In this podcast, Motley Fool senior analyst Jason Moser discusses:
- Disney's historic win at the box office being overshadowed by the specter of layoffs.
- CEO Bob Chapek's metric for success in 2024.
- Eli Lilly falling victim to a prank on Twitter and pulling its ad business in response.
- How Snap, as well as Meta's Facebook and Instagram, need to take advantage of their sudden opportunity.
Finally, Jason and Motley Fool contributor Matt Frankel take a closer look at the returns that safe investments are offering.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on Nov. 14, 2022.
Chris Hill: An entertainment company won the weekend and a social media company just lost a major advertiser. Motley Fool Money starts now. I'm Chris Hill, joining me today Motley Fool senior analyst Jason Moser. Thanks for being here.
Jason Moser: Howdy, howdy.
Chris Hill: Let's start with Disney, shall we? Because the weekend box office for Black Panther: Wakanda Forever, it was huge. It was 180 million here in the U.S., 330 million globally. It's the second-largest opening of the year for a film and that's largely been overshadowed by the news that we got late Friday. Reports of a memo that CEO Bob Chapek sent to division leaders outlining a targeted hiring freeze. They're going to start limiting travel and eventually, there are going to be staff cuts and Chapek said they are going to have to make some tough and uncomfortable decisions. I don't think either you or I are surprised by this, are we?
Jason Moser: No, definitely not. Yeah, congratulations to Black Panther showing, not surprising at all there.
Chris Hill: It helps. It goes in the plus column.
Jason Moser: No question there. Going forward I think we're going to see I think more and more when it comes to cinema, when it comes to seeing movies in the theaters, I think we're going to see this flight to quality. I think there's going to be just this widening gap as time goes on between the big-time players, your Top Gun: Mavericks, your Black Panthers, and then the also-rans. I think that honestly that plays into Disney's favor I think given its vast IP. But it'll be interesting to see how that plays out in regard to movie theaters. In regard to Disney the business, definitely not surprised. It feels like something that was just a matter of time. Obviously not the only company that's worried about costs and starting to look at cutting positions and freeze hiring. When you look at Disney from 2017 and you compare that to Disney of today, this is a vastly different company, it is a vastly different situation.
We knew that they were going to be making these investments into Disney+ and the streaming. This was a company that in 2017 chalked up net margin of 16.3%. Now you fast-forward to today, trailing 12 months it's 3.8%. Now, we've gone through a lot and there's a lot that can go into that accounting, but there's no question that a big part of that story is just all of these investments in Disney+ and the over-the-top offering. I think that's the right thing to do, but for Chapek, we talked about this last week a little bit, he might not be on the hot seat but I think his seat is getting a little warm. I think primarily we said, so if Chapek were out and you came into fill in that role, what would you do different right now at this point.
I don't think anyone would go in there and say, well I'm just going to pull back on the investments in streaming and over-the-top. That's not really the direction we need to be headed. I think you got to see that through, I think it's the right call. But what he really needs to focus on, he's made this commitment to have Disney+ is profitable by 2024. By the end of 2024, this thing needs to be actually making money. I think they're off on the right foot in regard to the subscriber base. They really I think, they've done very well when it comes to getting the subscribers. They have a lot of different levers they can pull in regard to the offerings, but this cost-cutting is going to be a key way for him to get to that profitability goal in 2024. Because if he doesn't get to that profitability goal, then I think he becomes very much a CEO on the hot seat and will have a lot of questions to answer.
Chris Hill: Yeah. I think it's completely fair to judge him on that, and maybe it helps in some small way that he's talking about this memo comes out in an environment where we're seeing more companies moving in this direction. We talked on the radio show last week about Redfin and Meta Platforms. Right before you and I started recording today we got these reports that Amazon is going to be laying off more than 10,000 employees in corporate and tech roles. We'll see what form those eventually take, but it really is just one more brick in the belt-tightening wall if I can just complete that very tortured metaphor.
Jason Moser: Well, yeah I think we all like to see our companies, our investments practicing sound fiscal behavior. We want them to be thinking about this kind of thing always. When times are better, money is free, you don't have to think about it as much because again, the access to capital was just so easy and you've got all of these different pokers in the fire and you're thinking about the future. But when things start to get a little bit difficult, when the purse strings start to tighten, I think it's an advantage for Disney in this case that clearly they're not the only company that's going to be doing this.
This is something that's just becoming widespread. Most companies out there are now trying to figure out how to manage their cost structure a little bit better, whittle down the workforce. I think they can do more with less and I think we're going to see that across the board here. I think what that's going to result in probably a year from now, I think we're going to see a little bit of a different employment picture. Clearly, there are a lot of jobs that are being eliminated right now that doesn't seem to be an issue, but we're starting to see signs that unemployment rate is ticking up.
We're seeing signs that the folks who participated in the "Great Resignation," they just said, hey I'm going to go ahead and take off because I don't need this job and I can find something better and more convenient. At the time I think maybe that made a little bit more sense. We're seeing some signs that that's a little bit of a more difficult path to slog, so to speak. It's a little bit tricky finding jobs that pay the same or offer the same convenience or really ultimately jobs as they've been advertised. Yeah, we're going to see a lot of companies I think winnowing down their cost structures here in the coming quarters and just going to be very interesting to see how that plays out in this employment picture over the course of the next year.
Chris Hill: Let's move on to social media. Last Thursday, an official-looking Twitter account for the pharmaceutical giant Eli Lilly tweeted out the following message: "We're excited to announce insulin is free now." This was not the official Eli Lilly account, it was fake. Reportedly it led to some amount of insider selling just reacting to the possibility that it was the official account. Friday morning, executives at Eli Lilly ordered an immediate stop to advertising on Twitter, and this is not a company we talk about very often. Just for those unfamiliar, this is a $330 billion global company with a massive advertising budget and Elon Musk would probably prefer that they stay advertising on Twitter.
They have paused, not just their ad spend, they have paused their publishing plan for all of their corporate accounts around the world. Now that Twitter is no longer a public company, Jason. my mind goes to the companies that are public in this space. Is this not an opportunity for people selling advertising on Snap and Instagram and Facebook? Eli Lilly is one of just dozens of companies that have come out over the last couple of weeks who have said some version of, "We're pausing our ad spend. We're not necessarily eliminating it altogether, but we're taking a break." Companies with huge ad budgets if they want to keep going on social media it seems like a great opportunity for Snap and Meta Platforms to steal some business from Twitter.
Jason Moser: I think it absolutely is. I think in regard to Twitter, I think things are going to get worse before they get better. If they get better, that's a big problem to fix. There are a lot of moving parts there that are going to require a lot of understanding and strategy going forward. I think for Twitter this is going to be a really difficult time at least as a business. Now, thankfully they had the luxury that they are not a publicly traded company. The flip side of that is Elon Musk is one of the most publicly out there CEOs, entrepreneurs, leaders that we have. He's on Twitter it seems far more now than he ever was before. Maybe he's just getting -- he likes that new shiny toy.
Look, Mom, what I just got for Christmas! I don't know but it does feel to me like those advertising dollars are not going to just sit there idling. Those companies are going to reallocate those advertising dollars to other platforms to realize return on them. I think it's been argued pretty effectively over time that Twitter probably was a lower form of advertising return than most of the other social platforms. I don't think it's going to be a difficult decision for companies to say, hey, listen, we're just going to allocate these dollars to other places where we know there will be some return, whether that's Instagram, Snap, Facebook, LinkedIn, whatever, but there's just no question about it.
It really does put Twitter I think on the clock, because this really all boils down to companies feeling secure, understanding what the strategy, the platform is ultimately what it's going to stand for. Until you have that and you feel good about that you're not necessarily going to want to allocate a lot of advertising dollars. If you do, whenever you decide to start that flow back, it probably is going to start in the form of a trickle to test the waters. I think it really does bode poorly for Twitter's near-term future in regard to its advertising budget. I just don't think people are going to pay for Twitter Blue like maybe he thinks people are. Plenty of [UNCLEAR] to anecdotal information out there to suggest that people won't. It seems like it is going to be a business that's going to be very much dependent on advertising, at least for the near future, which means he is going to have a lot on his plate.
Chris Hill: Jason Moser, great talking to you. Thanks for being here.
Jason Moser: Thank you.
Chris Hill: Even though interest rates are rising, it's not like banks are rushing to give you a great return on your deposit. Jason Moser and Matt Frankel look into what safe investments are offering and how those returns could change.
Jason Moser: Hey, Matt, great to catch up with you again. If you haven't noticed Matt, interest rates are a big deal right now. The Fed is pushing them up in an all-out war on inflation, that's having a lot of ripple effects. Many of those ripple effects that we read about today are making consumers' lives more difficult to maybe get higher mortgage rates, higher credit card rates. Cost of borrowing just going up across the board. But there are some positives that can come from this, too, as interest rates are also going up on things like savings accounts, CDs, and other instruments that we want to dig into today.
We're going to take a quick look today at three different areas where investors looking for safer places for their money may want to dig in a bit more, and let's go ahead and kick it off and talk a little bit about high-yield savings because this is something that I think many of us grew up being taught the virtues of a savings account and putting away some money for a rainy day. It was I think a significantly different interest rate profile back in those days than what we've seen over the last decade-plus. But maybe high-yield savings accounts will make a little bit of a comeback. What do you think?
Matt Frankel: Yeah. I'll age myself for a minute here. I opened my first savings account in 1996. It was paying roughly 4% interest at the time.
Jason Moser: Wow.
Matt Frankel: People in our generation, we were trained that was a risk-free way to make a little bit of money and put your account in a safe place. But when you think about what's been going on in the stock market, say the last two years. Not only was the market on fire, but my savings account, even the high-yield accounts online paid something like 0.3%.
Jason Moser: Yeah.
Matt Frankel: Putting money there felt like you were giving up. That's really not the case now. In this market, a guaranteed return of 2% or 3% doesn't sound that awful, especially given what the stock market's been doing. I took a quick look at some of our favorite high-yield savings accounts over at the Ascent, The Motley Fool's partner company. The rates range right now from 2.75%-3.25% on savings accounts. These aren't from no-name institutions, just Marcus by Goldman Sachs, Barclays, they both pay 3% right now. American Express pays 2.75% on its savings accounts. It's a much better option than it was a few years ago.
Jason Moser: Yeah. One thing I think about, too, is over the last 10-plus years, anytime you file your taxes, you get your forms back from your institution saying you made this much in your investments, you made this much with your interest and it literally was just like never even possible, I think, to make enough interest on savings account for it to even be reported. You just knew at the end of the year that whatever you had in savings, you didn't have to worry about that being reported because you just didn't make enough. Interest rates weren't high enough. I would guess now at least that is something that could change a little bit if folks are looking at these savings accounts and thinking, "Hey, you know what? I'm going to put a more significant amount in there," particularly folks who are in that "protect your wealth" stage of life.
Matt Frankel: Yeah. If I get a tax form, so I got enough interest on my savings account, that's a good problem to have.
Jason Moser: That's a nice problem to have, exactly.
Matt Frankel: Especially how you've been conditioned over the past few years that savings accounts pay nothing. It feels like free money these days, but it's worth pointing out that savings accounts aren't perfect. Generally, a lot of them have different requirements you have to meet to get these APRs that I mentioned. Some require you to have set up direct deposit, for example. Some require you to maintain a certain minimum balance. When you're comparing these, it's not just, this one pays 3%, this one pays 2.75%.
I'm going to go with the 3%. You have to really dig a little bit deeper and see what the requirements are, see how flexible they are, and see what withdrawal and deposit options you are. Because a lot of online savings accounts, if you want to say deposit cash, what do you do? Some make it easier than others. There's a lot more to think about than just the rates, but all in all it's really not a bad option if you have your emergency fund and want to put it to work a little bit.
Jason Moser: Yeah, not a bad option. I think that's a great point you make there. Read the fine print. I think that with our next instrument here is CDs, certificates of deposit. Very similar to savings accounts, but the one thing that a savings account has that a CD doesn't, savings accounts are typically more flexible. But I think you're going to get a little bit of a benefit from a CD because you're making a little bit more of a time commitment there.
Matt Frankel: CDs are slightly less flexible, you're committing to tying up your money for a certain amount of time. Now, it's not totally tied up. It's not like let's say you get a one-year CD and then three months later you need the money to pay for something. They're not just going to tell you to get lost. You might get hit with a penalty. But they're less flexible than a savings account. But in exchange for giving up some of your flexibility, like you said, you get a slightly higher rate. I just did a quick comparison of some of our favorite online banks, some of these same ones that I mentioned with the savings accounts.
The average rates on a one-year CD range from 3.25%-4% right now, Barclays, for example is paying 4% right now on one-year CDs. If you're willing to tie that money up for a year, you can get an extra full percentage point of return out of it. Like I said, it's not totally inflexible. You can usually get your money back if you're willing to eat a little penalty. But it's definitely less flexible than a savings account. It's not necessarily a great place for your emergency savings, money you might need at any given time. But if you have just some cash and buying bonds can be a hassle, things like that. If you want some fixed income portion of your portfolio, a CD can be a good way to do it.
Jason Moser: Another strategy that folks can consider with CDs is laddering them. You don't have to just put all of your money in one one-year CD. You could look at breaking it out into three-month, six-month, one-year, two-year, you put a little bit in each one so that you're not tying all of your money up at once. You'll run into expiration dates periodically along the way where you know you'll have some money freeing up if you need it. It still gives you the opportunity to try to take advantage of those higher rates. Obviously, the longer that you can commit that money, the tendency is the better the rate you're going to get.
Matt Frankel: Yeah, generally speaking a five-year CD would pay a lot more than a one-year CD, like a percentage point or so. But so the idea with the ladder is, let's say you break your $10,000, you put it in five baskets of 2,000 by a one-year, two-year, three-year, four-year, and five-year CDs. The idea is that every year some of your money will become available. If you don't need it, you can then roll it into the current five-year CD rates. You're always taking advantage of that long-term interest rate. A CD ladder is a great strategy. Keep some emergency cash in a readily available place. But if you want a combination of access to your money and high yield, a CD ladder is a good strategy to look into.
Jason Moser: I like that. Well, let's wrap up today with I bonds. It seems I bonds are taking front and center for a lot of reasons. But really the primary reason, of course, is inflation. Inflation has just been one of the biggest headlines of the year. It's been driving the bus more or less as far as what the Fed is deciding to do, which is ultimately having its impacts on the market. You can't just invest a limitless amount of money into I bonds. But they do serve, I think, really a good purpose for folks looking for a place to park their money for, I guess, it would do qualify for a shorter timeline because I think I bonds are typically a year if not less, but ultimately helping you keep that inflation from really gnawing away at the income that you're generating.
Matt Frankel: It's a lot to unpack there. First of all, the rate is very short-term. The rate you get on an I bond is guaranteed for the first six months and then it resets every six months thereafter based on inflation. The bond itself is a 30-year bond, but there's a possibility that down the road it's going to be paying nothing if there's no inflation.
Jason Moser: Right.
Matt Frankel: I think I bonds were literally paying nothing not that long ago. Right now, the rate just dropped because of the way they measure inflation. Starting on Nov. 1st, the I bond rate went from 9.62%, which is a pretty high guaranteed yield, to 6.89%. But it's a tricky interest rate there. There's two components to it. There's a fixed rate that stays with the bond for its entire 30-year life. Then there's an inflation adjustment. The fixed rate right now is 0.4%. Even if there's no inflation going forward, that's the floor. Then there's the 6.49% inflation adjustment. It's much higher than either a savings account or a CD. But like you said, there are drawbacks. You can buy $10,000 a year per person is the cap. You can get another $5,000 if you want to use your tax refund to buy them.
But even with that, with a large portfolio, it's not likely to become a big portion of your portfolio. Having said that, you can't sell an I bond for a year. Unlike a CD where you can just sell it and eat a penalty whenever you want, I bonds you literally cannot sell for a year. Your money will be tied up. If you sell within the first five years, you get hit with a penalty equal to the last three months of your interest. Right now, three months of interest, that's a lot on an I bond. It has pluses and minuses and plus the interest is exempt from state and local taxes and federal taxes if you use the money for education. It's a way to get out of taxes. Like you mentioned, there are tax implications to the savings interests. Pluses and minuses to all of these. It's three great options depending on what your preferences are.
Jason Moser: Well, Matt, you've given us a lot to chew on and I'm sure our listeners will benefit from your wisdom as well. Thanks so much for taking the time to join us today.
Matt Frankel: Of course, always good to be back here with you.
Chris Hill: As always, people on the program may have interest 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. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.
