In this podcast, Motley Fool senior analyst Tim Beyers discusses:
- Disney shares falling after a lackluster second-quarter report.
- The fate of Hulu.
- Why The Trade Desk is an attractive business (with a richly valued share price).
To celebrate Mother's Day, Motley Fool employees Lysha Fuentes, Jim Mueller, Anand Chokkavelu, and Jim Gillies share money lessons they got from their moms.
Got a question about personal finance? Email [email protected] and your question might get used in a mailbag segment!
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 May 11, 2023.
Chris Hill: We've got a motherload of money advice, Motley Fool Money starts now. I'm Chris Hill joining me today, our man in Colorado, Motley Fool Senior Analyst, Tim Beyers. Good to see you.
Tim Beyers: Good to see you too, fully caffeinated, ready to go.
Chris Hill: Likewise, would that shares of Disney, we're fully caffeinated instead, they are down 8% this morning because, stop me if you've heard this before, theme park part of the business was strong in the latest quarter, and maybe the streaming business gets an outsized amount of attention. But it is what it is. It's getting closer to profitability. But they lost four million subscribers. I think that along with a few other things, probably is what has people spooked. In terms of the results themselves, what stood out to you?
Tim Beyers: Well, let's remember, you're right, that they're not losing as much and we're inching closer to profitability in terms of Disney+, however, direct consumer operating losses for the quarter. We're at 659 million. That is down or better from 887 million in losses last year during this time. But as you said, they are losing subscribers. That is not a good look. That is not a good part of the business. Overall, the domestic contribution from Disney+ for this quarter was down 1%. That's in terms of paid subscribers. So not great overall. Down four million, also not great. But guess what? Sportball is still Sportball, Chris, I mean, up 2% was ESPN+ here. What I like is that Disney is recognizing that Disney+ as its own asset needs help. There does seem to be more of an emphasis on The Disney Bundle, because The Disney Bundle, I think works. Disney+, not so much, at least not yet. So that does stand out to me. This idea that we're going to see maybe more Hulu originals that find their way into Disney+, I think we're seeing the weakness of a business. I'm speaking specifically about Disney+ here, Chris, which relies on historical content. I said this on The Morning Show, so I'll repeat it here, but only for the purposes of illustration. Disney+, in a way, is like Turner Classic Movies. It's amazing. I love Turner Classic Movies, but it's where you go for the hits. I go to Disney+ for Star Wars, I go for Marvel, and I go for known entities. I'm not really surprised by what I get at Disney+ and what we're finding here, Chris, is that after a while, I'm not surprised anymore. So I'm tired and I cycle out and I go onto something else.
Chris Hill: Can you tell me where Hulu is going to be in a year? Because increasingly, it seems like Hulu is this football being passed back and forth, at least in the business media between Comcast and Disney. As soon as I hear one of the companies talk about the virtues of it and why they like it. In the next breath, it's like, but we're probably going to sell. Who wants Hulu? Not from you and me and the dozens of listeners'consumers' standpoint. As a business, where is Hulu going to end up?
Tim Beyers: I'll tell you where I hope it ends up. I hope it ends up with Disney because I do think that Disney needs more fresh programming injected into its direct-to-consumer efforts here. This is one of the things that makes Netflix an interesting and more resilient business than what we're seeing from Disney+, is that there is always something fresh. Now does that mean that Netflix has no stinkers? No, of course not. They put out stuff that's terrible, but they put out a lot of stuff. So when something is not hitting in the US, it might be hitting in Brazil, it might be hitting in South Korea, it might be hitting in Japan. So there's a resilience to that because there is always a constant stream of new. Disney needs that, they need some fresh injection into what they offer with Disney+ so that they can justify the higher overall subscription price they want to charge for their business. I really hope that Hulu ends up with Disney, Chris because I think that Disney needs it more.
Chris Hill: Last thing on the stock, I get the short-term questions, particularly when you layer in the uncertainty of the writers' strike and how long that will go and what the ripple effects will be for the business. You layer in the uncertainty of Bob Iger is the CEO at the moment, but who's going to be next? But long term, do you look at the stock trading down where it is today and think, now this seems like a pretty nice entry point for people who are willing to be patient?
Tim Beyers: I want to say yes, the reason I'm going to say a strong maybe is because you could have said that so many times over the past several years, and really got nothing for your efforts. So what I really want to see before I say a strong yes here, Chris is an operational plan for the direct-to-consumer business that scales it to consistent operating profit and we're nowhere close to that yet, Chris. So as a Disney shareholder, I have no designs on selling my shares, but I am not in the mood of buying more at the moment.
Chris Hill: First-quarter revenue for The Trade Desk was 21% higher than a year ago. I don't want to say that this was all sunshine and rainbows in terms of the results from The Trade Desk. But free cash flow is up, margins are up, the businesses, for the most part, doing what you would want to see if you were a shareholder.
Tim Beyers: That is absolutely right. Let's just park on those cash flows for a second here because that's pretty important. Year over year for the quarter 187.5 million in cash from operations versus 146.2 million year over year. The contribution from stock-based compensation in that time was down. So this is not juiced by artificial sweetener here per se, this was just a better operating report. Good improvements on working capital, for example, accounts payable. Outflow last year of about 246 million versus an outflow of about 200 million this past year. So just a better operating quarter. They're generating free cash flow not enough to cover the stock repurchases during the quarter, Chris, but covering a fair amount of it. This is a business that is getting better. I want to park briefly on the stock repurchase, which I think is a good sign for The Trade Desk. So the overall five million shares repurchased about 293 million for that. So you're looking at about $59 a share, stock trading higher than that right now. They do issue a lot of stock-based compensation, so this is not perfect. But if you're going to buy back shares and you're buying them back at lower prices than your stock is trading. That's pretty good. That's not bad. So they are doing better here, Chris.
Chris Hill: The stock is down a little bit today, but even with that year-to-date, shares of The Trade Desk are up 40%. How richly valued is this stock right now in your opinion?
Tim Beyers: I do think it trades for premium. I think the reason you're seeing it down today has as much to do with the change in Chief Financial Officer. Grayson, the CFO stepping aside for a long-term employee who is stepping up into the role. She's got 20 years of experience, so I could see why the stock is trading down a little bit on a down day here. It does trade for a bit of a premium, but I like the sensibility that Jeff Green is bringing to the business. I'm going to see if I can quote something here on what he said about AI. Everybody's talking about AI. But the way that The Trade Desk talked about it, I think is a bit more important. The way that he talked about it is that The Trade Desk has a huge amount of very specific data that it can use to train its systems to get better at serving clients. For those who don't know, The Trade Desk is a demand-side platform. When you want to buy advertising, it does behove you to get really good bids and really good insight into how the advertising market is evolving. This is a really good use case, Chris, for AI. If you get better insights from a really large dataset and better predictions about what that data will tell you. That's an outstanding case for AI versus ChatGPT, which is like we got a blob of everything in here. What do you want to ask? Maybe we'll have an answer. Or we might mansplain something to you, and you'll want to punch us in the face, which is more like what you get from ChatGPT. There is actually a real use case for AI in The Trade Desk. I think you're starting to see just the very beginnings of what they can do with that data.
Chris Hill: Tim Beyers, always great talking to you. Thanks for being here.
Tim Beyers: Thanks, Chris.
Chris Hill: Just in case you forgot, Mother's Day is on Sunday. To celebrate, we rounded up a few of my colleagues to share a few money lessons they got from their moms.
Ricky Mulvey: Happy almost Mother's Day. In celebration, we asked four fools one question. What did your mom teach you about money? Up first is Lysha Fuentes who works on Motley Fool events.
Lysha Fuentes: My mom taught me the value of making extra payments toward any loans I may have. Whether that's mortgage payments or car payments, this will ultimately help me make fewer payments in the long term, and less in those interest payments.
Ricky Mulvey: Next up is Motley Fool Senior Analyst Jim Mueller.
Jim Mueller: My mom taught me the value of saving and paying up for quality to buy something that is going to last a while rather than buying an inferior version over and over again. The example may not be exactly that way but that's what I took from it. When I was growing up, we ate very well and part of it was because every year she would buy half a cow. [laughs] It sounds funny and when I say that she's stuck it in a chest freezer, I'm not talking about legs sticking out of the freezer or anything. She bought it straight from the butcher, so she got a lower price and it was a higher quality because it was a freshly butchered cow and so we had steaks and ground beef and roasts and ribs and all the stuff you get from a cow. She wouldn't have to buy it from the grocery store and pay a higher price all throughout the year and so she ended up saving money. But the upfront cost of half a cow was quite a lot of money, and so she had to budget and save up for that. Then she makes it up on the back end after not having to buy steaks and ground beef throughout the year from the grocery store. That's what she did. I know it can be hard for people, especially when they're living closer to a paycheck-to-paycheck level. But if you can, for instance, shoes, rather than buying sneakers that are now last year and wear out, save up and pay two or three or four times as much but get a pair of shoes that will last six or seven or eight years. You end up saving money over the long run that way so that's what she taught me.
Ricky Mulvey: Next is Anand Chokkavelu, The Motley Fool live streams programming Director.
Anand Chokkavelu: My mom ran the finances in our house and she's an immigrant and came with zero knowledge about finances. But she taught me three things I think that I took away from all of the discussions and watching her over the years. One is to keep asking questions until you understand. A lot of us are just, say, well, I spent some time and you don't quite understand, you don't want to show your ignorance and you hear some jargon but she will just keep as I've heard her on the customer service lines, the poor customer service representatives, when she doesn't understand the nuances of something, she will just keep hammering away and that's something I tried to get better and better at the older I get. The second thing is to buy and hold. I've looked at some of the stocks that she bought in the '80s and '90s and probably the '90s and still owns them and they're like the blue-chip type of stocks that have just, it's amazing to see compounding over the years and you really see it when you buy and hold. The third thing is temperament over anything else. She's very calm and totally, she keeps asking questions until she understands but she buys and holds. She's not going to make rash decisions and if they are, they're on the margin and very small. She's not risking everything on one silly bet that she thought of this morning.
Ricky Mulvey: Finally, we've got Motley Fool Senior Analyst Jim Gillies.
Jim Gillies: I'm going to say inadvertently, my parents, lovely people, salt to the earth gives you the shirt up their back if you needed it. But my mother is the seventh child of a defacto single mother who lived through the Great Depression. My mother really learned the value of stretching a dollar and then stretching it and then stretching it a little bit more. Growing up, my father was the primary breadwinner, my mother stayed home with us kids for a lot of the time and then I would argue my mother was underemployed for a lot of her career. She's a teacher and we never wanted for anything. What you learn from your parents and particularly mom about money, we were always fed, we had a roof over ahead, we knew we were loved, all of the wonderful stuff. However, my mother is responsible for me working for The Motley Fool today, which is a strange thing because it's a sliding doors to [inaudible] people know that reference anymore but sliding doors, you turn left instead of turning right and your life unfolds in a way perhaps you didn't envision it. I believe it was 1996.
My parents had recently paid off their house at that time and they were in their '50s and so the possibility of retirement and golden years is staring them down the face and my mother expressed an interest in learning this investing thing. Now, my background is I have a couple of engineering degrees. I was a perfectly happy, so I thought, engineer working in process redesign for environmental purposes. Decent little career stuff is still fairly young, visible career starting out so I knew nothing about investing. Investing was never ever a topic in my house growing up. Here's mom talking about well, I'd like to start investing. At the time I live on the west side of Toronto and at the time they lived on the east side of Toronto. I was going back for a weekend, a Mother's Day weekend specifically in 1996 to say hi to mom and dad and maybe meet with some friends, take mom out for mother's day brunch and all that wonderful stuff. The gift I bought her, I went into a bookstore and I bought two books on investing. I don't remember what the one book was, probably some Canadian companion and mutual funds or something. But the other one was a book with a couple of guys with silly hats on the front page. Almost gesture caps if you will, Fools caps if you will. When I looked at the back, I'd never heard of The Motley Fool, I didn't know, I had no idea that Tom and David Gardner were.
But it looked fun. They'll look funny. I thumbed through it. I said, this might be interesting and it's not boring financial stuff that might cause Mom to look at it and go whatever. We went out for brunch on Sunday morning and that was Mom's gift and I didn't really think anything of it until about a year later when again, I was visiting mom and dad for a weekend and I think I had a bout of insomnia and I really couldn't fall asleep and this is Saturday night at midnight. I'm like, I want to go find a book that I can read in this little [inaudible] and a stupor and I saw the Motley Fool Investing Guide sitting on the shelf, looked like it had never been read. What the heck? I grabbed it, started reading. I think I was up until about 3:00 in the morning reading this, it just inherently made sense to me the concept that you as an individual can invest for yourself. It covered things like sub rudimentary valuation, metrics at cause, talked a little bit about business and business strategy, about the value of rising dividends, I think Coca-Cola featured fairly prominently in the book as an example and I was hooked. Mom, if you're listening, I stole the book from you that I gave you a year earlier. I stole the book that day. I took it back to where I was living on the other side of Toronto at the time. I read the whole thing and reading that book spark me.
There were a lot of references to Peter Lynch in there, so of course, the next logical books to get were, Peter Lynch's One Up on Wall Street and Beating the Street. Devoured those, and really got into looking at some of the other famous investors. They talked about some guy named Buffett, featured prominently as well. It sparked a love of investing that I didn't know was there and didn't know I had because again, as I mentioned, investing was not a topic that was ever discussed in my house growing up. One thing led to another, ultimately I left my engineering career after about nine years. I quit without a plan to go back. I did an MBA in finance, invested my money since the late '90s personally, since about '97 personally and I've now been with the Fool. It's going to be 18 years in July because I was very active in the old Motley Fool investing forums and that's where I got to know Tom and David and one thing led to another and it comes back to me buying some random book for Mother's Day for my mother and then a year later, just deciding to read it for myself and it's one of those things where if I don't buy that book, do I ever move into investing? Do I ever discover this latent passion for a topic that I literally knew nothing about until 1997. Mom, if you're listening, thank you.
Chris Hill: Quick note before we go next Monday, Robert Brokamp and Alison Southwick are recording a mailbag segment so if you've got questions about all things personal finance, dropping out to podcasts at fool.com. As always, people on the program may have an 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.
