In this episode of Market Foolery, Mac Greer and Motley Fool contributor Dan Kline look at some business headlines. An e-commerce giant gets a new CEO. Bob Iger is back at Disney's helm, sort of. What's the state of the digital ads market? They discuss the cruise industry, when it will be safe to get back on cruises, and much more.
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This video was recorded on April 13, 2020.
Mac Greer: It's Monday, April 13. Welcome to Market Foolery. I'm Mac Greer, and joining me from Florida is Motley Fool contributor Dan Kline. Dan, how are we doing?
Dan Kline: I am good. Happy to be back.
Greer: Well, great to have you back. The Dow went down a bit at the time of our taping, but the market's really not doing a whole lot. Later, we're going to talk some Disney (DIS 0.20%), we're going to talk some Facebook (FB +0.52%), and we're going to talk about a story you just wrote on the CDC and the cruise industry. But we begin with eBay (EBAY +2.42%).
eBay has a new CEO. Jamie Iannone, a former Walmart executive, will take over the top spot at eBay. Now, he was the Chief Operating E-Commerce Officer for Walmart. Dan, what do you think?
Kline: Yeah. He also led digital efforts for Sam's Club, which was a pretty major turnaround. Like, going from nothing to being, not a fully digital company, but having a website, having pick-up, having some delivery services. This is a return home to him for eBay. He was a vice president for eBay for a long time. So this is an interesting hire.
eBay is a sleeping giant. Stock hasn't done very much, which is, I guess, a good thing you could say in this market, but this is one of those companies where I never think about eBay for purchases. And a couple of weeks ago, my mother called me, and she said, "I need five-pound dumbbells, can't find them anywhere." And I was looking everywhere and I went, "Oh! wait a minute: eBay." So I feel like eBay needs to be doing something to sort of get itself back in front of people. If during this crisis, and I don't think I'm unique, you don't hear their name mentioned that much.
So it's a new hire. They had an interim CEO for six months. It's someone that's familiar with the company, not a true outsider. So I like the hire, but I kind of just want to see him ignite passion about this brand again.
Greer: And let's talk about that, because, Dan, I am old enough to remember, 20 years ago or so where when you talked about eBay, you talked about Amazon in the same sentence, and a lot of times you would square those off. And I remember all of this talk, I used to be an eBay shareholder, and I'd say, "Oh, eBay had such a light business model." And it was the darling of Wall Street, and Amazon was this, like, clunky, unprofitable business. And, well, we see how that's played out. So today, who is eBay's competition?
Kline: So it still is Amazon. And the problem is, a lot of people think of eBay as the auction site, and they still do that, but that's a business model that's fallen somewhat out of favor. They're not housing inventory the way Amazon does. They're still a third-party marketplace. I don't know if they're a 100% third-party, but that's largely their business. But they sell a lot of stuff you need. I know, I was price-shopping on electric scooters, and eBay turned out to be the best pricing.
The challenging thing with eBay is it's not that easy to use comparatively. When you go to Amazon, everyone knows where the product reviews are and sort of how you can figure out the quality of what you're buying. That could be a little dicier on eBay. I'd like to see a pretty massive user interface overhaul here and kind of a branding campaign. We can talk about this a little bit later. It's a pretty good time to advertise if you're a business that's still doing well, that's still able to operate. I'd like to see eBay come out and say, "Hey, we're eBay, we're here for you, here's what we have. You can get a lot of stuff you need. You know, we might even have toilet paper." That seems really smart to me, because I just think this is a company that has suffered from malaise.
Greer: Okay. So I want to ask you about that as we wrap up on eBay. Five years from now, is eBay still a stand-alone company, or do you think it's been acquired?
Kline: I think it could go either way. I'm always loathe to predict acquisitions, but eBay is a sleeping giant. They have the infrastructure in place. They have a lot of shipping in place. They would certainly make sense for a lot of companies to buy. But I do think, new CEO with a long, successful track record -- I will point out, he is also the guy who was in-charge of Nook for Barnes & Noble [laughs] for a few years. So not a flawless track record. That is one of the worst product introductions and uses of all time. Even though it was actually an OK product.
But I like the hire. He knows the company, he should be able to hit the ground running, and I would like to think eBay can still take advantage of the unique position it's in right now, where it can still operate, it can still provide a service, and probably a lot of people are listening to this and going "Oh, wait, maybe I'll look at eBay to try to get that weight set or exercise bike or whatever it is I need to get through the pandemic."
Greer: Well, let's talk some Disney. Walt Disney World in Florida planning to furlough 43,000 workers. Now, Dan, Disney Parks closed in mid-March. So I want to talk about that, but I also want to talk about a New York Times story about how former Disney CEO, Bob Iger, is reasserting his control. Yes, that would be the same Bob Iger that retired as CEO in late February. Now, Dan, it almost sounds like he's unretiring.
Kline: Yeah. So I don't want to go after The New York Times, a lot of wonderful journalists there. I used to work for The New York Times Company when they owned The Boston Globe. This is a misrepresentation. Bob Iger was Executive Chairman, he did not step down, he stepped up. He never retired, he gave up a title and took a title that makes him the boss of his replacement. So what is interesting is that, he's, sort of, dropped the illusion of stepping back in terms of how meetings are running. So he's more the focal point, but even his language in this article said, more or less, I'd be crazy to not help Bob Chapek during this.
So what he's doing is, he's basically saying, "Hey, look, this is unique circumstances. It's not fair for Bob Chapek. I'm going to help him run the company." The two men seem to get along really well. I don't think this is another Bob Iger, "I said I was going to retire, now I'm coming back." I think this is more, "All hands on deck for Disney." Obviously, the company, about two-thirds of its revenue, about a third is theme parks, another third is movies and live events and consumer goods and other things. So it's him saying, "Hey, we have to make a lot of choices and get more involved. I really think this is being reported not necessarily by The Times, but the people running with the headline as, you know, "Bob Barker is taking back!" Bob Iger never went anywhere.
Greer: Okay. So you mentioned some of Disney's businesses. They are really getting hit on all fronts here. So of course, they have the theme parks, they have the merchandise, they have the cruises, they have movie studios, they have television, including ESPN, where with no live sports right now, that's really tough. One of the few bright spots, Disney+, their streaming service, of course, which recently topped the 50 million mark.
Dan Kline, which of those Disney businesses do you think faces the biggest long-term challenge?
Kline: Yeah. I think there's two areas. The theme parks face the long-term challenge of, we do not know the answer. We may get, call it, rolling openings, where people who have been infected can go back to work. We might get, you know, you can have a restaurant open but only with so many people in it. We don't know the date where they're going to say, "Hey, it's OK to open your theme park," or if you can do temperature testing or whatever it is, any technological solution, Disney is pursuing it.
For movies, there are alternatives. They put out Onward as a quick $20 rental and then are moving it to Disney+, because it got caught in the beginning of this. They could take a movie like Black Widow and make it a major event and make it rentable for $60. Which was a price point that, sort of, mimics four people going to a theater, or $39.99. There's a lot of ways for the businesses to come back that aren't dependent on people gathering.
But the theme parks. Look, if this goes to a year, you still have to maintain your theme park. Nobody is riding Space Mountain; somebody still has to oil Space Mountain and clean it and do all the things you need to do.
And those furloughed workers, obviously, there is four months of backstop prevention in the bailout bill for unemployment. But some of them may go work other places, they may join Amazon. So at some point, there becomes a retraining cost.
That said, Disney+ is going to come out of this as Netflix. And that is an absolute cost-saver and a giant acceleration for what the growth would have been for Disney.
Greer: Okay. Now, that is a strong statement. Disney+ is going to come out of this as Netflix. So I have to ask you, because shares of Disney down more than 30% this year. So does the stock have you interested?
Kline: Yeah, absolutely. If you go to Fool.com, I've written a couple of pieces that are essentially reasons to buy Disney. I believe, even if it's a year from now and even if the economy is depressed, people have prepaid Disney vacations that they have credit. People aren't going to stop going to Walt Disney World. They might stop doing other things. There will be an audience for this.
And it might take a while to come back, but Disney has a very resilient business. They tap their credit lines. They got about $6 billion in available extra funding that they can use. Furloughing people, obviously, saves them a lot of money. There's going to be other areas of growth. All the Disney television networks, which have big archives, you know, those are going to be watched by people.
ESPN is figuring it out. Did you watch HORSE last night on ESPN? I know I did. [laughs] You know there's going to be, there's still programming. Obviously, ad rates are hurt and other things are down, but Disney is uniquely built. The Avengers don't stop being something we want to watch just because they're gone for six months or a year or two years or whatever bump we have. This is not going to be pleasant, the stock will probably fall further, but do I believe that five years from now, Disney is in a much better position than this? Absolutely.
Greer: Okay. Well, we will check back. I did not watch HORSE, in fact. I watched All American on Netflix, which is like 90210 meets Friday Night Lights, and it, I don't want to see perfection, but it's very, very enjoyable and addictive and it's everything I wanted and needed to be, so there you go.
Kline: I have to say, Mac, that I also watched the Saturday Night Live that they all did from their homes. That may be the only time I've ever cried watching Saturday Night Live.
Greer: Yeah. Tom Hanks. I mean, Tom Hanks, so strong. Always strong.
Kline: Just seeing creative people figure out ways to do stuff. It's one thing to do a talk show like this. We don't actually need to be in the same room. In fact, I don't think we've ever done a show together in the same room.
Greer: Yeah.
Kline: But to do something that generally involves playing off an audience, playing off people, really impressive work.
Greer: And I will tell you, and I may lose some listeners here, but I was a Coldplay skeptic for years and then I went and saw them in concert and I was a changed man. And now, I will go to the wall for Coldplay and Chris Martin, and his performance on SNL was just tremendous.
Kline: I like Chris Martin performing by himself better than I like him playing with the band. His Howard Stern appearance where he played a bunch of songs was absolutely amazing.
Greer: So great. Okay, let's talk some Facebook. Facebook's ad business taking a bit of a hit. Now, according to a recent analysis by one ad-buying group, rates dropping as much as 25% from February to March. Now, in March, Facebook declined to comment on its ad business, but it said that the rising use of apps and services, Facebook's apps and services, would not protect Facebook from expected declines in digital advertising. So what do you make of all that, Dan?
Kline: Yeah, a lot of Facebook's ad market is small businesses that are not advertising because they're not open. It's retailers that are not open. It's events that are not happening. There is no big ad campaign for the next movie that's coming out, because there is no next movie that's coming out. So advertising rates, overall, everywhere are falling, because there's only a few companies where advertising makes sense. It makes sense for McDonald's to run ads thanking its workers. For Walmart to run ads pointing out that they're open and being gracious. There aren't too many people.
Maybe it makes sense for a hard seltzer and other things to be advertised, because maybe there's increased need for it or at least demand for it. But I do think the Facebook situation is going to be mitigated by increased use. And increased page views actually drive ad prices down, because the more inventory you have, in theory, prices become cheaper. So it is really hard to know, if ad prices fall by an average of 25%, but they gain 10% in the amount of ads. There's obviously a delta there, but we don't really know how this is going to turn out.
And my theory is Facebook is going to be a lot stronger with this than the broadcast television networks or some of the places that were really dependent on special events to drive big ad sales. I mean, there's no Olympics, so that's an awful lot of ad revenue that's not happening.
Greer: And, Dan, as we wrap up here, as has become almost our tradition, I feel like we have to talk cruises and the cruise industry. Now, you wrote a piece for The Motley Fool on Friday, the headline, "CDC Delivers Crushing News for the Cruise Industry, Cruise Line Stocks." Now, do tell.
Kline: Yeah. And the good news is, my subhead for this actually talked about it being a silver lining. So what the Centers for Disease Control did is they said, "Hey, U.S. cruise lines, you may not operate for 100 days unless the following conditions are met." Basically, if it's declared OK for everybody to operate, the cruise lines can come back. During these 100 days, they have to address how they're letting passengers on, all of the things.
What I think the silver lining is here is you did not want to be a cruise line in a vague, murky environment to be the first one to say, "You know what, let's have a cruise." That puts you in a position where you're taking the risk. In this case, there are very clear standards for when they're allowed to operate again. And I think that's going to provide a backstop of confidence to customers. I know it made me feel good as someone who has a lot of cruises booked, hopefully, if any of them happen. And I think it's a case of the government taking responsibility and when the cruise lines open, they could say, "We met these standards, this order was lifted, we didn't decide this. The government gave us their blessing." And I think that is going to help the industry come back faster.
Greer: Okay. So let's talk more about that. What would it take -- because I know, and we've talked about this before, that you are an avid cruiser, you like taking cruises, so what would it take for you to take a cruise?
Kline: Well, you know, it would take the idea of knowing that I have had coronavirus and that likely makes me immune. I somewhat believe I've been exposed and had a mild case. But there's no ability to be tested for that, so I don't know. Obviously, a proper treatment for it would be an answer. If the CDC comes out and says, "This is no longer a threat, go about your business."
So really, I was worried about justifying my own decision. You know, if I had to say to my wife or my mother, "Hey, I'm going on a cruise," and my wife does not come with me, she does not like to cruise. "I'm going on a cruise and I'm taking my son," I worried about the fallout I was going to get. If the government says it's OK, I'll take that as an OK. And that probably means a medical answer, but it could mean lots of things.
So I think it's just a definitive bit of cover for people to say, "Hey, yes, this is safe." And the cruise line industry is taking more flak than, say, casinos, another place where people congregate, but don't really have that reputation for spreading illness, because the illness tends to happen three days later when they go home instead of in the casino because you don't live in a casino for the most part. And on a cruise ship, you'll be there from 3 days, 7 days, 10 days, whatever it is.
So I feel really good about this as someone who literally has a cruise plan a month through the end of the year. And I'm hoping I get to go on at least one of them.
Greer: Okay. So I'm going to push back a bit because I am a late-in-life convert to cruises; love them, love them, love them. But I would be very hesitant to go on a cruise right now until a vaccine is developed.
Kline: Yeah. And that's actually something Tom Gardner said to me, "Don't go on a cruise until a vaccine is developed." I would also go with the logic of, we do not have the data to say what immunity periods are. We will eventually have that data. We'll have enough of a sample to say, you know what, if you had it at this level, if your antibodies are here, you are not likely to get it for this period of time.
Again, I am not going to get on a cruise ship until the medical establishment is telling me that this is a good idea. I am not going to be a maverick and say, "You know, I'm just going to go have fun and I'm going to put my family at risk and everyone I'm in contact with." So I do think this could be an extended horizon. The cruise lines are preparing for an extended horizon. That 100-day order could get lifted; it could also get extended.
And I will say, personally, that I don't plan for anything more than two weeks in advance, because we don't know what medicine is going to do, we don't know what curve balls are going to happen, and I would like to remain optimistic that the hail Mary is going to get caught and somebody in the medical community is going to come up with the treatment, the testing, the whatever it is that allow us to return to some form of normal. And, boy, for me, being on a tropical island somewhere would be a little bit of normal.
Greer: Okay. So you say you don't plan for more than two weeks in advance, but now I'm going to force you to plan five years in advance. It's the desert island question. You're on a desert island, Dan, and over the next five years, you have to buy one of these stocks and hold it: eBay, Disney, Facebook, let's go, Carnival, Royal Caribbean, or Norwegian.
Kline: So as much as I want to pick one of the cruise lines, because obviously the upside is enormous, I don't think five years is a long enough horizon. I'm going to say Disney. I am a giant believer in the IP-based Disney model. This is going to cost it some cash. It's going to disrupt part of its business. It's also going to accelerate Disney+, which is a great product. I don't see anyone leaving Disney+ once this ends. I mean, not nobody, but most people won't. So Disney is the safe bet here. Five years from now, this is going to be a footnote for Disney.
Greer: Well, [email protected] is our email for your questions, for your comments, if you want to take exception with anything that we've said, if you want to push back on me in terms of Coldplay or All American or, Dan, what was a show that you were -- HORSE on ESPN.
Kline: [laughs] I'm not sure I stand by HORSE other than that it was kind of entertaining as just a diversion to do something else. I really would also love them to do a behind the scenes. I want to know how they shot it, because it was all digital and remote, and it was really, really well done.
Greer: I love that, love that. Market [email protected] is our email.
As always, people on the show may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear.
That's it for this edition of Market Foolery. Dan Kline, thanks for joining me.
Kline: Thanks for having me.
Greer: The show is mixed by Dan Boyd. I'm Mac Greer. Thanks for listening, and we will see you tomorrow.
