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Here's Why Disney's Outperformance Didn't Quell Investors' Anxiety

By Motley Fool Staff - May 17, 2018 at 5:25PM

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Every segment of the media giant beat its targets for the first quarter, but two key issues hang over the House of Mouse.

In this segment of Motley Fool Money, host Chris Hill is joined by senior analysts Jason Moser, Matt Argersinger, and Ron Gross to consider Disney's (DIS 1.08%) excellent first-quarter earnings report. Yes, Black Panther gave a heroic boost to the studio division's results, but happy news came from every part of the organization.

Given that, investors might wonder why the stock didn't respond more enthusiastically -- or at all. The reason revolves around the one thing the Wall Street hates most: uncertainty. But the Fools think the market is missing the point.

A full transcript follows the video.

This video was recorded on May 11, 2018.

Chris Hill: Walt Disney's second quarter profits came in higher than expected, thanks in part to the success of Black Panther. Revenue from the Studio division up more than 20% year over year. And Matty, it wasn't just the Studios. Parks and Resorts, the Media division, they were all better than expected, and shares of Walt Disney are basically flat this week. What gives?

Matt Argersinger: It was a great report all around. I just think, unfortunately, until this cloud over Disney's Media Networks business -- which did beat expectations, but growth is slowing down, profits were down -- and then you have the Fox acquisition. I think those are just hanging out there for investors. Until those get resolved in some form or fashion, I don't see the stock making that much of a move.

But, yes, the Studio business, Black Panther, we have Avengers: Infinity War now, we have the Solo movie, and we have Incredibles 2. We've always talked about Disney as a hit-driven business. You can have a blockbuster one quarter and a bust the next quarter. But Disney has the ability, now, to really turn out a billion-dollar blockbuster hit every quarter if they wanted to. I just think, at some point, the company should be valued a little more based on the Studio business than it has been.

Jason Moser: I think Matty's keying in on the point as to why Disney is such a great investment. You can have stretches where maybe all of the segments of the business aren't quite firing on all cylinders -- sorry, Ron.

Ron Gross: Hey!

Moser: But, that's just kind of what we're seeing with the stock. The stock maintains the status quo until they get back down to business. I think the Comcast versus Disney idea with the Fox acquisition there, that'll probably play out here over the course of the next quarter. But, Matty and I were talking about this at Starbucks the other day, we just want to make sure that Disney gets Hulu out of all of this, right?

Argersinger: That's the key.

Moser: Because that's really the platform that I think matters the most. That will enable them to put pretty much whatever content they want out there with a platform that's already in a lot of homes, and a lot of people are already familiar with.

Gross: I have a Steve-type question. Do I need to see Black Panther before I see The Avengers?

Hill: Yes, you absolutely do.

Gross: Is that true?

Hill: Yeah, you do.

Gross: Alright.

Hill: Take care of that.

Gross: Very good.

Hill: I understand, Matty, the doubts. As you said, there are a couple of clouds that need to be cleared before some on Wall Street feel like this is a stock ready to take off. Here's what I don't understand: the one Wall Street analyst who came out this week and talked about one of his concerns being that the studios and the parks are, and I'm quoting here, "peak-like." Has this person never been to Walt Disney World? The idea that, "We think Disney has reached its peak in terms of its ability to charge money at the parks," that's insane to me.

Argersinger: Absolutely insane. I think, in terms of entertainment companies, there is no company in the world that has the pricing power that Disney has. By the way, you have to remember, it's not just about the box office or the parks by themselves. It's all the different things, all the merchandise sales, consumer products, video games, Broadway shows that come out of Disney's intellectual property. You just never can undercount that.

Moser: You asked the right question in the production meeting, Chris -- does this analyst actually have kids? Because if you have kids, then, I think, you really get it, you understand that this is a generational play. If you have kids, at some point, you're going to be enjoying this stuff with your grandkids, and it just keeps on going on.

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