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Speaker 1: Stephen Arthur federated Hermes, writing this, we remain optimistic.
Speaker 3: This season has been.
Speaker 1: Exceptionally positive, with earnings running eight percent year over year
Speaker 1: and upward revisions running higher than usual. Stephen joins us. Now, Stephen,
Speaker 1: wonderful to see you. Thank you so much for coming back.
Speaker 1: You're right, earnings have been surprising to the upside. Why
Speaker 1: are stock traders not necessarily impressed?
Speaker 3: Lisa? Could you repeat that again? Your right? I loved that?
Speaker 1: All right, all right, you're right, ste This sounds like
Speaker 1: a home squabble, Evehn.
Speaker 3: You're right, so carry on.
Speaker 4: At least that these stocks have had big run like,
Speaker 4: look at Disney, it's almost doubled over the last year.
Speaker 4: A lot of these stocks have run into earnings, and
Speaker 4: so you know, traders are taking profit. That's pretty normal, actually,
Speaker 4: and we tend not obviously we're too big to trade
Speaker 4: the day, we don't really do that. But we look
Speaker 4: at the longer term picture, the next twelve months, we
Speaker 4: see a broad rotation out into everything else.
Speaker 3: Just starting to see it already.
Speaker 4: Disney's not like on our by list per se, but
Speaker 4: it's one of those stocks that probably is going to
Speaker 4: participate in that rotation.
Speaker 2: Right.
Speaker 4: It's relatively inexpensive. It's really been in a doghouse for
Speaker 4: a long time. It's starting to come to life. It's
Speaker 4: got a long way to go to get back to
Speaker 4: where it used to be three four years ago.
Speaker 1: So the numbers allow people who like to spend narratives
Speaker 1: to spend them in any which way they want to,
Speaker 1: and so it's kind of a field day for people
Speaker 1: who have lots of creativity and some time to do so.
Speaker 1: I'm curious if you look at the earnings, it does
Speaker 1: look like any mention of uncertainty is punished at a
Speaker 1: time where there's a lot of uncertainty, and some of
Speaker 1: the economic data has pointed to a potential stagflationary type
Speaker 1: of mix that definitely surprised markets.
Speaker 3: So which is it.
Speaker 1: Are people responding to that and penalizing that. Have people
Speaker 1: recognized those risks in valuations?
Speaker 2: Well?
Speaker 4: Yeah, I mean, the overall market's really not that expensive
Speaker 4: once you take out the MAC seven, which are kind
Speaker 4: of special exceptional companies globally, right, you take them out,
Speaker 4: the rest of the market's trading around nineteen twenty times.
Speaker 4: We don't think that's an unreasonable level, and we think
Speaker 4: it's the rest of the market where there's value right
Speaker 4: now in the market. So you know, I would call
Speaker 4: it it's an environment where there's short term certainty and
Speaker 4: long term less uncertainty. I mean, if you look at
Speaker 4: the pattern of what's happening right now as an example,
Speaker 4: when I was on a few months ago, we were
Speaker 4: talking about this, the soft soft data is signaling a
Speaker 4: slow down.
Speaker 3: The hard data is still good. When is it going
Speaker 3: to catch up?
Speaker 4: The hard data by virtue of the fact that it's
Speaker 4: hard is rear view mirror stuff. It's what the FED
Speaker 4: uses as an example.
Speaker 3: I call it the cracked rear view mirror.
Speaker 4: We're in a news cycle here that's twenty four to
Speaker 4: seven now more than ever. Trying to make forecasts bake
Speaker 4: based on hard data is you're fighting yesterday's war. So
Speaker 4: the FED is now coming around because the hard data
Speaker 4: is finally softening up. We've been screaming that they should
Speaker 4: be cutting way back in the spring. They're now going
Speaker 4: to do that. We're entering a cutting cycle. But the
Speaker 4: soft data is starting to turn. Look at things like
Speaker 4: air travel boom, it's spiking. The Dallas Fed's real time
Speaker 4: economic indicators, it's up one hundred basis points in the
Speaker 4: last month. You look at consumer sentiment surveys up ten
Speaker 4: points in the last couple of months. You got small
Speaker 4: business confidence indicators up ten percent last couple of months.
Speaker 4: You look at the market and the industrials, the cyclicals
Speaker 4: are starting to lead. You know, we do a lot
Speaker 4: of bipos and federate hermes. Right, I got I'm teasing
Speaker 4: the guys in the office. I've become the office receptionist
Speaker 4: after five PM. I mean, like, I get these companies
Speaker 4: all showing up, right, I mean that market is really
Speaker 4: picked up. That's not a sign that confidence is falling
Speaker 4: over amongst the people that actually make decisions in the economy.
Speaker 4: So we see all the soft indicators picking here most
Speaker 4: of them, and uh, you know, we're pretty optimistic, as
Speaker 4: you know.
Speaker 5: But we're all our good news though. What's been pricing
Speaker 5: in is the uncertainty of tariffs. They're actually going to
Speaker 5: bite and we're going to have an average terif rate
Speaker 5: about fifteen to twenty percent this time last year was
Speaker 5: two point five percent.
Speaker 4: Yeah, I think you got to check the math on that,
Speaker 4: because the actual remember that a lot of the goods
Speaker 4: that come in that come into the US come through
Speaker 4: Canada and Mexico. The goods that come in there through
Speaker 4: USMCA are zero percent. So when Trump talks about these
Speaker 4: massive tarifs on canemas are he's talking about trade that
Speaker 4: they've brought across the border that doesn't conform with USMCA,
Speaker 4: which in the case of Europe, if they were doing that,
Speaker 4: they'd throw them out of the union. So you've got
Speaker 4: to make you've got to account for that zero part
Speaker 4: of the thing. The actual tariff rate on average right
Speaker 4: now as we know it is about thirteen percent. We
Speaker 4: figure about half of that's going to be paid by
Speaker 4: the foreign importers. So you're looking at fifteen percent of
Speaker 4: the economy's imports. Half of that is not going to
Speaker 4: be you work out the math, it's about an eighty
Speaker 4: or ninety basis point price increase, probably spread over six months.
Speaker 4: There's all these other things that are decreasing in price, commodities, steel, oil,
Speaker 4: regulatory costs, taxes. Another way to think about what Trump
Speaker 4: is doing here is he's increasing a consumption tax, a
Speaker 4: prely efficient one, by the way, because it's partly paid
Speaker 4: by foreigners, and he's using it to fund an investment
Speaker 4: tax reduction. With all these accelerated, the multiplier on investment
Speaker 4: spending is multiples of what it is on consumption spending.
Speaker 4: So there's a kind of shift going on in the economy.
Speaker 4: I get the tariff thing is not that positive, but
Speaker 4: it's not as big of a deal. It's the one
Speaker 4: thing everyone can hang on to. So it's a good
Speaker 4: discussion point.
Speaker 3: You mentioned the president a few times.
Speaker 5: He thinks you have great analysis, by way, because I
Speaker 5: follow his truth social and he has treated about you
Speaker 5: right now. He has what some would say, undermined market
Speaker 5: credibility when it comes to hard data releases by firing
Speaker 5: the commissioner at the BLS continually going after the FED,
Speaker 5: and some are saying maybe it's going to be very
Speaker 5: overtly political individual he'll put at the FED.
Speaker 3: Do you think he's undermining market confidence a little bit?
Speaker 4: I'm my advice to him, not that he takes my advice,
Speaker 4: but I don't think it's necessary to pound the FED
Speaker 4: chair as an example. On that case, I would just say, look,
Speaker 4: the FED chair is a rear view mirror looking guy.
Speaker 4: He simply is going stop listening to what he says
Speaker 4: he's going to do, and just think about what he's
Speaker 4: likely to do. And we think we've been saying for
Speaker 4: a while he's going to start cutting in September. Now
Speaker 4: that the rearview mirror is looking like it should, he
Speaker 4: will on the labor secretary. One reason that storm is passed,
Speaker 4: and I don't necessarily agree with the pressure there either,
Speaker 4: but one reason that storm is passed is because the
Speaker 4: reality is, let's face it, I've heard you complain on
Speaker 4: the air about the labor numbers.
Speaker 3: They've been terrible.
Speaker 4: Yeah, there needs to be an overhaul of that department.
Speaker 3: The physician did.
Speaker 4: From that perspective, it probably would have not even been
Speaker 4: a news story. But the end of the day, people
Speaker 4: are saying, yeah, the labor numbers aren't really good. Yeah,
Speaker 4: the Fed, No, they've been in a lot of bad
Speaker 4: calls here, So he's not completely off base with the
Speaker 4: pressure in these areas.
Speaker 1: How concerned are you about inflation given the fact that
Speaker 1: right now you look at backward looking numbers that might
Speaker 1: constrain the economy, but the forward look is pretty rosy
Speaker 1: at a time where you do have some input pressures
Speaker 1: with prices.
Speaker 4: Yeah, but the Fed's not looking forward so bad.
Speaker 3: That's fine.
Speaker 4: And the other thing is that, you know, I look
Speaker 4: at the actual ongoing inflation rate here, it's kind of
Speaker 4: stabilizing around two point five to two point well, it's right,
Speaker 4: two point six, two point seven, but it's going to
Speaker 4: stabilize by next year two point five. That's really the
Speaker 4: feds informal target. I think they figured out a long
Speaker 4: time ago two is too close to zero for government work.
Speaker 4: So assuming that, right, shouldn't the FED funds rate, if
Speaker 4: you look at history, should be about fifty basis points
Speaker 4: above that.
Speaker 3: That's three.
Speaker 4: So we have FED funds going to three over the
Speaker 4: next eighteen months. I think that's where we're heading. Here,
Speaker 4: and so I would just say I got six cuts
Speaker 4: coming against a backdrop.
Speaker 3: That's pretty good.
Speaker 4: We have the FED cutting not because they need to,
Speaker 4: but because they can. And now that they think they
Speaker 4: need to, they'll start doing it. And once they realize
Speaker 4: they can, they will.
Speaker 1: Stephen as he is the receptionist at Federated Armies where
Speaker 1: he offers lots of pigs in a blanket. Do you
Speaker 1: have your your your different facts?
Speaker 3: Ye? Yeah, exactly.
Speaker 1: Stephen off Cio of Equity is a Federated Armies.
Speaker 3: Thank you.
Speaker 1: Turning back to markets, we are seeing stocks looking through
Speaker 1: all of this looking to rebound after the S and
Speaker 1: P five hundred posted its fifth down day in the
Speaker 1: last six Anastasia and Moroso Partners Group writing this, this
Speaker 1: is a long awaited quarter of adjustment and the market
Speaker 1: may need to act accordingly.
Speaker 3: Expect expecting less.
Speaker 1: Upside and more choppiness in Q three and the Stasia
Speaker 1: joins us, now, great to see it morning. All right,
Speaker 1: So this is the adjustment that everyone is expecting, that
Speaker 1: everyone's looking to buy into.
Speaker 3: How do you get an adjustment?
Speaker 1: And I asked this question yesterday, how do you get
Speaker 1: a sell off if everyone's looking to.
Speaker 3: Buy the dip.
Speaker 6: Well, I think the newsflow is going to dictate that,
Speaker 6: and we need to have more Caterpillar like reports that
Speaker 6: talk about the tariff hit that some of these companies
Speaker 6: are going to have to absorb, and some of them
Speaker 6: may be in line with consensus expectations and some of
Speaker 6: it may not. You know, I think that could be
Speaker 6: one trigger for a potential pullback as we really do
Speaker 6: realize the tariff hit. The other trigger, of course, is inflation,
Speaker 6: and inflation and expectations for next week are somewhat subdued,
Speaker 6: but could we see some potential surprises there, so you know, maybe, Lisa,
Speaker 6: the move here in the market is not necessarily tremendous downside,
Speaker 6: because I think some level of expectations already baked in.
Speaker 6: But that's why I really kind of call it the
Speaker 6: quarter of choppiness, because on the one hand, we need
Speaker 6: to mark to market some of these tariffs, and at
Speaker 6: the same time, we also know that if the label
Speaker 6: market weakness weakens as a result of that, then that
Speaker 6: sets us up for a September cut. And I think
Speaker 6: that's what the markets are caught in between, and that's
Speaker 6: why we sort of get the back to back days
Speaker 6: of selling and buying and selling and buying, and I
Speaker 6: think that could continue.
Speaker 1: That's the reason why you're seeing some selling even on
Speaker 1: the heels of earning supports that are really positive, which
Speaker 1: we've seen increases to forecasts that beat expectations, and then
Speaker 1: the likes of AMD selling off.
Speaker 3: I'm just wondering, what do you do with the job?
Speaker 6: Well, I think for public market investors, if you have
Speaker 6: any sort of pullback, of course, you step in and
Speaker 6: you sort of buy your favorite names, and I would say,
Speaker 6: you know, for us, it's really about long term investing
Speaker 6: at Partners Group and focusing on thematic investing and really
Speaker 6: aligning yourself with some.
Speaker 3: Of the key secular growth themes.
Speaker 6: You know, as much as we worry about the next
Speaker 6: inflation report or the next you know, rate cut or not,
Speaker 6: what truly determines whether the company is going to outperform
Speaker 6: or not is whether it's aligned with the lawng term
Speaker 6: trend of let's say, artificial intelligence or perhaps healthcare innovation
Speaker 6: or new way of living, and whether you align with.
Speaker 3: That and benefiting from that.
Speaker 6: So, you know, if there is an opportunity to buy
Speaker 6: into that in public markets, that's great for us. I
Speaker 6: think there's a lot of delectivity that we're looking at,
Speaker 6: and given the clarity of tariffs that is emerging, I
Speaker 6: think for the private equity industry in general, the deal
Speaker 6: activity is likely to pick up.
Speaker 5: Is it the clarity because the rates are set, or
Speaker 5: is it the clarity that they're not as bad as
Speaker 5: some would expect.
Speaker 3: Both both.
Speaker 6: I mean, Emory, you know, we put this chart together,
Speaker 6: you know, looking at the percent of world GDP that
Speaker 6: had a deal in place. Back in April, it was zero,
Speaker 6: you know, nobody had a trade deal done with the
Speaker 6: United States. And today, fast forward to today, in about
Speaker 6: thirty percent, about twenty eight percent of the world GDP
Speaker 6: has some sort of a deal in place, and there's
Speaker 6: still a big chunk of global GDP that's in negotiation.
Speaker 3: So that's the.
Speaker 6: First point is that you have predictability, you have some
Speaker 6: clarity for a growing share of GDP. The second point
Speaker 6: is the one you made, which is, you know, for
Speaker 6: most countries that are able to negotiate a deal, they're
Speaker 6: doing so at a lower ter afraid that could have
Speaker 6: been under the Liberation Day announcement. So I think it's
Speaker 6: both of those things. And then the third point is
Speaker 6: now that we have the numbers, Now that we have
Speaker 6: the certainty, we actually know how to price things. And
Speaker 6: this is why I say some of the delactivity can
Speaker 6: also move from being contemplated to actually being materialized because
Speaker 6: we know exactly what we have to pencil into the models.
Speaker 5: But what happens when the higher rates, which is a
Speaker 5: much higher average rate than we had last year, actually
Speaker 5: starts to get digested in this economy two point five
Speaker 5: percent versus fifteen percent, twenty percent depending on righty right.
Speaker 6: Well, that's why I call this a quarter of adjustment,
Speaker 6: and is going to happen this quarter. If you think about,
Speaker 6: for example, the tariffs that were back back in April
Speaker 6: about three percent. Now the tariffs have ratched up closer
Speaker 6: to ten percent, and I think most of that is
Speaker 6: being collected now, and in the next month or two
Speaker 6: we're going to see fifteen or sixteen percent that's collected.
Speaker 6: But one thing that I will refer back to the
Speaker 6: Caterpillar report that I found interesting.
Speaker 3: They very much talk about profit.
Speaker 6: Margins including the tariff hit, but also profit margins excluding
Speaker 6: the tariff hit, and that really suggests to me that
Speaker 6: companies as well as the FED are treating this as
Speaker 6: a one off adjustment that they need to take, they
Speaker 6: need to process, and I think it happens in Q.
Speaker 1: Three as you see the pipeline of opportunities in the
Speaker 1: private markets really build steam. You're buying it to open
Speaker 1: AI at five hundred billion dollars.
Speaker 6: I will defer to our investment teams on that, but
Speaker 6: you know, I think valuation is something we take very seriously.
Speaker 6: And look, I will say Lisa broadly speaking, and private markets,
Speaker 6: you know, it's where can we find the most robust
Speaker 6: margins and where can we find the fastest growth rate
Speaker 6: and EPs and how can we actually build that.
Speaker 1: That's where we're focused on building, rather than maybe buying
Speaker 1: into after the fact. You give one hundred million dollar
Speaker 1: bonuses to all the people to have them stay in place,
Speaker 1: although that might be the benefit for some of these strategies.
Speaker 1: ANC Gamors a partners group. Thank you, wonderful, Thanks to
Speaker 1: you as always. Frankly of HSBC has a buy rating
Speaker 1: on the stock and a price target of two hundred
Speaker 1: dollars from the current one hundred and sixty three, Noting
Speaker 1: a bullish AI own a need for higher conviction to
Speaker 1: drive earnings upside.
Speaker 3: Frank joins us now for more. Frank, thank you so
Speaker 3: much for being with us.
Speaker 1: How frustrating is it to get the fundamental story right
Speaker 1: and the price action wrong.
Speaker 7: Yeah, that's a good question, I think when you think
Speaker 7: about this, though, it was just really about the conviction
Speaker 7: that the management needed to give people. We had a
Speaker 7: really strong enough into results. So I think going into
Speaker 7: these results, people were looking not only for a good number,
Speaker 7: but something tangible for analysts to be able to raise
Speaker 7: their numbers significantly after these results. I don't think we
Speaker 7: got that, so I think that was why the shares
Speaker 7: didn't react so well. And I think the other point
Speaker 7: was China as well. There was a lot of expectations
Speaker 7: built into that d I threeh eight would come back,
Speaker 7: But it also shows you the complexities of the China
Speaker 7: US relationship. So I think now people are going to
Speaker 7: have to take a step back and look at whether
Speaker 7: or not how quickly these licenses can come and how
Speaker 7: quickly these revenues can come. But again, I think the
Speaker 7: market is over focusing a bit on it, because if
Speaker 7: you look at the fundamentals, there's a lot of growth
Speaker 7: still in the hyperscalers that's more than enough to go
Speaker 7: around to drive their growth, So.
Speaker 1: Our investors just sort of looking for certainty where there
Speaker 1: is none. Are the outperformers right now just giving false
Speaker 1: promises of hope or are you saying that essentially there
Speaker 1: are some companies that are more fortified against some of
Speaker 1: these uncertainties and are getting.
Speaker 3: Rewarded for that, and these others are sort of in.
Speaker 1: A weight and see mode from a stock performance standpoint.
Speaker 8: Yeah.
Speaker 7: So, I think you know that the China element certainly
Speaker 7: has become a big part of the narrative this year,
Speaker 7: not only for AMD but also for Ennvidia, So I
Speaker 7: think that has complicated the AI story a bit in
Speaker 7: a way. I think you know that the expectations are
Speaker 7: probably a bit more bullish on that. But we also
Speaker 7: believe though that you don't quite need the China story
Speaker 7: for this to play out. I mean, we still see
Speaker 7: very strong demand. They highlight on the call that the
Speaker 7: Mi I three five five is doing very well, better
Speaker 7: than expected, and the pricing OUTLOAK is better, So we
Speaker 7: do think that it can continue to work. I think
Speaker 7: the narrative has been a little bit too narrowly focused
Speaker 7: on on the China part, and we've come to realization
Speaker 7: that is not going to be as easy for China
Speaker 7: revenues to come back in as people previously expected.
Speaker 5: If we get sit on China for a second, why
Speaker 5: is it so much harder for AMD than in Video.
Speaker 7: Well, we haven't seen the Nvidia numbers yet, so I guess,
Speaker 7: you know, in the next or the next month, we'll
Speaker 7: see how much Nvidia ad back comes back from China.
Speaker 7: I think AMD did disappoint the fact that they haven't
Speaker 7: started their revenues. We do expect. I think Nvidia had
Speaker 7: more inventory on hand that they could probably ship out.
Speaker 7: You also saw that AMD had a lot of work
Speaker 7: in progress inventory, so that has to be resumed. So
Speaker 7: that's going to take a bit longer versus what we
Speaker 7: saw for potentially for Nvidia, which had already built up
Speaker 7: you know, finished good inventory.
Speaker 5: But in Vidia has been, at least when it comes
Speaker 5: to the rhetoric, very bullish on getting back into China.
Speaker 5: Actually we learned of the Trump administrations you turn on
Speaker 5: these export controls because Jensen Wang was in Beijing and
Speaker 5: in video released this statement that they're going to put
Speaker 5: the age twenties back in the Chinese market.
Speaker 3: So would you say they are months ahead of where
Speaker 3: am D is.
Speaker 7: I think they you know, I guess said earlier. I
Speaker 7: think the way their product has been built out, they've
Speaker 7: already shipped out a lot more chips, so I think
Speaker 7: they are in that sense ahead, Whereas you know, AMD
Speaker 7: has admitted that they have a lot of these products
Speaker 7: are still in the building phase, so that's why it's
Speaker 7: going to take longer, as well as waiting for the licenses.
Speaker 7: So I think that's probably the one of the reasons
Speaker 7: why you see a stronger recovery for EN video from
Speaker 7: the China.
Speaker 1: Part, Frank, we hear a lot of noise about tariffs
Speaker 1: and ongoing discussions that are happening right now. The President
Speaker 1: of the United States has talked about semiconductor tariffs that
Speaker 1: could go on as soon as this week. How much
Speaker 1: has that already factored into a lot of the earnings.
Speaker 1: How much noise is there and how much signal?
Speaker 7: Yeah, so I think, you know, the the semiconductor tariff
Speaker 7: is definitely something that has been on people's minds. I
Speaker 7: think for the most part, if you see a tariff
Speaker 7: that's less than twenty percent, I think the market will
Speaker 7: be we'll take that quite well. But it could be
Speaker 7: a lot higher than that. I think it's going to
Speaker 7: hit the actual chip makers like TSMC a lot harder.
Speaker 7: I think the actual the companies that are leveraged to
Speaker 7: the hyperscllic growth then can pass on some of these
Speaker 7: crises increases more effectively as the hyperscillars have a lot
Speaker 7: bigger CAPEX budgets and continue to raise them. So I
Speaker 7: think it's going to hit the consumer part of this
Speaker 7: semiconductor pile a lot, a lot harder than it's going
Speaker 7: to be on the AI side.
Speaker 1: Frank, what about some of these proposals to put tracking
Speaker 1: devices in certain high caliber chips as well as some
Speaker 1: of the constraints without constraining the supply chips. I'm really
Speaker 1: trying to wrap my head around what the administration is
Speaker 1: trying to do to keep the flow of commerce while
Speaker 1: clamping down on some of the more sensitive chips. Do
Speaker 1: you have a sense of how this is coming together,
Speaker 1: of what this proposal looks like.
Speaker 7: I think it's still very difficult to have an idea
Speaker 7: of how it's going to end up. But remember this
Speaker 7: also isn't entirely one sided. We've had some chatter last
Speaker 7: week of China having some concerns about the video chips
Speaker 7: as well, you know, in terms of whether there's kind
Speaker 7: of a kill switch. So I think there's going to
Speaker 7: be a lot of back and forth when it comes
Speaker 7: to this. So I think for most people that look
Speaker 7: at the AI story, we should continue to look at
Speaker 7: outside China as an area of growth.
Speaker 3: Right.
Speaker 7: I know there's the narrative continues to be on China,
Speaker 7: but if you look at you know what's really doing well. Basically,
Speaker 7: you know, the AI companies, these chips are doing fine
Speaker 7: without the China market. I know people would like the
Speaker 7: China market, but if you take out the China market,
Speaker 7: these guys are still growing and I think the most
Speaker 7: part still beating expectations.
Speaker 1: Frankly of HSBC, thank you so much as always for
Speaker 1: your insights. Joining us now is Rich Greenfield of Lightshed
Speaker 1: Partners Rich. Before we get into the nitty gritty, why
Speaker 1: are shares lower after what Githa just described was a
Speaker 1: pretty blowout report.
Speaker 8: I mean, I think you got to sort of step back.
Speaker 8: First of all, I think blowout might be a strong word.
Speaker 8: I think the reality is Disney Stock has obviously had
Speaker 8: a nice little run over the course of the last
Speaker 8: six months. I think the company definitely I don't want
Speaker 8: to say with sandbagging, but you know, if you listen
Speaker 8: to Hugh Johnson Disney CFO, he certainly was keeping you know,
Speaker 8: he didn't raise expectations after last quarter is pretty meaningful,
Speaker 8: you know, upside in the first you know, several quarters
Speaker 8: of the year. So I think there was sort of
Speaker 8: an expectation that this was going to be good, that
Speaker 8: they were going to exceed expectations and raise the guidance,
Speaker 8: and so I think it was sort of in the stock.
Speaker 8: So I again, I think this has been a very
Speaker 8: widely owned stock. People were sort of knew that the
Speaker 8: outperformance was coming. And I think the reality is I
Speaker 8: think the thing that surprises me is that there isn't
Speaker 8: more excitement around the WWE deal this morning or the
Speaker 8: NFL deal. But I think just sort of the you know,
Speaker 8: sort of hitting what people have thought and you're sort
Speaker 8: of seeing sell on the news more than anything else.
Speaker 3: Well, the market initially really did like that deal.
Speaker 5: When it comes to ESPN and the NFL media, what
Speaker 5: does this say to you about the direction of travel
Speaker 5: for Disney and the company r at large?
Speaker 3: Is that going to be a spinofferage?
Speaker 8: Well, look, I think that you got to step back,
Speaker 8: and so you know, the stock is trading. You know,
Speaker 8: you've got it up on the screen right now, one
Speaker 8: hundred and fifteen dollars. If you go back ten years ago,
Speaker 8: Disney reported their fiscal you know, Q three earnings the
Speaker 8: same week. Ten years ago, the stock was trading at
Speaker 8: this exact same level. So this has been sort of
Speaker 8: a lost decade for Disney in terms of the stock. Yes,
Speaker 8: it's been up and down in between, but you know,
Speaker 8: ten years it hasn't performed. I think it's really setting
Speaker 8: the stage for a strategic transformation. And you know, iigers
Speaker 8: last year is twenty twenty six, and I think when
Speaker 8: you look at how they're positioning ESPN, you know, if
Speaker 8: you think about sort of launching the direct to consumer service,
Speaker 8: having its stand on its own, adding in the NFL content,
Speaker 8: doing the big NBA deal this morning, doing the WWE
Speaker 8: WrestleMania deal. They are putting all of the pieces together
Speaker 8: to separate ESPN and probably ESPN and ABC from the
Speaker 8: rest of the Walt Disney Company at some point over
Speaker 8: the next twelve to eighteen months. And I think that
Speaker 8: is going to be the next strategic catalyst for Disney.
Speaker 8: I don't know, I don't think they'll talk about it
Speaker 8: this morning, but it feels like they're setting the stage
Speaker 8: for that.
Speaker 5: Does Bob Iger want that before he exits the company?
Speaker 5: And by the way, we should we should not. It's
Speaker 5: expectations he's going to exit.
Speaker 3: Some think maybe he's going to stay on.
Speaker 8: Look, I have no insight into whether Bob actually leaves.
Speaker 8: He certainly has been telling everyone that is close to
Speaker 8: him that when he's that he's really leaving this time.
Speaker 8: You know, the chairman of the board, Gorman, is certainly
Speaker 8: tasked with finding a replacement. I think you're going to
Speaker 8: see that replacement. And you know, look, I think Disney
Speaker 8: has two core challenges figuring out the future. You know,
Speaker 8: if you think about youth culture, my partner Brandon row
Speaker 8: Us has been writing about sort of the incredible surge
Speaker 8: of engagement around roadblocks, Like if you look at where
Speaker 8: youth culture is and where kids are spending their time,
Speaker 8: it's hard not to look at something like roadblocks and go,
Speaker 8: how is Disney not in this world? Like, sure, they're
Speaker 8: building something on Fortnite, but if you look at sort
Speaker 8: of the UGC growth that's happening so organically on roadblocks,
Speaker 8: like that seems more like where Disney should be than
Speaker 8: trying to figure out the future of sports streaming with
Speaker 8: ESPN and ABC, And so I think, sort of whoever
Speaker 8: is Disney's CEO? I think the big task is figuring
Speaker 8: out what is the future mix of this company? What
Speaker 8: is the ideal mix of assets to be positioned so
Speaker 8: that the next decade looks a lot better than the
Speaker 8: last decade.
Speaker 3: There's also a question of the geographic footprint rich.
Speaker 1: I mean, we're seeing AMD shares fall because of a
Speaker 1: lack of certainty with China, but we understand that Disney
Speaker 1: has its footprints in China as well as around the world,
Speaker 1: even though some people might see it as sort of
Speaker 1: brand Americana. How much does that throw button or how
Speaker 1: much do you want to hear about that on today's call?
Speaker 8: And look, you know, I think a topic that people
Speaker 8: don't really like to talk about, right is how are
Speaker 8: US movies performing overseas? And I think if you look
Speaker 8: at a lot of the international performance, you're seeing it
Speaker 8: be relatively underwhelming. And you know, I do scratch my
Speaker 8: head and wonder whether there is sort of a greater
Speaker 8: sort of anti American sentiment. Certainly China has boxed almost
Speaker 8: even if they let us movies in, they don't do
Speaker 8: any box office anymore. And so I do think that
Speaker 8: there is this growing fear I have around Hollywood and
Speaker 8: the movie exhibition business that international which used to be
Speaker 8: sort of the huge upside for these films, like you
Speaker 8: did a good number in the US and then you
Speaker 8: blew it out overseas. We're seeing a lot of underperformance
Speaker 8: overseas that is increasingly concerning.
Speaker 3: Which I'm just wanting looking forward.
Speaker 1: The other thing that we've heard in terms of a
Speaker 1: theme from companies has been artificial intelligence. And I know
Speaker 1: that Disney and other content creators have really not wanted
Speaker 1: to talk about this because of the strikes in Hollywood
Speaker 1: and some of the other concerns around what this will
Speaker 1: do to jobs.
Speaker 3: But is that going to be something that you expect.
Speaker 1: To hear about given that it's kind of a tool
Speaker 1: that they will need to be using.
Speaker 8: I think everyone in Hollywood is going to initially look
Speaker 8: to how do they use this to speed up creation
Speaker 8: and reduce cost. You know, the challenge is going to
Speaker 8: be not so much how a company like Disney or
Speaker 8: Warner Brothers, Discovery or Paramount uses these tools but how
Speaker 8: the kid in their basement, you know, who never could
Speaker 8: have created a feature film before now can like will
Speaker 8: somebody come up with Bluey in their basement?
Speaker 4: Right?
Speaker 7: Like?
Speaker 8: Just using all of these powerful tools. If you're a
Speaker 8: good storyteller, you don't have to be a good animator anymore.
Speaker 8: AI can do that for you. And so I think
Speaker 8: what's going to be really interesting as you look forward
Speaker 8: is is the how the competition or the competitive landscape,
Speaker 8: not just for Disney, but for all these media companies
Speaker 8: changes over the course of probably the next three to
Speaker 8: five years. I mean, the pace of AI innovation is astounding,
Speaker 8: and I think what you can do is only getting
Speaker 8: cheaper and faster and easier. And so the competitive dynamic
Speaker 8: that currently exists there aren't many companies that do feature
Speaker 8: linked animation. I wonder in five years how we're going
Speaker 8: to think about the competitive set for animation.
Speaker 1: Rich Greenfield of Lightshed Partners, thank you so much for
Speaker 1: being with us today.
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