Disney's Steamboat Willie Enters the Public Domain; Tesla Is No Mickey Mouse Company

In this podcast, Motley Fool analyst Asit Sharma and host Dylan Lewis discuss:

• Why early versions of Disney's Mickey and Minnie Mouse characters are now appearing in horror films.
• Tesla once again being the king of EVs, and what to make of BYD coming up on its heels.
• A digital entertainment stock to watch in 2024.

Motley Fool host Deidre Woollard and analyst Kirsten Guerra look at recent stock winners that could keep winning in 2024.

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 January 03, 2024.

Dylan Lewis: Mickey is now the people's mouse. Motley Fool Money starts now. I'm Dylan Lewis, and I'm joined over the airwaves by Motley Fool analyst, Asit Sharma. Asit, thanks for joining me for the first time in 2024.

Asit Sharma: Dylan, so great to be with you and start the new year together.

Dylan Lewis: We've got some updates on Tesla's delivery numbers, a stock to watch in 2024 as well, but we are going to kick off our new year as shows go with a curious piece of news. January 1st marked the beginning of a lot of things, and in Disney's case, in particular Asit, it marked the end of their copyright on Steamboat Willie. If that is not a name that you recognize, maybe you'll recognize Disney's Mickey and Minnie Mouse characters which make their appearance there in their first forms. Now, because this copyright is expiring Asit, now anyone can make use of that character. It is not the fully fledged white glove Mickey Mouse character we all know, but it seems like a bit of a blow to the magical kingdom.

Asit Sharma: Totally Dylan. Copyright law in the US has really evolved over the last century. It now strikes a great balance, I think, between protecting the original artist's right to earn and just be compensated for his or her creativity and the public's need to further creative exercises and be able to use ideas and art forms of expression and take them one step further. Now, we should mention here that Disney, the company which we all have known since childhood, has been a major proponent of extending copyright for decades. They were critical in the Copyright Act of 1976, and Dylan, the Copyright Term Extension Act of 1998 is actually popularly nicknamed the Mickey Mouse Protection Act. But alas, after 95 years, here comes the day, and this is a ritual every January 1, some copyright expires on different characters. Here we have this early version of Mickey Mouse available for you and I to go out and make something of it.

Dylan Lewis: As you might expect, the Internet is absolutely undefeated as always. There are already a ton of projects out there incorporating this character, including Mickey's Mouse Trap, a slasher horror movie which incorporates the Steamboat Willie version of Mickey Mouse. I think this is an interesting, it's a little bit of a silly topic, but it's an interesting one because we so often think about copyrights, trademarks as part of this very impenetrable mote that companies have. We don't really run into IP rolling off all that often for these really famous characters. Disney has tried to delay this as long as possible. Asit when you see this news and you start seeing some of these off brand Mickey type things coming out there, what do you think about this with respect to Disney's brand?

Asit Sharma: I think that it has a limited impact on Disney's brand. In fact, it's always good to get a push like this to extend your own IP universe a bit further. The original Steamboat Willie, it's a short. You can watch this. The characters of Mickey and Minnie Mouse are interesting. Mickey is a really rough edged rogue type character compared to the Mickey Mouse that we all know today as it evolved over time. I think Disney has become a little bit protective of that image and doesn't take as much risk with the character of Mickey Mouse anymore. So it's good to see this early version roll off and let the Internet, and by the Internet, Dylan, you and I include AI generated ideas come into play, let them do what they will. Some of that none of us are going to waste time watching, but some of this stuff will get passed around as memes that we'll laugh at. I think it's actually good for the creative process and to keep a big company like Disney on its toes and realize that you have to keep creating that IP. You can't rest on your laurels in business. This is the way things should be.

Dylan Lewis: Asit, let's switch over from the House of Mouse to the king of EVs. We got an update on the latest delivery numbers from Tesla, and with 1.8 million deliveries in 2023, Tesla remains at the top of the charts for EVs. Not all that surprising given the lead that it had, but I think a strong sign of where it is, especially with respect to the US market.

Asit Sharma: Dylan, let's do our ritual removal here of Elon musk from the conversation or we'll spend so much time just talking about Musk and his personality. Let's talk about Tesla, the company. I think this shows a lot of good things for Tesla. One, nice execution in being able to exceed what I think was a consensus estimate of something like 477,000 deliveries in the last quarter of the year. And as you point out, I mean within the year of 2023, they certainly were king. I think this is further evidence of supply chain straightening out. You can't produce and deliver the vehicles if you can't get the components and raw materials coming in. It's also a relationship of several parts of Tesla's business strategy. You've got the incentives piece, so Tesla has been discounting models then retracting some of those discounts. They've been leaning heavily into price promotions. They started advertising a bit, which they were reluctant to do before. The culture at Tesla, which is to do everything to make those deliveries, the extension of production from what was years ago, just the US, into Germany, China, Mexico product plant. That plant is coming up. Maybe it'll be built in a couple of years. When you put this whole puzzle together, you see a company that's become really formidable at meeting its delivery targets. That's maybe not a competitive mode, but it's a sustainable edge. We've seen other big automakers like Ford, GM, Toyota, Volvo, Mercedes all back off of their big talk from just two years ago. They are still investing very heavily in the EV space, but almost to the last of these companies I've mentioned has pulled back a little bit in their planning and extended out their times to move from their current production states to EV production states. Why is that? This stuff is hard. So Tesla still has an edge. Say what you will about the company, its margins, its prospects, Elon Musk. This is evidence on the ground that you shouldn't count Tesla out just yet.

Dylan Lewis: You ran through a couple of who's who of the American car makers there. Certainly in our home market here in the United States, it is Tesla by a mile. But if you broaden out the scope and you look at a bit more globally at EVs, it seems like the competition is starting to creep up there, at least as we look at deliveries. China's BYD came in second for 2023. They had roughly 1.6 million EVs sold, but second place in 2023, they were ahead of Tesla in the fourth quarter of 2023 in deliveries. Now, we don't have BYD cars out here on the roads. They are not really for sale in the United States. But how do you process another upstart EV maker starting to catch up to Tesla and nip at its heels.

Asit Sharma: Amazing story. This is a company that has a lot of manufacturing prowess. They remind me of Tesla in so many ways. But there are a couple of parts of this story which maybe should be a caution against just assuming that BYD is going to leap frog Tesla and every other EV maker on the planet. First, the Chinese government has like one major bright spot in their economic picture, which right now looks so bleak for so many reasons. We've discussed those on Motley Fool Money over the last year or so. But just drive to electrify the vehicle landscape in China is something the government is going to continue to put money in. But we should note, they've rolled back most of the incentives for both the production side and the buyer side. The Chinese still enjoy some tax breaks on consumption, tax on the bio electric vehicles, but the major vehicle subsidies on the consumer side are being phased out by the Chinese government and most of them have lapsed. You're going to see less of the subsidy piece push vehicle sales in China. But BYD pulled the Tesla last year. They started promoting on price, working with price points, and they also sell a cheaper vehicle than Tesla does.

Their top selling models are actually more entry level vehicles, and that's what's allowed them to pump the volume numbers up. Now, how does BYD keep competing with China? It's got to expand out of China. But here you have both in the EU and the US, a lot of regulatory skepticism after seeing what happened with the semiconductor landscape, the solar landscape over the last few decades. In the context of this trade war and geopolitical power match between the US, the EU, and China, I think it's going to be harder for Chinese vehicles to really penetrate these markets. The Chinese EV Power Group, so this is BYD Neo some other auto manufacturers only hold 8% share in the EU just now. The EU is actively investigating the subsidy piece of the Chinese market to see if that's unfair competition in China. I think we have to admire what BYD has achieved, but not assume that it's suddenly going to be the super brand that takes over the planet.

Dylan Lewis: Asit as we mentioned at the top of the show, it is both of our first times on the air in 2024. The beginning of the year is not just when we see copyright protections roll off. It's also that magic time of the year when people are particularly excited for new stock ideas. What's a company that you're paying attention to and interested in in 2024?

Asit Sharma: I'm excited to talk about this company, not just because I'm enthusiastic about its prospects over five years, but I understand that you are a user of its products. Maybe you can give me some feedback on my thesis here. But I want to talk about a consumer facing company called Sonos, which I think most members have probably heard of. They make audio equipment, that is, I would call it up market, I wouldn't call it super high end, but it certainly is a premium product. Sonos hit a wall in late 2022, and throughout 2023 because they are a preferred audio component of choice for home installers, those who are dependent on that home market expanding. The company also has a pretty good retail presence as well, but sales have been flattish as interest rates have spiked and the pace of new homes being built has slowed down. The company is now looking to introduce the next wave of its multi-year product cycle in 2024. They have promised entry into a multi billion dollar market in the second half of 2024, which management says should bring about instant additional revenue.

The stock is trading at around 12 times its next 12 months free cash flow. It's cheap if sales pick up, if earnings pick up. This market is widely acknowledged to be the headphone market. On one hand, I think Sonos has demonstrated that they have really great products. They have repeat buyers in spades. The company is able to raise its price points over time, but I wonder about this, Dylan, and here's where I'd love your advice. The headphone market is really filled with great players, from Apple to Bows, to Sonos, to Bows and Wilkins. Even though this is pretty high quality stuff, the question in my mind is, is Sonos going to be able to find its niche? Or will it discover that this is a pretty tough place to play, even though it is a very respected brand among audio files.? Tell me about your experience, Dylan, and crush my thesis, please.

Dylan Lewis: Well, I was going to say, you're dead on there. I'm a customer and this company for a long time has lived in the space of, for me, great product. I'm not 100% sure on the business. The reason for that is they are a little bit of a specialist and they are in a market that I worry sometimes big tech will continue to creep into. Or that allegiances to certain ecosystems like apple may eat into the customer opportunity for them. But just from my own perspective as a user, I really like the sound quality, you're right. They're a little bit up market for people that want something that is Bluetooth or wireless in their homes for the true true audio files, maybe not the market. I do wonder though if they are looking to get into headphones and that kinds of things. If there is a real opportunity for them, or particularly in the United States where we see iPhone and IOS adoption so high people may go for more seamless integrated products like Apple's Airpods that play into an ecosystem they're already a part of. I'm someone who has airpods and a Sonos, so I am living that reality right now. I would say I am a big bull on the home market for them. I have some big questions when it comes to the wireless market and the headphone market.

Asit Sharma: That's such a great analysis. I'm looking at this as potentially an interesting company for a five-year hold. I think over time that brand power will continue to manifest. But you're so right, Dylan, Sonos has run into issues with Google. They have sued Alphabet a few years ago because they claim that Google was infringing with its own speakers on their technology. They're up against very robust competition with huge balance sheets, and they're a small niche player, two billion buck players. Maybe we can revisit this company I'm interested in a little later this year. Maybe in the summer after they release these new products, we'll see where they stand.

Dylan Lewis: I love it. In the meantime, I'll just be catching you on the episodes that I don't host on my Sonos here at home Asit.

Asit Sharma: Awesome. Thanks man.

Dylan Lewis: We've got more stock talk ahead. But first listeners, a reminder that by day analysts like Asit are part of a team picking stocks and providing coverage for the Motley Fool suite of premium investing services. If you're looking for investing ideas, we're offering Motley Fool Money listeners a discount on our flagship service, stock advisor. A stock advisor, you get two stock recommendations per month, access to analysts like Asit Sharma and our members-only live stream Motley Fool Live as well as stock advisors, Fool scorecard stocks generating market beating returns. To learn more, head to fool.com/mfmdiscount, that's fool.com/mfm discount. Coming up, gross stocks have taken a breather to start the year, but the Nasdaq is still up over 40% over the past 12 months. Motley Fool Money's Deidre Woollard caught up with Motley Fool analyst [inaudible] for a look at some recent winners that could keep winning in 2024.

Deidre Woollard: I'm Deidre Woollard here with Motley Fool analyst Kirsten Guerra and we're going to talk about some of the ways to consider winners in your portfolio. Kirsten, how are you doing today?

Kirsten Guerra: I'm doing great.

Deidre Woollard: So 2023 brought a new phrase to our investing lexicon. We had the fang before it, then we got the Menomena, and now we have the Magnificent Seven, which is Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla. The acronyms change over time, the companies in the acronyms change, but as investors, we always know a small amount of stocks are going to drive a lot of our returns. We just don't always know which ones. Kirsten, how are you considering the role of the magnificent seven in a portfolio?

Kirsten Guerra: I think sometimes investors get caught up in the newer stories. There's an inclination to want something exciting, something under the radar, and I totally get that. The idea of investing into the magnificent seven, which still not sure how I feel about that name, sounds boring to me too. Yet I do have a couple of these in my portfolio. I actually hold them in a category that, in my head, I call defense. Honestly, I think about those as just like an NFL team defense. At the very least, I expect these companies to hold things down on the field to preserve capital, reliably add to my returns through dividends or buybacks. Because these are mature companies, they have strong motes and they can absolutely do that. But honestly, some of them with all the cash flows that they generate, they have the potential to do considerably more than that. They're may be more exciting than some people think. A great defense, after all can sometimes return it all the way for a touchdown. They serve multiple purposes there. There's a lot of reliability and steady returns to be expected from the Magnificent Seven. But when you've got resources and influence like these massive companies do, there's a lot of room for upside as well.

Deidre Woollard: With the Magnificent Seven. You've got some of them in your portfolio. I've got some of them in my portfolio. Luckily, I have other things in my portfolio that did well in 2023. One of our founders, David Gardner, he says, let your winners keep winning. Let your winners run. It sounds easy. But my experience as an investor and I don't know about yours, it's a little nerve-racking. When I see a company, especially a company that suddenly goes on a tear. I get nervous because I know winning isn't infinite. What do you ask yourself when a stock that you've owned, all of a sudden it's sky rocketing. What do you do? What do you think about?

Kirsten Guerra: I don't get nervous. Should I get nervous?

Deidre Woollard: No.

Kirsten Guerra: I do, of course. It's really hard to give a blanket answer of what exactly to look for. Every company is a unique snowflake, not to be confused with actual Snowflake. Ideally, I think if you are invested into a company that's gone on to be a solid winner in your portfolio. You also wrote some investing thesis at the time you invested. That outlined a little bit on why you think it's a great opportunity. Metrics you think are important to watch for its success and what you think are the biggest risks to watch out for. If you did that, then evaluating a winner should be as simple as checking the current state of the company against that thesis and just see if it still holds up. If not, first, I would recommend doing that in the future. But if not, there are still some key things that you can ask yourself, like how much opportunity is left for this company? Does it still have a long runway or are there signs that the market is actually expanding around it? Sometimes big winners actually tap into some latent demand. A opportunity we couldn't even articulate today, what I was suggesting with Apple a minute ago. But it starts to become more evident as the company really takes off. You can think of an Uber for this concept and how it was originally valued based on the overall taxi market.

But in fact, we now know that the tech enabled ease of ride hailing from anywhere that Uber introduced really generated far more interest than the taxi industry because it actually created a whole new use case. It was far bigger than anyone really expected. Look for that if you do see evidence that a company's opportunity is continuing to grow or that they're exercising optionality in some complementary direction. That could be a really great sign that there's still plenty of growth ahead and it's worth hanging onto. Another thing that you'll want to check in on is whether the company is maintaining a durable advantage. Because when you're investing for the long term, as we all are, it's really important to have some confidence that a company can continue to be top dog in its field for years to come. Sometimes the reason a company turns out to be a big winner in the near term is just because it was first to market. Or it disrupted an industry with a far better way of doing things. It gained a lot of attention and sort of ran directly into a greenfield opportunity. But that doesn't usually last forever, or even very long. If your winning company proved the viability of a new market and made that attractive, you should expect that there will be plenty of competitors on their tails and look a little deeper into whether your company has that customer connection that will allow it to continue to hold onto the lead or any other competitive advantage that can keep it on top.

Deidre Woollard: Yeah, absolutely. I liked what you said there about Uber too, because you think about a total addressable market. We've seen this with companies like in video, AMD increasing their total addressable market. But with Uber, had you started off with replacing taxis, then ride hailing, then you got into, Uber eats and all of a sudden you have a whole new total addressable market. That's a really good point in wanting to see a company see where they can grow, where they can expand, as well as deepen their original proposition. Let's talk about one of them that definitely found a green field and that's Duolingo. It's been a tremendous run for that one. Recent earnings showed a really strong jump in paid membership up to 5.8 million. What makes Duolingo a winner?

Kirsten Guerra: Duolingo has just got great unit economics. It operates a freemium business model, so anyone can use the app for free, which is really important for building the social network element that is inherent in this app. Then the dedicated users who want to and who want more advanced features can go premium for a monthly fee. The pretty common model these days, but Duo is very, very efficient at upgrading those users. Whoever runs their marketing team, especially their Tiktok, probably needs another raise because they are so so good at generating new users, new premium users. Really just spreading brand awareness of the company in general at relatively low customer acquisition costs.

Deidre Woollard: Also, I think stickiness, I think for winners, a lot of it you want to see stickiness whether it's on the B2B side where it's a software that a business can't live without or whether it's on a consumer side with something that is just really addictive. I mean, I think the thing about Duolingo is people want to keep their streaks. You've got daily active users up to 24 million. That's a really great thing. But with the consumer side, it's always a little tricky. The consumer is so fickle. Trends do end. What could potentially go wrong with Duolingo as you watch it?

Kirsten Guerra: Yeah, I'm one of those fickle users too. Keeps getting upset at me. The icon will actually start melting on my desktop. It's like this dramatic. Anyway, they're very good at bringing you back. But yeah, trends certainly end, but someone somewhere will always be learning a new language. A lot of someones, it's estimated upward of a billion people at any given time are learning a language. That's not going away still. That doesn't mean that interest in language learning couldn't shift elsewhere. It's done that before. Before Duolingo, Rosetta Stone was the big name in computer aided language learning. But Duo's mobile focus is really what helped it capture all the mind share from that former powerhouse. Duolingo definitely needs to stay alert and continue to be the innovator in this space. It's not disrupted from another direction in the same way that it disrupted before. But it does have also the social element that Rosetta Stone never did. There are lots of friend networks that are on this app, kind of learning together and celebrating each other. That does make it harder to unseat.

Deidre Woollard: Yeah, absolutely. I think the social aspect of the business is a surprising part of it. I know you've talked before about Spotify too and that has that social aspect as well. I think that's one of the things that you can't really factor it into, into the business itself, but it definitely contributes to the thesis.

Kirsten Guerra: Yeah, absolutely.. It's not the strongest network in the world. It's not a Facebook for example, but it's certainly there.

Deidre Woollard: Yeah, absolutely. Well, in thinking about these winners, one of the things I think about is looking forward. One of the stories of the most recent quarter was that you would have a company that would come up with good, solid, great earnings. But then they had a modest forecast and the market was not happy. You saw things go down relatively quickly. I tend to be a fan of the realistic CEO with the modest forecast, but the market loves the bombastic CEO with the big prediction, especially when they pull it off, but even sometimes when they don't. How do you think about forecasts in general, especially as you're looking at your winners?

Kirsten Guerra: On one hand, leaders know their business far better than you or I ever will. They spend a lot more time in that space. They also even have insider knowledge essentially of how well the active quarter is going, even as they're publicly discussing the previous quarter. I certainly want to hear from leaders, I want to know what they're thinking and what they expect. But I'm the same. I respect the more realistic forecasts, although if you do see a big claim and you're curious, you can certainly dig into a leader's track record to see what you think. That's something that Tim and I did. Tim Beyers, who I work with on a service here. We saw a leader make a claim and we thought, big, if true. We went back and did a deep dive of claims that the CEO had made over the last 10 years or so, and just noted how accurately each of them played out, it turns out really well. That definitely helped us feel more confident in that company's valuation at that point in time based off his bombastic projections at that point.

Dylan Lewis: As always, people on the program may own stocks mentioned and the Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely on what you hear. I'm Dylan Lewis. Thanks for listening. We'll be back tomorrow.