When Walt Disney (NYSE:DIS) reported its third-quarter earnings last week, of particular note were its top-drawer movie studio results, but it wasn't just Incredibles 2 and Ant-Man and the Wasp that powered the company's winning performance. Profit margins at its theme parks jumped, too, and it appears to be stemming ESPN subscriber losses.
But in this segment of the Motley Fool Money podcast, host Chris Hill doesn't just task senior analysts Jeff Fischer, David Kretzmann, and Jason Moser with looking back at Disney's recent past. He also gets their views on areas like its new streaming business, which we now know will be called Disney+; its longer-range plans; and whether its stock is still reasonably priced even after being lifted to a new record.
A full transcript follows the video.
This video was recorded on Nov. 9, 2018.
Chris Hill: Shares of Disney hitting a new high on Friday after its fourth quarter report included highlights from the Studio business and a name -- finally, Jason -- for the new streaming business. They're going with Disney+. Works for me.
Jason Moser: I know you're so disappointed it wasn't something like Tronc, given earlier conversations this week.
Hill: Tronc was available.
Moser: I like that. It's consistent with ESPN+. It takes advantage of a brand that everyone already knows.
Hill: What was your highlight from this quarter? There were a lot of good things in report.
Moser: I think the big picture takeaway with Disney is that if content is king, then distribution is queen. Everybody knows that behind any strong kind is an even stronger queen. With Disney, that's the beauty of this business. They have both parts of that equation. And there's some uncertainty making the move to that over-the-top, ESPN+, Disney+. We're going to know a lot more in a year, of course. But I think that the early signs point toward success. And I suspect that they'll do very well with the content built out on Disney+.
I like the Hulu platform, but we're in this age now where the cost justification -- remember, for a long time, cutting the cord made sense from a cost savings perspective. That's going away. Now, you have to sign up for more apps to get all the content that you really like. So really, that disparity is shrinking. For Disney to have Hulu and ESPN+ and Disney+ and all of that IP, it puts them in a position of power for a long time to come. And Fox, as well.
David Kretzmann: They've certainly been planning for this for a long time. Disney+ will be launching next year, which is 12 years after Netflix launched its online streaming service. Maybe a little bit behind. Better late than never, I suppose, in this case. Some of the exclusive original content that they're producing for Disney+ looks really compelling, will lure in new people to test out the service. I think Disney's library of content is robust enough and intriguing enough to keep people on the platform. Personally, I'm looking forward to the Star Wars live action show, directed by Jon Favreau. Maybe it can redeem how I feel about The Last Jedi. [laughs] I wasn't a fan of that movie, but maybe this Star Wars live action series will do it.
Moser: Sounds like they're going to capitalize on the previous success of High School Musical, too, Chris. We'll have a chance to go back and remember that.
Hill: Whatever your personal feelings are about The Last Jedi, as a shareholder, I appreciated what that thing did at the box office.
Kretzmann: It did OK.
Jeff Fischer: It upset a lot of diehard fans, though. Rest of the show, Star Wars? Let's just talk about Star Wars?
Kretzmann: Let's do it! 30 minutes, let's go!
Hill: Jeff, just to pivot off one thing David said there, in terms of the streaming app, yeah, they may be a little bit behind the curve. But I think, as we've talked about before, they're looking at this probably the right way in the sense that they want to nail it right out of the gate. They can't really afford to have a stumble, in terms of how the app works. Sure, there will be upgrades to the app. But they have to get it right next year.
Fischer: I agree. ESPN aside, they're targeting a lot of the younger audience, and hope to grow with them. And they have the content to address everything, from little kids to supposed grownups like us. And the shares haven't really gone anywhere since 2015. As a result, they look very reasonably priced, at about 15.7X expected earnings for the year ahead.
Moser: And a little side part of the business there with the parks and resorts. Makes a little bit of money.
Fischer: They employ 199,000 people. I should have asked everybody to make a guess.
Moser: It's a phenomenal part of the business year in and year out. The pricing power that they possess on those parks is really impressive. I'm sure there's a record here for how many years in a row they've been able to raise ticket prices. They continue to be able to do that because it's such a unique and compelling pull. Every parent, that's the goal, get your kids to Disney World or Disneyland.
Hill: And forget about your money.
Moser: Of course! [laughs]