Disney Dips as Streaming Subscribers Fall, and How One Trader is Playing the 1-Month T-Bill 5/10/23

0:01Right now and fast, Disney doldrum. Shares of the media and entertainment giant dropping after the company posted decline in streaming subscribers. But can Bob Iger recapture the magic? The man who wrote the book on Disney will join us to break down the results. And Treasury turmoil, the yield on the shortest-term T-bill, hitting its highest level in at least two decades. One of our traders lays out how they are playing this move and what happens if the U.S. does, in fact, default on its debt. Plus, Google gains, alt is ultra pullback, and a pot stock loses its buzz. We're digging into a couple of stocks, making some big moves today.

0:34I'm Melissa Lee. This is Fast Money. We're live with the Nasdaq Market Site in the heart of Times Square On the desk tonight, Tim Seymour, Karen Feinermann, Courtney Garcia and Steve Grasso. And we start off with Disney's post earnings drop. The entertainment giant shares near an after hours lows after a reporting decline in Disney Plus subscribers but improved streaming losses. The conference call is underway. CNBC's Julia Borson is listening in. Julia. Melissa, Disney CEO Bob Iger is saying that the company is on track to meet or exceed its target of five and a half billion dollars in cost savings.

1:03He also announced a new approach to the streaming business. The company plans to roll together an app that combines Hulu content into Disney Plus by the end of this year, what Iger called a significant step towards creating a growth business. He said this will create more opportunities for advertisers while also driving engagement for users, which would, of course, then minimize churn. He did note that they will continue to offer separate Disney Plus, Hulu and ESPN Plus apps and give that as another option. He also announced plans to launch an ad tier on Disney Plus in Europe by year end. He noted that they're just starting to scratch the surface around the ad potential of Disney Plus.

1:42And as for the ad-free version, Iger saying they do expect to raise prices on Disney Plus by the end of this year. The company also announcing that they will be removing certain content from the streaming platforms, part of a curation process, and taking an impairment charge of between$1.5 and$1.8 billion. Meanwhile, worth noting that losses at Disney's streaming division were smaller than analysts expected, a loss of$659 million in the quarter, down from a more than$1 billion loss in the prior quarter. Melissa? Julia, to put the subscriber loss overall into perspective, I mean, this was mostly because of Hot Star losses because they didn't get cricket.

2:20So in actuality, their core subscribers that they have right now, they're more profitable in theory than the prior mix. Yes. Yeah, I think the attention has really shifted to that average revenue per user number. And what's interesting is if you look at the breakdown of average revenue per user, there is actually growth in the average revenue per user of 20 percent in the U.S. and Canada. So those subscribers are paying 20 percent more. But if you look at those hot star subscribers in India, they're actually paying 20 percent less than they did a year ago. So a tale of two very different types of subscribers to Disney Plus.

2:54Obviously, they want to be maximizing profitability. They've talked a lot about cost cutting, the fact that their losses are declining, but they really are focused on these price increases. I mean, the fact that they already rolled out a price increase and now they're going to be planning to increase prices on the ad-free tier, it looks like they really want to make sure that everything they're doing, the streaming business, is not chasing growth at all costs. All right, Julia, thanks. Keep us posted on developments from that conference call. Tim, you own this one. What did you make of this quarter?

3:22The ARPU number, so the average revenue per user, 714 versus 595 last quarter, that's really impressive. Pricing power is impressive here. The concept of a lot more ad supported in the model for a company that really knows how to do this, certainly from their days in linear TV and what we see going on with Netflix. So, you know, that's all great. The streaming losses you just explained. Parks are excellent. And studios got some got got a few things going on and there's not been great demand. There's been a lot of promotional expenses around Indiana Jones and other dynamics that we're hearing about.

3:55They're eating into operating losses. The problem is that this there's not a lot to get excited about in this stock right now. And and and the share price, which is basically a five year level of lost money. If you think about it on some level, you could have bought this stock at 95 bucks that much farther back, despite all that's going on. It's great that the company's more focused on streaming profitability. It is great that you have, I think, the ability here to have different levers to pull. The assets are great at Disney. The streaming business is better than it was, I guess, half full on the glass.

4:30Courtney, your take? Yeah, and I don't think people should necessarily be surprised at what you're seeing with the subscribers right now. Because Iger already said this, that they were going to focus on profitability, not necessarily growth. And that's exactly what you're seeing with these numbers today. And really, I think this is trading on specifically their streaming services, but their parks actually came in really strong and I think was expected to come in strong. And that's what I like about them over, you know, comparing them to a Netflix, for example, is they have such a better diversified business that continues to be really strong and will offset even, you know, some loss in subscribers.

5:01So I actually do still like this here. I think you're just seeing some negativity on the streaming specifically. I think the parks, both Tim and Courtney touched on it, the parks are just killing it at this point. And when I look at a chart and I look back to the pandemic low, should this be in the same ballpark as a pandemic low when we knew the parks were going to be shut down? The answer is no. It's in the same ballpark. You're looking at a stock where to trade$80 or thereabouts on the pandemic low. It's trading now in the mid 90s, mid to upper 90s. So if they're going to be more efficient, if it's going to be streaming now, maybe it shouldn't be as it rebounded above$200 a year later after the pandemic low.

5:44But this is giving the stock away just to make it very simple and not get caught up in all the different numbers. Way too cheap. But giving us. I mean, but the multiple is not giving it away at all. Well, the multiple, if you look back to where the multiple was during a year after the after the pandemic, they were not making money. It was it was great. Exactly. It was crazy the multiple that people were willing to pay. Now it seems like it's a true value stock. I actually disagree. I think that if we look at what was happening during the pandemic, a bunch of things that were so incredibly favorable to Disney launching a streaming business, right?

6:17You had people stuck at home. You had money that was free. You had growth numbers that were just sky's the limit. And therefore, valuations that in hindsight were just way too overdone. So to me, I think Disney's not, this isn't a huge discount here. I just think that, I mean, if you look at what's happened in the space, if you look at Paramount, which I sold after that disastrous quarter, just couldn't take it anymore, they actually had subscriber growth. And so here I'm wondering, okay, they raised some prices, I think$3 on$8 to$11. That's kind of a hefty price increase for a household that's a little bit strapped.

6:57I wonder how much more can they do for raising prices to the extent that that's part of the bull story. I don't really know. So I think it's actually not crazy. I'm just pretending you're Dan, so I'm just taking the other time. It's fine. It's fine. Well, the point I was making is when it traded to the low when parks were closed and they were factoring as it was never going, everything was death, literally and figuratively, everything was death and the parks were never going to come back. Those parks numbers were$16 billion. But how do you view the streaming service in conjunction with this? Yeah, so you should get a higher multiple, but streaming has been a disaster for— It's been a drag, and it's in an environment.

7:37It's losing money. They have to focus on profitability, but they're in an environment where Netflix has proven— Sure. I don't want to say it's proven to be king, but, I mean, it's proven to have this advantage, this legacy incumbent advantage, Tim. You own those, right? And they should be the king of content, right? Well, and Netflix— Disney should be. Yeah, Disney should be. We've got a writer's strike coming up. There's a lot of speculation who's better off here. And I think Disney's going to do OK. And I think the streaming slate seems to have a pretty big backlog for both Disney and Netflix.

8:06But Netflix is a more exciting story. I mean, they're generating cash flow. It's a simpler business. It's easier to assess. I can't wait till we're going to speak to Jimmy Stewart about all of this, because streaming companies are looked at so differently than they were two years ago. I mean, how wrong were we? Very. I guess. Or is this just that growing pain that they all need to go through to figure out profitability? Because right now, those losses are costing everyone. All right. For more on Disney's earnings, let's bring in New York Times columnist James Stewart, who joins us on the Fast Line.

8:35He is also a CNBC contributor. Jim, great to have you with us. What did you make of this quarter? Well, I guess I'd call it modest progress, given the auger strategy of focusing on cost and cost cutting and eventually profitability. It'll be interesting to see if he's going to come up with an estimate of profitability on streaming. So we did see, you know, a decline in the losses at streaming. But at the same time, you see the secular forces that are afflicting Disney, the fairly significant decline in the linear programming, you know, the traditional TV cable business, which is going down. And again, I don't want to get too much in the accounting, but, you know, the overall operating income is not as good as it looks because they had that billion-dollar one-time charge a year ago.

9:24So there was actually, when you stripped that out, it was a little decline again in the quarterly earnings. I think investors were a little bit disappointed in that. You know, great performance at the theme park, no question about it. But you've had the reopening in China. Theme parks can only grow so much. We know that you can only raise prices so much more there. You can only squeeze so many more people into this park. And so that's just kind of a given. I think streaming is still the story, and we still haven't seen a model here that looks like it's ever going to rival the profitability that they enjoyed in the glory days of cable.

9:59So do you think that the best days of Disney are behind it? I mean, I'm just wondering, you know, you know, Iger, you know how he, you know, what his sort of playbook is. And I'm just wondering what you think of how he's thinking of this, of the return here. I mean, it seems like it's going to be harder than ever for Disney to reclaim its so-called magic, given the competition in the streaming landscape. And that's sort of the focus right now of investors. How can they get to profitability there? This is tough. I mean, look, Disney's a great company. I don't think they had any choice. They were confronted with this situation that really shook up that wonderfully profitable world they enjoyed for so long.

10:38And they had to react. But this is a fiercely competitive environment. I was just in L.A. for a while, and I talked to a lot of studio people who were saying that, you know, Netflix and Amazon and, you know, to some extent Apple, the spending rate is still underway. They're still pouring the billions of dollars into that. And Disney, if they want to play in that league, has no choice but to compete. Now, the rider strike is going to help them probably more than anyone else because there's an enforced truce in the arms race there. How long that goes on, we don't know, but that's only pushing it down the road because spending is all going to have to come back.

11:12How much can you cut costs and still maintain that subscriber base, which is now obviously has kind of flattened out? If you cut costs too much and you don't have the new programming, you know, people, it's so easy. You know, you just stop the subscription and wait till they come up with something new that you want. It's a very, very tough business, I think. And you've got these unbelievably deep pocketed competitors in Amazon and Netflix that you're up against. James, when you see the offering where he's combining Hulu and Disney, is that just out of the mere mere sheer fact that most people in a certain age group are never going to buy Disney streaming?

11:52Do you think that's going to move the needle for him? because that would be a little more palatable if you have a Hulu along with a Disney, because then you just buy it and you'll get it as a bonus. Yes. I mean, there's no question that the Disney Plus brand is very, like, family-focused and, you know, child-friendly, teen. And then that's good in some ways. It's got a very clear identity. But it's not going to be big enough to get to the Netflix and Amazon numbers. And if streaming really is the scale business that everyone says it is, and as far as I can tell, it is because there is almost no marginal cost when you add another subscriber.

12:32Yes, they've got to get beyond that core brand identity, and Hulu may be a path to do that. Jim, thanks for your thoughts. We'll have to see. Yep. Appreciate your thoughts, as always. Jim Stewart of The New York Times. What do we want to know on the conference call, Tim? Well, we want to hear a little bit about just the soap opera in Florida and what that means with DeSantis and this feud. I think to the extent that we want to get a little bit more insight into their, you know, how they're talking about this new mega bundle. I mean, it is a new concept and it is the sense that the companies that used to be part of the cable bundle and the linear TV heyday are thinking about things a little bit more, a little bit more of an ad model.

13:19And I think this is just the part that I think we're all struggling with what we're supposed to pay for these companies. I mean, I look at like a Warner Brothers Discovery, which has been so destroyed. But if you actually look at the numbers they just posted and they said they're going to be profitable a year in advance of where other people had. I've seen a lot of analysts run to actually upgrade this stock. And if you look at it on a free cash flow yield on 24, it's pretty exciting. So I say a lot of these companies that are especially the media focused part of their businesses are things that have been priced down.

13:48The streaming we know loses money. I think we've written streaming down to nothing. And I think it's getting kind of interesting here. Karen? Have we written it down to nothing? I don't know. It feels like it. I don't know. I mean, if that's the case, then yes. And maybe it's one of your things that are most attractive when they go from terrible, which seems to be right now in the streaming space, to just bad if there is some improvement. Well, and to Steve's point, because, I mean, Steve was talking about, like, the parks business and seemingly studio in a different world where studio are kind of clicking away here.

14:22And so the streaming business is, to me, almost been priced to nothing in that sense. Remember that they do have a ton of debt. Yep. I mean, it's not it's not I'm not saying they have a balance sheet problem at all. I'm just saying, you know, that's another expense and they're not going to be able to roll it over so cheaply. Right. Coming up, we are watching the After Hours Action in Robinhood. Shares on the move after reporting. We'll bring you the numbers straight ahead, but first, shares of Alphabet jumping on some AI updates. The headlines in the company's developer conference next. Don't go anywhere.

14:49Fast Money's back in two.

15:01Welcome back to Fast Money. Shares of Alphabet topping the tape today as the tech giant hosts its annual developers conference announcing a new folding phone and what's next for AI in search. I'm sure Deirdre Bosa joins us now on the FastLine with more on this. I imagine the 4 % gain in the stock today was not because of the foldable phone, but it was because of AI. It was interesting because from the first portion of that conference, it was kind of just flat. There wasn't a lot of excitement around it. And then when Sundar Pichai came out, it showed how Search would work with its Search Labs project.

15:32That is when the stock really took off and kind of tells you what investors have been looking for. They wanted to know that generative AI isn't going to kill search. It's going to make it stronger. But here's Sander Pachai in his own words on AI. We are at an exciting inflection point. We have an opportunity to make AI even more helpful for people, for businesses, for communities, for everyone. We have been applying AI to make our products radically more helpful for a while. With generative AI, we are taking the next step. With a bold and responsible approach, we are reimagining all our core products, including search.

16:16So it wasn't just words, because Sanat Pichai has been saying something similar for a very, very long time. There was a very effective, it was about 90-second video, which I urge anyone to watch, where it showed how this new idea of search would work. It pulls in not just those 10 links that you get from a typical Google search, But videos and images and suggestions and summaries, it didn't displace the advertisers as much as sort of change the model for them. And that was what was so key and critical. And they showed it in a very effective way through some scripted demos and some live demos. But basically, the company had a lot to prove because at the last AI event, it was really botched in terms of these demos.

16:54So the fact that it went out smoothly and that it showed a new way of search is, you know, what got investors excited and perhaps gives Google the edge for now over Microsoft and ChatGPT. We'll see how Satya Nadella and team respond, though, to this next phase of the AI armory. Well, it was smart to do a video demonstration as opposed to a live demonstration. It really limits the room for error there. But, I mean, the implication, Deidre, that you were saying is that they're showing how search works and it wasn't displacing advertisers. So, therefore, the baseline is that this new kind of generative search would be as profitable as search right now.

17:33As profitable is a good question. And maybe that's why the stock didn't go up 8 percent. It only went up 4 percent because that's still a big question. We don't know exactly how it's going to work. You know, the Google team would say, oh, it's going to give them more tools to be more creative and better brand awareness. But we don't know that yet. And we know that search as it exists right now for Google is such a profitable business. How can anyone ever replicate that? But I think what he did do effectively is show that they are bringing AI from the back end front and center. Deidre, thank you.

18:04Deidre Bosa at the Google's Developers Conference. Karen, you had a trade on for this. I did. I got a little leg when Google sold off on all this Microsoft stuff. I put on a 100-110 that expires next Thursday, next Friday rather. It was a good day to take it off. I liked so many things about it that I liked. I liked that they actually had something big and, you know, showy. We always joke about, you know, the AI pixie dust being spread around that Google can't seem to find any. They found it today. And I think, you know, the idea of Google's got nothing in AI, that's absurd, right? We've known that's absurd, but here they were proving that.

18:40Some of the things were really interesting and fun, and some of them were kind of, you know, the force clapping by all the developers there, I guess. You know, when they, the fondue pizza, I don't know, I didn't really, or the writing the children's story. What's fondue pizza? It was a whole thing of, if you really want to. And why don't they serve that to us here? They might. Sounds good. But some of the other things about the phone, I thought there was some really interesting elements. They also tried to really be mindful of the wanting to protect your privacy. So one of the things that I found was interesting was this tracking.

19:11We will tell you if you have a tracking device that is not yours on your phone. And also, I think Apple was involved with that as well. I thought that was really interesting. The market is clear or people are concerned about that. So and they had some goofy fun things with what you can do with the your background page, things like that, or your screensaver. And I thought they did a really good job. They showed they are very much in the race. To your question about how profitable will it be, I don't know. But they have been considered to be asleep for the last two or three months. And, I mean, they got a lot of share to protect.

19:46Yeah. So, I mean, that's a hard job to protect share against Microsoft, who's so gung-ho to take some. So I think the different valuation reflects fear that Google will lose some. But I still think it's too wide. Court. Yeah, and I do think they knew what they needed to do today, right? I mean, we've even seen this with like Facebook, who stopped talking about the metaverse. Now they just talk about AI, because clearly that's exactly what investors want to hear is AI and cost cutting. And that's like the magic formula right now. I do think all of this is really positive right now. It is still one of your more expensive stocks.

20:20We'll probably talk about this later because we're still in this higher for longer likely rate environment that I think is, you know, likely going to continue to put some pressure on these. So we do have a position in these. You want to own your Googles by all means. I'm not actively adding to it right now on this news, but I'm really happy to see the way that they announced today. Coming up, Robinhood on the rise, a company adding users for the first time in two years. We'll bring you the headlines in the quarter in the conference called Next Plus, the debt ceiling, recession fears. It's all causing a lot of commotion in the Treasury market.

20:48How one of our traders is playing the moves. You're watching Fast Money Live from the Nasdaq Market Side in Times Square. Back right after this.

21:04We're getting some headlines at a Disney's conference call. Let's get back to Julia Boorstin. Julia. Well, Bob Iger fielding a question about Hulu, saying that in the last earnings call and recently he's been saying that everything is on the table when it comes to Hulu, but that in the past three months that he has been studying this, he said it's clear that the combination of the content on Disney Plus with general entertainment, Of course, Hulu is general entertainment is a very strong competition combination from a subscriber perspective in terms of retention and also advertising. So he said he indicated that at this point, the deal with Hulu is in the hands of Comcast and they'll have to have that negotiation with them.

21:42But they are they do see real value in having general entertainment such as Hulu combined with Disney Plus. So he said if Hulu is that solution, we are bullish about it. Of course, there already is this pre-negotiated deal with Comcast in which Comcast had already pre-negotiated to sell Disney its minority stake, guaranteeing Disney a price valuing Hulu in its entirety at a minimum of$27.5 billion. So it's going to be interesting to see how that valuation plays out. But certainly this is news that Iger is so committed to having that general entertainment piece. And it sounds like it'll be likely through Hulu.

22:20One other note here, Melissa, he was asked a question about AI. He joked that he hopes that someday he hopes that the questions on an earnings call can be answered with AI. But he did say that AI is being used to create efficiencies, ultimately to better serve consumers. But they already do understand how it could be disruptive and difficult to manage, especially from an IP perspective. And they have their lawyers working on that now. We see Disney shares now down over 4%. Back over to you. Julia, thanks. Julia Borsten. Let's get to an earnings alert on Robinhood. Shares jumping after the fintech posted a top-line beat in its first increase in monthly active users in two years.