas. So they're really, you know, a pricing leader overseas. You know, they can same type of thing in the U.S.

12:33where they can offer price points that competitors just can't match. And then they're also improving the operations, improving the quality of the product, which has been an ongoing theme here. They're improving the quality of the beef, better burgers, the way they cook the burgers. They're debuting the Big Arch, which is a big, bigger sized burger in their lineup. They're also expanding chicken overseas. So this company is humming along right now.

13:00Geetha Ranganathan:What does the company say? Like when I think about McDonald's, I think a lot of folks probably feel like the low end, low income consumers, probably it's bread and butter there. and maybe that consumer is more at risk in this economic environment. What's the company saying about some of those low-income patrons? Yeah, you know what I like about this call, Paul, is that they're talking about what they can control. They cited the fact that low-income consumer traffic is down double digits versus a small gain for middle-income consumers and steady, consistent gains with high-income consumers. So they are seeing, you know, weakness with low income consumers like everyone else.

13:40That's why they push so hard on value. That's why they have these, you know,$5 meals and buy one, get one for a dollar and why they put marketing dollars behind that. That's part of the, you know, the beauty of the snack wraps. They're coming back at a$2.99 price point. We think that's going to bring some low income consumers back into the fold, right? So they understand that people are very price sensitive right now. and they're addressing it with the price points, but they're also trying to give people better quality and better service at the same time. They also plan to taste new beverages.

14:15This includes cold coffees and crafted sodas at more than 500 U.S. locations. How much of a pull are beverages when it comes to McDonald's offerings or is food really still king? Food is still king, but listen, beverages are hot. Beverages are hot everywhere, right? Dirty sodas, energy, and very high margin. And so we think this is a very good opportunity for McDonald's. I think this is kind of a problem for Sonic, which has long done a really good job with their drink offering. But, yeah, we think this is something that can help drive sales at McDonald's. Taco Bell, this is something Taco Bell is expanding as well.

15:01But we think this is going to be more of a 2026 story for McDonald's.

15:05Geetha Ranganathan:For McDonald's, Mike, what percentage of the revenue comes from owned and operated stores versus franchise stores? Oh, they're 98 percent franchise. So they're yeah, they're heavily franchised. And, you know, it's a beautiful model, man. There's not a lot of operating leverage in the model. They generate a ton of cash that they return to shareholders. It really is a beautiful thing. So what's the royalty rate on? Does a franchisee pay McDonald's based upon revenue, based upon net income, based upon how many Big Macs they sell? How does that work? Yeah, McDonald's is a little bit unique. They have a 5-ish percent royalty rate, plus they own a lot of the real estate.

15:47So a lot of franchisees in the United States are paying a rent, which is typically a 10-ish percent of sales, we'll say. And then they'll pay another 3.5 % to 4 % into the ad fund. I didn't know that until I saw the movie.

16:00Geetha Ranganathan:And then that famous scene. Yeah. You're not in the hamburger business. You're in the real estate business. And that was such a great scene. I learned a lot there. All right. I can't let you go without crackerballing. I need my daily update. Country Boy Breakfast. How's that company doing? Listen, we're big fans of new CEO, Julie Messino. That stock's been a bit of a roller coaster. Not a surprise since it's a small cap. It rose more than 100 % off its April lows. Now it's in the midst of a pretty aggressive downturn. It's probably lost about 25 % of its value in the last couple weeks. But, you know, we like it.

16:38We like Julie's plans to improve the operations, to spend more and be more efficient with their marketing spend. We think this is a chain that had been, you know, not had been had been taken care of. It hadn't been run really well for the last decade. And so we see a lot of low-hanging fruit for the current management team to turn things around and really drive strong same-source sales through year-end 2025 and well into 2026. All right, Mike, thanks so much for joining us.

17:07Geetha Ranganathan:Michael Halen, Senior Restaurants, Food Service Analyst for Bloomberg Intelligence. When your options are limited, so are your opportunities. At SIBO, the global exchange that pioneered options trading, we offer more ways to move with the market. From VIX and SPX options to global market data solutions, SIBO helps investors diversify, manage risk, and stay ahead of whatever the market does next. SIBO. Life is better with options. Your investments could be too. There are risks associated with SIBO company products. Review the disclosures and disclaimers at SIBO.com slash US underscore disclaimers.

17:42This is the Bloomberg Tech Minute brought to you by ChatGPT. Now with ChatGPT work. I'm Carol Masser. DoorDash, the largest food delivery company in the U.S., is building its own delivery drones and has gained the necessary FAA approvals to operate them commercially, the latest in its effort to delegate more orders to robots as a way of cutting delivery times. Bloomberg's Natalie Lung reports the company says it has been conducting pilot programs with various restaurants, some of which have seen their order volume grow during the test period. The effort marks an expansion of DoorDash's in-house robotics efforts to reduce reliance on human couriers for some orders, as their wages constitute a key expense to the business.

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20:06Geetha Ranganathan:Well, here's another tech company that I totally missed. Had no idea it even existed until it had already skyrocketed. Super micro computer. I don't know. They make some hardware stuff for chips. I don't know. It's a tech thing. It got the AI bug. It ripped. Stock reported. The company reported some numbers. Stock's down 21%. I wonder if this is a time for all the people that missed it to maybe take a look here. I'll tell you who did not miss it was Woo Jin-ho, Senior Technology Analyst for Bloomberg Intelligence. Buj, just for our audience, just really quickly tell everybody what Supermicro Computer is and what happened with their quarter.