Endgame "for Disney – The Motley Fool

If your multimedia multimedia bandwidth has not been totally occupied by Game of thrones or the playoffs of the NBA, you were probably well aware that Marvel Avengers: End of the game was on track for a freak opening, but the extent to which it shattered all box office records this weekend exceeded even the high expectations: $ 1.2 billion in ticket sales. In response, Wall Street pushed Disney (NYSE: DIS) shares at their new record at the opening of markets on Monday.

In today Market Foolery Chris Hill, host, and Abi Malin, senior analyst, discuss Disney, as well as two companies with more nuanced stories. First, they review the latest quarterly report of Spotify (NYSE: SPOT), which has reached 100 million paying subscribers, but has not yet generated a profit. Then they check with Restaurant Brands International (NYSE: QSR), owner of Burger King, Tim Hortons and Popeyes, none of them is exploiting its growth potential. Finally, they talk about what Abi is waiting to see when Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) reports earnings after the bell Monday.

To watch full episodes of all The Motley Fool free podcasts, visit our podcast center. A full transcript follows the video.

This video was recorded on April 29, 2019.

Chris Hill: We are Monday, April 29th. welcome to Market Foolery! I am Chris Hill. Join me today in the studio, the one and only Abi Malin. Thank you for being here!

Abi Malin: Thank you for having me!

Hill: We have gains. We are going to have a preview of Alphabet, which will be broadcast after the closing bell. However, we must start with the house built by the mouse. The shares of The Walt Disney Company opened this morning at a record high. It's a little down now, but probably not a surprise, it had this strong opening, because Avengers: End of the game beat just about every box office record under the sun over the weekend. $ 1.2 billion worldwide. I do not know about you, I went to see him, I contributed to that. I thought it was going to be a good weekend. I did not think it would be so great!

Malin: I have not seen it, but I am not surprised by these numbers.

Hill: When we look at a figure like this, I think it's tempting to just think, "Oh, my God, it's amazing." But the context for investors when it comes to Disney and cinema is always watching the studios in their business. This is not by far the biggest part of the business.

Malin: Right. These are all the little third party synergies that you get by having these incredible characters.

Hill: That's the thing I wanted to learn. Return to August 2009. Disney buys Marvel for $ 4 billion. Let's say it again. They bought Marvel for $ 4 billion. Now, I wonder, what was the magnitude of the effect of training? It seems that – and I have some on the subject Twitterbecause I tweeted something about the fantastic weekend and two people came back with: "Well, the studio is not that big." Yes, but it's something that does not just feed on consumer products, license agreements, t-shirts, toys, etc., but that must also help launch Disney +, n & # Is not it?

Malin: Absolutely. I think this just shows Disney's dominance in this space. It's not just the children driving the $ 1.2 billion around the world.

Hill: No, my children did not pay the tickets.

Malin: Right. This is everyone. These are future visits to Disneyland, t-shirts, toys, games. It's going to be huge! This will really be huge for them!

Hill: I went back and watched a few things that The Motley Fool was writing at the time of this acquisition.

Malin: Mainly ask, was it too much?

Hill: There was a bit of that. And I think that's a good question. I think it's a natural question. at any moment there is an acquisition. No matter what acquisition, no matter what industry, I think it's fair to say "OK, was it a good price?" What I could find, there were not many people who said, "It's outrageous, they pay so much!"

What reminded me, however, was that part of the cause for acquiring Marvel was the boys. That reminded me that –

Malin: They wanted to reach this young demographic group.

Hill: Yeah. Exactly how much Disney depended on the princesses to drive their movies and live the parks experience. Obviously, the decision to acquire Marvel, in addition to acquiring Pixar, has just been amazing.

Malin: Yeah. I also think that when you are looking at a broader perspective of the competitive landscape, Disney has three key competitive advantages. It's this brand, intellectual property, characters, etc., that can be used in all aspects of the business. But it is also their above average profitability and low risk balance sheet. I think one of the key points that this really demonstrates is that for a long time we have seen some really cheap money. We have seen a lot of competitors manage and thrive against Disney, or follow Disney. But as debt becomes more and more expensive and it is increasingly difficult for competitors to fund these projects, you see, Disney, where they can continue to do it, nothing is safe. opposes that it stops, simply because of a change in economic conditions interest rate structure. This does not only show that Disney is good at it, but it really reinforces their dominance in this space.

Hill: Bob Iger is the CEO of Disney. It is obvious that he is a well known man, I would say even one of the best known CEOs, partly because it is Disney, partly because of the great work that he has accomplished. I would say that Kevin Feige, president of Marvel Studios, is much less well known for about a dozen years. When you think about what has been done under his direction and say it's a Disney shareholder, let Kevin Feige do what he wants. Maybe he's already doing what he wants. But it's an incredible toll that he has amassed.

Malin: Right. Unbelievable.

Hill: God help anyone who is the next CEO of Disney.

Malin: They must do magic.

Hill: [laughs] The shoes that Bob Iger leaves, when we look at Pixar's acquisitions, Star wars, Marvel … All right, let's get some income.

Spotify has reached 100 million paying subscribers. This is probably the highlight of their first quarter report. I mean, their incomes are increasing, but their losses are also increasing.

Malin: Yeah. I mean, this number has increased 32% over last year, which is huge. It is also about 2 times larger than the last figures given for Apple The music. So, again, huge. The total number of monthly users, which includes people who do not pay but have a service funded by advertising, has reached 217 million. It's pretty amazing when you think about the growth and competitive landscape of this industry.

Hill: When will they be profitable? It is not like they had lost a ton of money. But they have 100 million paying subscribers. Is there a path to profitability that is short? I have not spoken to anyone who uses Spotify and is not happy with it. But I wonder when they turn on the slot machine?

Malin: I think it's a conversion issue, passing from a free advertising-funded user to a discounted trial period to then pay the full price. It really brings out the value of the customer's life. They are still in a land grabbing mode, these prices may not reflect the most profitable or profitable earnings that Spotify could generate when they have this dominance. But they are still in an area of ​​land grabbing, so they do not necessarily try to increase the volume. But I think the conversion rate and the speed with which you can pass the customers free to pay the full price will really have an impact on this tipping point.

Hill: As an analyst, this is an area that interests you at all, when you consider Pandora, Apple Music? Obviously, it is a small part of Apple. But is it something you look at and think, "Oh, yes, shareholders can make money in this area"?

Malin: I do. I think it's something to watch for the economy, not just for this industry, but for all the integration of artists, concerts, music, streaming, the sale of tickets, etc. There is a balanced balance of power, and perhaps assuming that pricing power is changing. So, I think it's really interesting, something to watch. 100 million is a kind of arbitrary number, in the same way that we think that the fiscal year ending in December is somehow an arbitrary period. This does not necessarily mean a change of thesis for me, I would say. But I think it's interesting to watch the pace at which it happened.

Hill: Yes, I guess I'm just surprised that they are still not profitable when they have so many. It's one thing to say to ourselves, "We're building our paying subscriber base, yes, we still have advertising-funded support." I mean, this has been history with Spotify for a while. I just watched this and go, that's a lot. That's a lot of people who pay you every month.

Malin: Where is the money going?

Hill: Right. What's going on in your business, that you can not make money?

Malin: Yeah. Once again, I think 100 million might suggest dominance in this space. But when you look at the value chain of music consumption, I do not necessarily think that the most valuable part of this music … I would not say that in the long run it will be with Spotify.

Hill: Now let's go to Restaurant Brands International, which is the parent company of Burger King, Popeyes and Tim Hortons. First quarter, I mean, it was not great, but it was certainly not great. Burger King's same-store sales were slightly above 2%. This was the highlight. [laughs] I mean, if that was the minimum, I would think it was OK. What's going on with this company right now?

Malin: The really interesting story here is with Tim Hortons. Same store sales decreased 0.6%, a steady decline. I would say that it is a really moderate decline. This is not falling off a cliff. But it's definitely a negative trend. Management is talking a lot about the opening of the first three Tim Hortons in China. We saw Starbucks really look at China for coffee growth for the last three to five years. We also saw Luckin Coffee, a Chinese coffee company, file its S-1 for publication at the end of the year. So, I would say it's really a hotbed for coffee. So the decline – although, again, they come to open three stores, it does not necessarily mean that it will fail. I just think it may not be the trend you want to see when you are growing in a very hot space.

Hill: One of the things I saw on the teleconference was that a member of the management team, I think was the CEO, was talking about the weather as an important factor in Canada. Because it's mostly where Tim Hortons is. I think that he even said something to the effect of "I hate to use the weather as an excuse, but …" and it's still just for me, when it's over. is about restaurants. These are not cars. It's not like: "You did not buy a car last week because it was bad weather, you'll probably go and buy it next week." While these are just lost sales for all restaurant chains.

Malin: Right. You are not outside, you do not stop, especially with coffee. It's really a convenience factor, based on localization.

Hill: Right. If the weather is bad, I will not come back next week to buy the double of coffee. One thing that I think will be interesting to watch with Tim Hortons is a statistic that half of their deals are with their loyalty program. All I could think of, as a Starbucks shareholder, was knowing what you were doing with your loyalty program for it to go so smoothly. It's impressive, they do it. I do not know if they are particularly talented for their loyalty program and Starbucks is particularly terrible for them. But while this may be sustainable if they continue to open sites all over the world, this bodes well for QSR.

Malin: I agree with that, yes.

Hill: The alphabet will report after the closing bell. What are you going to watch? I was reading stuff this morning. In appearance, anyway, nobody expects anything spectacular in this report on the results. What are you looking for?

Malin: Just by putting it in context. Technology stocks in general had a very positive year. If you remember, we saw a slight contraction of the market in December. Since the beginning of the year, technology stocks have increased by 26%, a little or prematurely. Google as its own equity is up 22.3% for the year. So I think the expectations are very high, especially with regard to turnover. People are looking for about $ 37.32 billion, up 20% from last year. I think the potential for a little maneuver or something a little bit dramatic will be in this high line. You have witnessed increased competition, particularly Amazon& # 39; advertising company. And because of that, Alphabet has changed. They are considering more and more cloud architecture products, YouTube, hardware, and all those things have lower margins. So I think that perhaps leaves a bit of room for disappointment at such a high valuation that it is, in its present form.

Hill: D & # 39; agreement. Well, we'll know it in about four hours. Abi Malin, thank you for being here!

Malin: Thank you for having me!

Hill: As always, program participants may have an interest in the actions they are talking about and the Motley Fool may have formal recommendations for or against, so do not buy or sell any stock on the sole basis of what you heard. That will do it for this edition of MarchéFoolery! The show is mixed by Dan Boyd. I am Chris Hill. Thank you for listening! Well, see you tomorrow!