Reuters Insider - Disney shares could rise 30 pct says Ross Gerber

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11/04/2019 05:23

Click the following link to watch video: https://share.insider.thomsonreuters.com/link?entryId=1_1tx3v7md&referenceId=tag:reuters.com,2019:newsml_OVA9VPGUJ_930&pageId=ReutersNews
Source: Reuters Insider

Description: Disney is expected to showcase its new streaming service
Thursday. Gerber Kawasaki CEO Ross Gerber tells Reuters' Fred Katayama this
could serve as a catalyst to drive shares higher.
Short Link: https://reut.rs/2GeiR6O

Video Transcript:

Mixed markets Wednesday. The NASDAQ and S&P 500 pulling back from their
intraday highs after the release of the Fed minutes of the March meeting. For
more on that, the outlook for the markets, and Disney's shares ahead of their
big Investor Day tomorrow, the best place to go to is Los Angeles where we'll
find Ross Gerber, CEO of Gerber Kawasaki. Ross, stocks were mixed in the
morning. Right now they're still mixed but the S&P pulling back after the
release of the Fed minutes. In the Fed minutes, policymakers agree to be
patient still about a change in the interest policy. What did investors not
like about it?

Well, I think The Fed's got to play both sides of the fence here. They don't
want to say oh there's no chance we're ever going to raise rates again, and
that closes some doors for them that they probably aren't going to need to
open anyways. But I think it's the job of the Fed to sort of keep the markets
a little bit on their toes and not just telegraph everything so easily. But in
the end, the Fed is not raising rates. We are not worried about that direction
at all. And what we really think is the Fed will be lowering rates sometime in
the next 12 months.

Ross, let's go over to a topic you like, Disney. A lot of buzz about Disney
ahead of Investor Day tomorrow where they're expected to showcase, I guess,
that hyped streaming service. So what's the buzz that you're hearing in
Hollywood about it?

Well, this is a game-changer here. You see Netflix now starting to poke around
with the movie theaters and start to look at the fact that their business
model does have some weaknesses to it that Disney doesn't have. So with the
launch of the Disney OTT platform, it really creates a lot of opportunity for
Disney to monetize content in a way that they've never been able to do on a
global scale. We think that they could easily get as many subs as Netflix over
time and probably do it much faster because there's much bigger awareness now
for streaming and OTT platforms across the world. This is a huge moment. Bob
Iger has been working very hard to get to this moment for years, and I
couldn't be more excited about this launch.

Ross, you talked about fast-growing subs, possibly faster. What do you need to
hear from Disney executives tomorrow to convince you that hey, this is the
model to take on, Netflix. 

The two things I'm looking for is, one, is pricing; and two, is when. If they
can get this out in the fall with enough runtime into Christmas and with the
movie slates that they have for this year, it bodes very, very well for
subscriptions through the fall and through the Christmas season as they also
can now leverage the ad spend of their great movies that are coming out
throughout this year to say "Hey look, in a year you're going to get all this
stuff on this OTT platform". And then the second thing is pricing. If they
come in at a price of $10 or less, it's a no-brainer for consumers. With
Netflix price now into $15 for a lot of people, HBO's priced up there too,
it's a very compelling price point for the quality of content you get. But
what we really are excited about is the potential for a Disney bundle with
Hulu Disney Plus and ESPN Plus which would give you live TV sports as well as
all the Disney content. If you can get that in at $120 a month, I think this
is an awesome opportunity for Disney. So pricing and timing is really what I'm
looking for. I think the product is going to be amazing any way you look at
it.

And Ross, to what extent do you think this would be a catalyst for the stock,
or is that already priced in when the news came out? Disney's shares, if you
look at it over 12 months hasn't moved that much. It's trading around where it
was in August the last year.

In fact, Disney hasn't really gone anywhere in three or four years ever since
the OTT issue was broke. So we now see Disney getting back to that inflection
point, around $120 a share. Where it can break through this point which it
actually hasn't, we see Disney going much higher. Now, I think the biggest
upside isn't going to be in earnings on the short term because they have to
invest into this platform, but that's not the issue, it's the multiple. Disney
currently trade around 15x to 16x earnings. And with the OTT platform and the
growth that it's going to provide, we think Disney should trade closer to 22x
to 25x earnings, and that's where the upside is. So we think that Disney's
worth at least $150 a share moving forward. And so a lot of the upside on the
short term is just multiple expansion. But I think on the longer term, we're
going to see earnings rise, we're going to see a much better cash flow, and
we're going to see a great way for Disney to monetize the same content again
now. So what Netflix is going to learn is that if you don't put them in
theaters and you don't have products and you don't have theme parks, that same
IP can't be monetized four or five ways like Disney is going to do. So all of
a sudden, Disney looks like the giant of the future of global entertainment.

Wow. Multiple possibly from 15x to 25x. Thanks a lot, Ross, for your thoughts.


My pleasure.

Alright. We'll be waiting for Investor Day tomorrow. Our thanks to Ross Gerber
of Gerber Kawasaki. I'm Fred Katayama, and this is Reuters