The Mouse’s House Of Pain
Wall Street’s earnings reactions have left me dazed and confused for so long it’s not true. I wanted a market — never bargained for you.
There’s lots of people talkin’ but few of them know … what the heck happened with Disney to warrant an 8% blow?
Great Stuff Picks investors, it’s time we talked about the Dumbo in the room. (Hey, who are you calling dumbo?) Because whether or not you’re invested in the Mouse’s House, Walt Disney’s (NYSE: DIS) report and the reaction that followed give us a distant early warning of the market mess to come.
But first, let’s dig into Disney’s numbers:
• Per-share earnings: $0.37 versus estimates of $0.51.
• Total revenue: $18.53 billion versus estimates of $18.79 billion.
While earnings were less than magical, Disney still grew its revenue 9% on the quarter. But to Wall Street, it’s just not enough — I need more! Nothing seems to satisfy…
We’ll get to those analysts and their overzealous estimates in a sec because there’s one little other part of Disney’s report that really stuck in Wall Street’s craw: streaming.
Segmented out, streaming revenue grew 38% to reach $4.6 billion — still a small part of the Mouse’s moneymaking machine overall. Disney met its own estimates for subscriber adds, with 2.1 million new Disney+ signups for the quarter … but Wall Street, like always, had “better” ideas.
Analysts wanted Disney to bring in an insane 9.4 million new subs last quarter, even though CEO Bob Chapek warned everyone back in September that subs would grow by the “low single-digit millions” due to content production delays.
Does that sound like “9.4 million new subs” to you?
If analysts were actually concerned about the reasons behind Disney’s so-called streaming slowdown, today’s quarterly update should’ve changed minds. Disney’s content slate is packed: Releases from Marvel, Star Wars, Pixar and Nat Geo are all expected to drop next quarter, attract new subs and satiate current users.
Now, if this streaming slowdown was such a drag for Disney, why didn’t analysts mention … well … the rest of the company’s report?
Every Disney theme park is open; attendance is up. All of Disney’s cruise ships started sailing again. Revenue shot up 26% for this part of Disney’s business last quarter. And just you wait until international travel starts to pick back up and tour groups descend on Disney parks once more.
But no, no … pay that no mind. We’re supposed to believe that Disney is done-zo, that its streaming slowdown is no match for the economic recovery/reopening. Even though flocks of people are getting off the couch to hit the theme parks…
Anyone else see the rub here? Wall Street simply isn’t paying any attention to what’s going on!
The only actual “problem” in Disney’s recent report is analysts’ expectations. If Disney’s top management is telling you they expect 2.1 million subs for the quarter … what would compel you to estimate 9.4 million new subs?!
You’re not hearing this from some mysterious person who’s kinda-maybe-not-really familiar with the matters. You’re hearing these reset expectations from CEO Bob Chapek himself. Where is the disconnect here?
Wait, what if … what if analysts just don’t know what they’re doing?
Welcome to the party! Does anybody what they’re doing? Who am I? Nothing makes sense anymore … but we’re not having this existential crisis again. You may be right — Wall Street’s crazy. But what else is new?
I mean, with Disney missing earnings and revenue expectations, a smaller drop of about 2% to 4% seems justified as investors realign with reality. I’m not saying DIS stock should have rallied on this report, and I’m not saying Disney doesn’t need to improve some things.
Denying that parts of this report are bad would let emotions creep into the investing process. That’s a big no-no. However…
The gross overestimates laced throughout Disney’s latest report say more about the market than about Disney. Such an overreaction is just more proof that fundamentals mean squat. Sentiment rules the roost right now.
Actual growth and recovery? That’s dust in the wind when Wall Street’s running with a narrative. Just in the past week, we’ve seen the same situation with Palantir, Fubo, Nio, Coinbase … the list goes on. And now Disney.
All these companies are growing like weeds within their respective sectors — despite economic woes, consumers’ inflation fears, labor issues, supply issues and an ongoing pandemic. Considering all those issues, Disney’s revenue growth is actually tremendous.
And whether or not you own DIS stock, you need to ask yourself this question for your own portfolio: What could analysts possibly be looking at to come up with their otherworldly expectations?
When we see overreactions like this on a regular basis — as in every day this week — something is massively messed up on Wall Street. And they’re getting more and more frequent.
Disney’s overreaction won’t be the last. I predict we’ll see freakout after freakout for as long as analysts have their expectations shoved where the sun don’t shine. Rapid sell-offs and nonsensical rallies are what you get when the market trades on sentiment and fee fees.
If you’re a Great Stuff Picks investor holding DIS stock, keep on holding. We want Disney for its whole flywheel business — theme parks, cruises, streaming, merchandise, licensing. Everything. If the Street actually read deeper into Disney’s report … it’s all there.
Analysts can overestimate and dream on all they want. If you only think of Disney as a streaming market play instead of an every-market play, well, not even Mickey can save you then.
The Mouse is firing on all cylinders, and its post-pandemic parade has only begun.
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BYND investors took a bite out of Beyond Meat (Nasdaq: BYND) this morning after the imitation meat maker reported disappointing third-quarter earnings … and believe me when I say they were none too happy with the aftertaste.
Just how rancid were Beyond Meat’s numbers? Try a loss of $0.87 per share versus expectations of a $0.39 per-share loss … and revenue of $106.4 million versus analysts’ $109.2 million projection.
The meatless wonder blamed the usual suspects on its earnings and revenue misses, citing the Delta variant, labor shortages and supply chain issues as the cause for shipping delays and lower-than-expected sales.
On a slightly brighter note, Beyond Meat reported strong growth outside of the U.S. — sales from its international grocery and restaurant divisions doubled last quarter. Unfortunately, that demand didn’t carry through stateside, and U.S. revenue fell 13.9% compared to last year.
Beyond Meat always makes a big to-do about broadscale restaurant adoption of its meat substitutions. But U.S. retailers are already struggling to pay exorbitant prices for regular meat … and many can’t justify shelling out extra for plant-based patties.
To make matters worse, nothing about Beyond Meat’s fourth-quarter outlook suggests that sales are suddenly gonna pick up. The company predicts fourth-quarter sales in the ballpark of $85 million to $110 million, while Wall Street wanted $131.6 million in revenue.
No matter which way you slice it, this Beyond Meat report is beyond ugly. Wall Street agreed, sending BYND stock 15% lower.
Buckle up, Great Ones: Rivian (Nasdaq: RIVN) is an upstart no more! The electric truck maker traded publicly for the first time yesterday, IPOing at $78 per share.
After briefly hitting the $100 billion valuation mark, RIVN shares ended the day up 29% at $100.73.
At its current price point, Rivian’s trucking empire is valued at roughly $86 billion. That’s not exactly chump change, considering Rivian is now the second-most-valuable automaker in the world, right behind Tesla (Nasdaq: TSLA).
That’s gotta be more than a little awkward for Ford (NYSE: F), seeing as the Model T titan is a big investor in Rivian stock. In fact, Ford owns about 12% of the company. But I digress…
Rivalries aside, Rivian’s IPO was a big win for the electric vehicle (EV) market and millions of EV investors. People are betting big on the future of electrification, and they’re willing to pay up to move away from gas guzzlers.
I could also see Rivian’s more rugged (yet traditional) exterior appealing to the anti-Tesla crowd who really wants to drive down electric avenue … but wouldn’t be caught dead in Elon’s Cybertruck monstrosity.
Given how gaga Americans are over pickup trucks, RIVN might be a good long-term investment … if it actually has the production to meet the thousands of orders already in the books. And right now, it’s all hype … and a little revenue-light for my liking, given past EV implosions.
Like all brand-new stocks fresh off the IPO press, I’d wait for Rivian’s price to come back down to Earth before you consider buying it. As longtime Great Ones know, we don’t go chasing waterfalls or rallies round these here parts.
Amazon’s Positive Affirm-ations
Remember back in August when “buy now, pay later” credit-lending company Affirm (Nasdaq: AFRM) teamed up with Amazon (Nasdaq: AMZN) to drag more people further into debt — I mean, make it easier to buy large Amazon purchases over $50?
Well this partnership has been going swimmingly. Affirm just announced an expanded deal with Amazon that will make it the sole third-party, non-credit-card lending option for the e-commerce giant.
As part of the new agreement, Amazon will also integrate Affirm into its digital wallet here in the U.S. Cha-ching!
Of course, if you thought AFRM investors already had enough to celebrate with this digital new deal, you clearly didn’t see Affirm’s latest earnings report. The company beat analysts’ revenue expectations by a mile, bringing in $269.4 million versus the $248.2 million everyone expected.
Affirm also posted an adjusted operating loss of $45.1 million on the quarter … but considering that was way less of a loss than Wall Street anticipated, no one on the Street paid it that much mind.
What do you think, Great Ones? Have you used Affirm to buy any big-ticket items on Amazon?
Have you bought into the alternative credit-lending craze, or do you think this market will eventually go stale like that Beyond Meat packet I left in the back of my fridge?
You Can Have My Credit Card, Baby
Speaking of lending and credit card companies, you ever wonder where all these “buy now, pay later” brands like Affirm and Klarna get their payment processing tech from?
**crickets**
Fine… I’ll save you the guesswork: They come from card-issuing platforms like Marqeta (Nasdaq: MQ). For all you Great Ones out there who’ve never even heard of Marqeta and think it sounds like some sort of shadow organization, don’t worry — you’re not alone.
Basically, Marqeta makes virtual credit cards for financial and fintech companies and provides payment processing solutions. In other words, it makes the card-issuing and payment tech behind credit lenders like Affirm.
I think I understand all the words you just said to me…
Here’s what you really need to know: Marqeta benefits from the whole “buy now, pay later” trend because it works behind the scenes to make sure all these digital transactions go off without a hitch. So, the more transactions a company like Affirm handles, the more kickbacks Marqeta gets.
As you know, the pandemic created such a need-rich economy and kicked the “buy now, pay later” trend into high gear. And Marqeta’s raked in the dough because of it.
Just look at the company’s third-quarter earnings report: Net revenue jumped 56% year over year, while processing volume increased 60% from this time last year. And yet, despite this stellar earnings update, MQ stock has been in the red all day.
I guess there really is just no pleasing Wall Street anymore…
What do you think about Wall Street’s constantly high expectations? Barring that, what else is on your mind this week, Great Ones?
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