A Canary in the Coal Mine for the Markets, and Digging in on Disney’s Report 8/9/23

0:01Right now on Fast Disney is on the move just turning to the green shares the entertainment giant's upping prices even as it loses streaming subscribers. What is next for this company as it approaches up 3 % after hours? Plus, a canary in the coal mine, an$18 billion company, lost nearly a quarter of its market value today because of, you guessed it, a warning over AI. Does this signal even more danger ahead? And later, Carana looks for some zen, a bullish bet on China tech, and a big call on Walmart just a few weeks before earnings. I'm Melissa Lee. This is Fast Money Live from the Nasdaq Market Side on the desk tonight.

0:33Karen Feinemann, Guy Dami, Carter Worth, and Julie Beal. We'll get to Disney's results in just a moment. We start off with those potential cracks forming in the AI-led rally. NVIDIA continued its descent today, dropping nearly 5%. The stock now down over 11 % from its all-time high, hit less than a month ago. And yesterday, we got that warning from Datadog. Those shares fell another percent and a half today, the lowest close since mid-May. And now there is Supermicro, shedding 23 % for its worst day since the start of the pandemic. The IT company warning about weak demand for its AI servers. The weakness helping to push the Nasdaq to close below its 50-day moving average for the first time in five months.

1:12So is this the canary in the coal mine? Could there be more danger ahead? If we are to believe that a lot of gains were built on the promise of AI and now there are cracks, Guy, should we be concerned? In terms of demand, the story's intact without question. The run in some of these stocks, though, we've talked about it. I think that's gotten clearly gotten ahead of itself. And you couple with what supercomputer said with Taiwan Semi a couple weeks ago, then you start saying to yourself, hmm, obviously it's an industry that's coming around. It's not going anywhere. But a lot of pull forward has been done without question.

1:45And a stock like supercomputers went from 100 to 300 in two months. You give something back today, it makes sense, but will start to feed on itself. And so you're going to start to see the same thing, I believe, in NVIDIA. important company, but a company now at 60 times forward earnings, 25, 26 times sales, that's rich in any environment. Yeah, you're doing some comparison. Yes. Supermicro versus an NVIDIA. Right. Interestingly, Supermicro, even with that big loss today, I think we have a chart of it, both the one year and five year, has outperformed NVIDIA nicely, particularly over the five years, which is kind of surprising to me.

2:21So they are a supplier to NVIDIA. NVIDIA is It's extremely important to super micro, a little less the other way around. But, I mean, you know, when you're trading in AI pixie dust, kind of everything in the dust bowl is kind of going down, right? AI. And so it's not surprising. I do think, to Guy's point, did it get ahead of itself? Probably. I think we're going to have to wait to see what NVIDIA reports on August 23rd. I think that's really going to be big. I still think we're sort of in the early innings here. I did put on today a 1x2 call spread. of$450 ,500 that expires right after earnings.

2:59It did it for just a tad over$4. So you make money between$454 and$546. That's, I think, a pretty wide range. If it really goes berserk, then I'll be selling some of my stock. But that will probably be an option to action kind of thing anyway. Yeah,$530 on Fridays. But, you know, I'm long the story, for sure. And I'm staying long. I'm going to see this through at least, I mean, this SMIC reporting this quarter was good, right? Right, right. That's what we're waiting for. And that revenue increase, it's the guidance. Yeah. I don't know what NVIDIA's guidance will be. It has to be very big. Otherwise, the stock's going to continue to fall.

3:41But I think until we're in a vacuum, until we have something on August 23rd, I'm just going to hang on. Stay long. Right. And, I mean, we're talking about Supermicro. It's a company that we really hardly ever talk about on this show. Datadog yesterday. We led with that. Again, another company that we hardly ever talked to. But take a look at, for instance, the Microsoft earnings guidance specifically about monetizing AI. It was a longer projection in terms of when they were actually going to monetize than what analysts had been expecting. And that's in part why that quarter was so disappointing, Julie.

4:12So it's not just these. It's all of these things put together. Are you worried here about the rally? Yeah, I think if you think about AI broadly speaking as a technology, it's still very vague what the implications for it are. Every time I hear any kind of CEO talking about it, it seems very hard to follow how it's going to help their business. It's going to help their business for sure. They're all assuring me of that. But it's so it's so vague. The only people who really talk about it concretely are the writers on strike. The other thing about AI is unlike e-commerce, it's really hard to get people enthusiastic about it.

4:48Most people on the street are not like, yes, I'm so excited about AI, the way that they are about e-commerce and like shopping for handbags to offset your own weed, right? It doesn't have such a clear value proposition. I don't know anyone that's like, God, I just wish technology went faster, right? And I think a lot of companies feel that way too. They don't necessarily want to be investing in AI. So I think the underlying fundamental drivers of it are really vague, really unclear. And gosh, things have gotten really expensive around it. Carter, how do you view all these charts here? Well, of course, I mean, you get, let's take the flavor of the day, the SMCI.

5:26I mean, dropping like that, right, is a simple function of one of two circumstances, extreme strength or extreme weakness, meaning you get some of the biggest moves to the downside in a stock that's been going down and down and down. and then it pulls yet another mess up, an Enron, and you plunge. Or it's this circumstance, steep, steep, uncorrected, and then what comes out is not good enough to keep it going. But the real issue is this, that we're not getting the kind of follow-through from the ones that have popped. Google popped, didn't follow through. Meta popped, Netflix popped. But the ones that have done the sort of the unhappy drop, that's Microsoft, Apple, they've followed through the downside.

6:05And so the Nasdaq 100 now down more than 5 percent. One would have to assume that it's not going to stop here. All right. So more downside ahead for the Nasdaq, according to Carter. Let's get to the earnings of the hour here. The stock at after hours highs. We're talking about Disney subscriber losses, restructuring costs continue to weigh on the entertainment giant. But the company is raising prices for ad free Disney Plus. CNBC's Julia Borson has been listening in on the call. Julia, what's the latest? Yeah, well, as you mentioned, Melissa, Disney's adjusted earnings were a big beat as the company has made progress with cost-cutting.

6:36This is something that CEO Bob Iger has been stressing on the call, saying that Disney's on track to exceed its initial goal of$5.5 billion in savings, and it improved its direct-to-consumer operating income by roughly$1 billion over three quarters. This particular quarter, its streaming losses were far less than anticipated. Now on the call just now, Iger announcing that ad-supported Disney Plus has 3.3 million subscribers, saying that he's very optimistic about the long-term potential of advertising in these streaming services. With that, Iger announced that they are expanding ad-supported Disney Plus more internationally.

7:14They're also going to be launching a new combo of ad-free Disney Plus with an ad-free Hulu in September for$20. And perhaps Most important, they are hiking prices of the ad-free streaming apps. In particular, ad-free Disney Plus is going to$14 from$11, Hulu to$18 from$15. The ad-supported versions are going to stay flat. Now, Iger is saying also that they are looking at a crackdown on account sharing. Sounds a little familiar with what Netflix did. And that they will roll out tactics to drive monetization sometime next year. He also said of plans to take ESPN direct to consumer. It's not a matter of if, but when.

7:55Noting that ratings on ESPN's linear networks have increased even as cord cutting has accelerated. They also noted that domestic sports ad revenue is up 10 percent. Disney shares turning it around now up about 4 percent. Melissa? No word yet on ESPN bet. I know they were just talking about it as being part of the broader strategy. The call is still ongoing, though, so I'm going to jump back on, Melissa, and listen to see if they have anything more to say. But they are still looking for partners. They're still looking at taking Disney Plus direct-to-consumer. It does seem like this betting partnership does not preclude them from doing anything else around monetization here.

8:30All right. Keep us posted on that call, Julia. Thank you. Julia Boorstin in Los Angeles for us. It looks like they took a little playbook out of Netflix here in terms of the price hikes and cracking down on password sharing. All right. So let's just try to talk about the stock, because there's a lot for bears to like in this. is a lot for bulls to like, I think. It's all free cash flow, good. I mean, the net ads were disaster, but maybe this restructuring plan, maybe it started to get some teeth in it, and maybe they finally have troughed. This is what I'll say. Card will probably back me up. The fact that we traded down to and seemingly have held levels we made in the woes of COVID in March of 2020, that's encouraging.

9:06And again, not great news, but great price action is something you want to see if you're about to make a bottom in a stock. So we might have, if we open here tomorrow And there's obviously a long time before that, this 91, 91 and a half level. We are through a downtrend line. It's been intact for quite some time. So you might see some upside. So I don't want to make a huge deal out of it yet. But bad news, good price action, that's what you want to see for sure. Carter, what's your take? Well, that's right. So you have both reactions here in the immediate aftermath, initially down, now up a bit.

9:37But the key takeaway is it's not up enough at this point, while that can change, to really set an important kind of low. My hunch is, and we did a poll, interestingly, institutional clients much less sanguine than retail individual clients. They, in fact, were looking for an up move post earnings, institutional in general looking for a down move. But here we are up, but fairly muted. I think this is the kind of thing that you just leave it alone. All right. Julie, what are some outstanding questions in your mind still about Disney? You know, I think understanding how they're going to do it all, right?

10:15How am I going to cut costs, raise prices and still have enough good quality content that you can continue to drive the business forward and, you know, drive the shareholder price forward? It cannot just rest on the laurels of the parks. There are limits to what the parks can do for this business. And I think until there are concrete answers to that, it's going to be really hard to get super enthusiastic here. Karen? Well, we were talking about this in the green room before. You know, that Robert Iger Faber interview, which was so good. I mean, he really talked down that stock pretty decisively, I think.

10:49And so I was sort of wondering, is it a sell the rumor, which is waiting for this terrible quarter, and then buy the news, which is, OK, it wasn't all bad. You know, the subscriber wasn't good. But I mean, that, you know, the bottom line accretion when you raise prices by, what is it, 20 some odd percent, you're probably going to lose some subscribers. But that's going to be very much a net positive. If you have the product to do it, that's going to be good. So I don't know if this is enough to stem the tide, but I would start to look at it here to buy some. Or maybe you lose some subscribers to the paid version, but they migrate lower to the ad supported version, in which case you still win.

11:30and you don't lose them completely. And you have the ad revenue. Right, and you have the ad revenue. If they had not introduced price increases in this quarter, if they did not say that they were going to crack down on password sharing, would we see the stock of 4 %? You would have seen it where it was 40 minutes ago, which was 84.5, 85. So I think that turned the tables for sure. And listen, we were talking about this again. We had this conversation. This is not a broken business. This is just a flawed business that can turn it around absolutely. And, you know, if this again is this begin, this is when you start to see bottoms being made.

12:04When you get a quarter like this, it wasn't great. But the price action is we'll come back a couple of weeks. You know, mark my words, if this holds here tonight, we'll come back in three weeks, four weeks and say, remember that earnings release in Disney traded lower in the after hours than it came around. That was a sign. All right. For more Disney's report, let's bring CNBC contributor Tom Rogers. He's currently the Newsweek editor at large and the first NBC cable president. Tom, it's always great to see you. Thanks for having me. What did you make of this quarter? And is it worth 4 % to the stock, the hike in fees and also the crackdown on password sharing?

12:40Well, there's much more to be skeptical about, I think, than to be excited about. And the linear business is clearly in decline. 7 % revenue decline, leading to a 23 % operating income decline is obviously not good. You have a stalled streaming business. They're not growing subs. Yes, they have lower losses, but most of those losses are over the backs of Disney +, which will probably lose close to$2 billion this year. Advertising on streaming, which should be a really positive element for them, something Iger talked a lot about in the CNBC interview as a major important ingredient of streaming success.

13:24Disney Plus advertising down, Hulu advertising down, and Hulu advertising per sub for the first time in about five quarters was up. And the only way that can happen if you have Hulu advertising declining is to have a situation where your number of advertising subs, people taking advertising on the Hulu service is down, which is not a good thing. And Disney World was down. Consumer products is down. It's a good day to be talking about gambling, I think. Yeah, Tom, not surprisingly, you've done a masterful job over the years talking about this. It comes as no surprise to any of us here, nor our viewers, because they know that Tom is what, Mel?

14:06You want to say the word? No, you say it. Stud. That's what he is. But let me ask you this. It would be cooler if Melissa said it, but thank you. Can't get everything in life. This Penn Gaming ESPN deal, I mean, late to the dance, but everybody's talking about it today. I mean, does this even move the needle at this point?

14:24Look, it's a contribution, all contributions. when you need cash and an answer to a declining linear business are a good thing. But just to put this$150 million a year in licensing fees on the gambling side in context, an ESPN sub in terms of subscriber fees and advertising is probably worth about$150 per year. So this makes up for the loss of about a million subs. Now, ESPN over the next 10 years is going to lose 10, 15, 20 million subs, just to put in context how much of a contribution toward filling that hole in the bucket it is. More importantly, look, we've seen media brands try to drive sports gambling business.

15:12Fubo failed at it. Bally's with the regional sports networks could not make a difference there as they go into bankruptcy. Obviously, Barstool with Penn didn't help. And Fox, a great sports brand just discontinued Fox Bet. So there's a lot here that you can be skeptical about as to whether ESPN paired with Penn, which only has about 2 percent of the gambling market against the combined FanDuel DraftKings of about 75 percent of the market, whether it's really going to be able to make a difference off the back of that, particularly when ESPN is going to continue to take advertising from other gambling players.

15:51So how much of a difference is this integration really going to make? Tom, we've got maybe a minute left, and I'm just wondering, you know, how would you rank ABC as a problem on Bob Iger's list? And what can he do with that asset? Well, ABC is an issue because it's very hard to imagine how to separate ABC from ESPN, which they plan to keep, given the importance of the broadcast network in terms of major sports packages. It's also hard to see how to maintain what Hulu is in the absence of ABC and the cable networks. And so much of Hulu's programming is a function of the programming on those networks.

16:35I will say he's got Kevin Mayer back, which is a really good thing. It's great that he admitted Bob Chapek was a mistake. Bringing Kevin back, I think, further admits there was a mistake there, not putting Kevin in as CEO. this is a company that has to transact and it's a company that has to figure out its major strategic streaming issues. There's probably nobody better around to handle both of those. So if there's an answer for ABC, I assume Kevin will find it. Tom, great to speak with you. Always great to get your thoughts since you are, as Guy called you, stud. He is. There you go. You said it.

17:15Much better coming from you. Tom, thanks. Tom Rogers. Karen we were talking about that ABC how difficult what do you do it's so entrenched in the business it's so entrenched and you know the headwinds that the business faces who would want to buy it right I don't know that's that's interesting does this make Kevin Mayer the you know anointed one when ultimately Bob Iger does step down I don't know it would seem seems like they have no other candidates well there's that but I don't know I just do When we were talking about it, it hit over 200, just slightly over 200 during the pandemic when streaming was seen as so valuable.

17:56And remember, money was free then. And they didn't have the Disney Fox debt that they have now. So a lot of things were different. But, I mean, 50 plus percent off. That's sort of intriguing to me for an iconic name. I don't know. Worth a look. All right. Coming up, Wynn is on the move in the after. Our session shares are up almost 3%. after delivering results. We'll bring you the details out of the quarter next. Plus, Carvana, enlightening investors with raised guidance, but the stock isn't feeling so zen. Should you namaste in this name? We'll debate that when Fast Money returns.

18:41Welcome back to Fast Money Earnings Alert on Wynn Resort. Shares moving higher after beating a beat on the top and the bottom lines. The casino operator seeing continued strength in North America and a huge boost to operating revenues in Macau. Contessa Brewer joins us with the latest from the conference call. Contessa. Well, Melissa, when CEO Craig Billings kicked off the call with an enthusiastic, what a quarter after a beat on both the top and the bottom lines. Strength really coming from North America with Las Vegas and Boston generating a new second quarter record for adjusted property EBITDA.

19:12Remember, in gaming, that is the crucial earnings metric. Room bookings, group pace, both strong and trending upward for the next year. Wynn also seeing strength in Macau in the mass gaming market, luxury, retail, their hotel business. Billings says that VIP volumes are still surprisingly good there, even though there's been a dramatic decline in the junket business. He says they are seeing customers spending more in Macau, but that their length of stay has decreased. And when it comes to the luxury consumer, so far, so good. Billings says consumers seem more than willing to keep spending on the nicer things in life.

19:50Billings says they're looking ahead to the big Vegas F1 race in November and, of course, Super Bowl in February, where already Wynn, as well as other properties up and down the Las Vegas Strip, Melissa, are seeing premiums. Contessa, thank you. Contessa Brewer, up 2.4 percent, Guy. Should be. I know what's going up in Boston, but they did$221 million there, which for perspective, I mean, Las Vegas has almost$600 million in the quarter. So I know folks in Boston, you know, they got hobbies clearly at the roulette table. Good for them, number one. But this was a huge EPS beat. Stocks should actually be higher than this because it has sold off recently on the back of concerns of a slowing China.

20:29I get it. Valuation is still compelling. So I think wind continues to go higher from here. Carter, what do you see in the charts? Yeah, fairly muted response to Guy's point. I would point out, you know, no pun intended, this is a gambling chip. The stock peaked in 2014. It was$2.50 a share. Here we are at$100, down 60%, down 70 % adjusted for inflation. You've got to catch it for a trade. I think their trade has already come and gone. A little news-related pop today, but so what? Everybody wants to travel. Everybody wants to pay for experiences, Julie. I mean, Marriott, Airbnb, all that. I mean, does this fall in the same category in your view?

21:07Yeah, I do. And I think for just those reasons, it has the same level of risk as those kinds of names. You know, for the time being, everyone is super thrilled to be spending on services. If I see one more Taylor Swift concert picture, I'm going to throw myself out this window. Goodbye. But, you know, so I think that that's definitely been the underlying trend. But whether that continues, I'm less certain because I don't think that we continue to have just endless amounts of consumer spend on these kinds of experiences. I think this was like really the summer of love, everyone having a great time.

21:40Trillion dollars in credit card debt. Yeah. In total for the U.S. consumer. I saw you talking about this morning on the Squawk Box. That's a little scary. Student loan repayments. Scary that you watched it. Because you were on it. I was flipping around and I said, oh, I know, I know, it's Melissa Lee. And I stuck around. Yeah, it's kind of funny. You're like, oh, yeah, I know her. I'll watch. But, I mean, any concern about the consumer you would think would hit a win. Well, we saw some spotty. We saw some great travel news. And then we saw some really not great travel news. So I think maybe to Julie's point, maybe that is peaking.

22:16So I think some of the international travel is still there, which is we talked about. That's great for the business, more business-related airlines. But, you know, Southwest and Southwest. Jeff Liu, yeah. But since quickly, since you brought up debt, I mean, think about this. The consumer is combating inflation by adding debt to the balance sheet. That doesn't end well. And that's something we've been talking about for a while here. So stay tuned, sports fans. There is a lot more fast money to come. Here's what's coming up next. Cash karma. Carvana boosting its profit forecast. But shares seem to be stuck in reverse.

22:53We're driving into the details next. Plus, new restrictions on investing in China. How President Biden's latest executive order could change the game for companies trying to raise capital. You're watching Fast Money, live from the Nasdaq market site in Times Square. We're back right after this.

23:18Welcome back to Fast Money. Stocks dropping ahead of tomorrow's CPI report. The Dow falling nearly 200 points. The S &P down 7 tenths of a percent. And the NASDAQ leading the losses down more than 1 percent on pace for its second negative week in a row. And check out Carvana today. Shares initially jumping after the company boosted its profit forecast, but quickly reversing and closing the day with a nearly 6 percent loss. The used car retailers still up nearly 800 percent this year. Meantime, a few other after-hours movers. The trade desk falling after its earnings report while both Sonos and Applovin both jumping.

23:51Karen, just quickly on Carvana, since this is the thing you can't stop looking away from. Completely, you know, detached from fundamentals of any sort of but. Except for today. Well, that's a good point. Yeah, they did up their adjusted EBITDA, which I think it adjusts for all the things that would make it bad. I think they pulled that out and then the numbers looked very good. I think this per unit, you know, wasn't as good as it seemed. They were selling loans with that. So, you know, good for them. haven't they managed to get this stock or with the meme community working together? I'm not really sure how.