Trump Gets Tough on Trade; Disney Pounces on … Everyone
Friday Four Play: The “Get Tough on Trade” Edition
The needle on the Great Stuff Trade War Cycle chart finally appears to be moving.
After nearly a month of speculation, we finally received commentary from President Trump on the matter … and it’s about what you’d expect.
On Tuesday, I asked: “Who’s winning the U.S.-China trade war?” Many of you didn’t like my conclusion — that China was winning due to massive tariff rollbacks — and wrote in to GreatStuffToday@banyanhill.com to tell me so. (Thank you for your feedback!)
President Trump apparently didn’t like the idea of China winning either. This morning, Trump told reporters that the U.S. hasn’t agreed to rolling back tariffs as part of the “phase one” trade deal. The news directly contradicted reports from both U.S. officials and China’s Ministry of Commerce spokesman, Gao Feng.
So, where does that leave us?
I think we’re about to tip into the “administration is tough on trade with China” phase … and that leads to a market sell-off if the pattern holds true.
And now for something completely different, here’s your Friday Four Play:
No. 1: The Mouse Goes Digital
M-I-C (See profits real soon!) … K-E-Y (Why? Because of Hulu!) … M-O-U-S-E!
The Walt Disney Co. (NYSE: DIS) emerged from its trip to the earnings confessional smelling like roses this morning. Disney beat both top- and bottom-line expectations, with revenue rising 33.5% to $19.1 billion.
The real buzz, however, is the fact that Disney+ will finally launch next week. Ahead of that launch, the company said that Disney+ will be available on Amazon.com Inc.’s (Nasdaq: AMZN) Fire TV as well as Samsung and LG smart TVs.
Disney also laid out its plans for Hulu. While Disney+ will focus on core Disney content, the company is moving all of its FX shows to Hulu — including shows such as Archer and American Horror Story.
In fact, new episodes of FX shows will hit Hulu the day after they air on traditional TV. This move essentially sets the stage for Hulu to become Disney’s “grown-up,” or adult, streaming platform.
Following the report, JPMorgan Chase reiterated that it believes that Disney+ will have 75 million subscribers by the end of 2024. Disney itself is projecting between 60 million and 90 million subs by 2024. For comparison, Netflix Inc. (Nasdaq: NFLX) has about 158 million subs worldwide.
With its massive catalogue of fan favorites and the brilliant move to bundle Disney+, Hulu and ESPN+ for just $12.99, I think these estimates might be on the conservative side.
With these bundles launching next week, the current quarter is going to be huge for Disney. Mark my words.
No. 2: The Cost of Staying on Top
Of course, Netflix isn’t taking the launch of Disney+ lying down.
At the DealBook conference in New York this week, CEO Reed Hastings said: “We plan on taking spend up quite a bit.”
Quite a bit? Netflix is already projected to spend $15 billion on content this year — far outstripping its competitors. What’s “quite a bit” up from that?
The streaming arms race is just getting started. Netflix finally has some serious competitors, and it’s lacking in one key area: original content.
For years, Netflix rode the content coattails of Disney, Fox Corp. (Nasdaq: FOX), NBC et al. In the past couple of years, it began a serious push toward Netflix Originals. This push will help mitigate the damage, but Netflix needs to spend big to compete with its newfound rivals.
Disney’s catalog is well known — you aren’t fooling anyone by keeping The Little Mermaid in the Disney Vault, you know. AT&T Inc. (NYSE: T) is offering more than 10,000 hours of programing on its new HBO Max service. And Apple Inc. (Nasdaq: AAPL) has more than $205 billion in cash on hand to throw at content as it sees fit.
So, Hastings indicating that Netflix will increase spending beyond this year’s $15 billion shouldn’t be too much of a surprise. I just hope Netflix investors are ready for the sticker shock of how far the company will have to go to remain at the top of the streaming market.
No. 3: We’ve Come for Your Data, Chuck!
Yes, I know Halloween is over, but I couldn’t resist that Beetlejuice reference.
The actual “cake” for the Google parent was data … your health data, to be precise. Fitbit has amassed a treasure trove of user health data, and Google just loves scarfing down hoards of personal data … with or without milk, the barbarian!
This data-scarfing is making EU regulators very uncomfortable. “In general we have a concern if companies merge because of data,” says Europe’s antitrust chief Margrethe Vestager. If Vestager’s name sounds familiar, it’s because she’s handed down more than 8 billion euros in fines to Google in the past two years.
Google needs EU approval to finalize its purchase of Fitbit, and the eurozone takes its privacy very seriously. This could be an interesting fight.
No. 4: Don’t Tase Me, Bro
The biggest gainer on the market today is a real shocker.
Shares of tasermaker Axon Enterprise Inc. (Nasdaq: AAXN) jolted more than 23% higher after the company reported record revenue of $131 million — beating Wall Street’s estimates. Earnings also soared, coming in at $0.26 per share, topping the consensus estimate by $0.02.
And if that wasn’t enough, Axon lifted its full-year outlook to between $500 million and $510 million.
The reason for Axon’s outperformance and boosted guidance? Bundles. Axon is working with customers to bundle access to its Taser 7, Axon Body 3 body camera and cloud-hosting services for video footage. The basic “Officer Safety Plan” goes for about $199 per month.
“This has been a huge success. We sell the most software through these bundles,” said Axon President Luke Larson.
If you’re looking to plug in on AAXN, you might want to wait for a pullback from today’s euphoria. The shares are a bit overbought and will likely consolidate today’s gains over the next week.
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Until next time, good trading!
Great Stuff Managing Editor, Banyan Hill Publishing