Motley Fool Hidden Gems Investing - Disney Has Its CEO

Starting point is 00:00:00 Disney has their new CEO. Is this time different? Motley Fool Money starts now. Welcome to Motley Fool Money. I'm Travis Hoy. I'm joined today by Lou Whiteman and Rachel Warren. the Bob Iger era is officially coming to a close on March 18th, Lou, after Josh DeMauro was chosen to be the next CEO. Dana Walden, who was in the running to be CEO, is going to be promoted to chief creative officer. They both got big contracts along with that. Let's start with Iger. How are we going to look back on his tenure over the last 20 or so years at Disney? Yeah, the two tenures, right? Which is what's kind of funny about it. He's had an incredible career. Let's just say that first. The most recent tenure, he turned streaming around. Streaming was

Starting point is 00:00:59 a $2 billion plus loser back in 2022. It's now a profitable business, a billion dollars in profits. I think he gets a lot of credit for that. Part of that is just maturation, so I don't know how much credit. Here's the thing, though. The stock price really liked his first tenure more than the second. The stock has done nothing. How much of that is him and how much of it is, again, the maturing business and the market's losing faith in that core television business. I don't know how much credit to give him for his accomplishments or how much fault to give him for his failures with the stock market. I will say this, he was a steady hand at the ship. The question now is, will he become Howard Schultz? Will he actually go away? Will he come back again?

Starting point is 00:01:46 There's even rumors he's going to run for president, which again would, I guess, get him off of Disney's case for a while, but we really need, we can talk about what this means for Disney afterwards, but we really need for him to either walk away or stay involved. Or just stay on for life. Yeah. Yeah. Yeah. Yeah. And, and, and the worst scenario is a repeat of last time where he kind of didn't need it neither. And that didn't work out well. What is, what is different this time is they, they apparently had over a hundred people on their radar for this job. I think that's always interesting because there was really only two or three who seemed to be seriously in

Starting point is 00:02:23 the running. But his tenure is going to end about nine months early from the contracted end at the end of 2026. And there's a story there, right? I don't know what it is. Yeah, there must be a story. Well, and he's also he's going to be an advisor, but not have a real role coming into the office, which he did have when Chapek took over going into the pandemic. So, yeah, it seems like there's definitely a story there always is in these you know palace intrigue things but it does seem a little bit different this time like disney knows they have to kind of kick them out the door one thing on those 100 candidates balderdash there's no way they had 100 candidates i mean what's its expression in football they wrote a list with 100 people on it

Starting point is 00:03:06 right right if you have two quarterbacks you have no quarterback if i took that seriously that they really had 100 people interview that means they had no clue what they wanted i'm going to give the benefit of the doubt to the board that maybe they had a list of 100 people, but they didn't really consider 100 people there. To me, that would be more scary than positive. Rachel, we're going to look back on this Iger 10-year, especially the last decade, positively. I think so. And I agree with Lou. I think you have to look at both 10 years together. I mean, you think of that first one, right, from 2005 to 2020. I mean, there was really a series of very transformative acquisitions that formed the company we know today. You think of the

Starting point is 00:03:45 acquisitions of Pixar, Marvel, Lucasfilm. This really built that modern Disney content engine that we know. I mean, Iger grew Disney's market cap from about $56 billion to more than $230 billion during that initial run. And then you look in these last few years, he returned in late 2022 to replace Bob Chapek. And really, that second stint has been focused on stabilizing the company, right? So he implements about $5.5 billion in cost cuts, really working to achieve streaming profitability, a lot of challenges that the company has faced during that time, including the Hollywood labor strikes. And so I think that a lot of the last few years has been more about stabilization and some of the growth that investors had come to expect in prior

Starting point is 00:04:29 years. One thing I'll note, I mean, Iger's planning to remain senior advisor and board member through the end of 2026 to mentor new leadership. And presumably that might help the company to avoid some of the mistakes, if you will, that occurred during the JPEG era. So I think that's something that investors should feel pleased with as they're looking at this transition. I think it's a much better thought out, well-planned, orderly transition than perhaps we saw before. Lou, let's look forward now. We do know that Damaro is coming from the parks. JPEG, by the way, also came from the parks, which that was one thing that I noticed. I went, ah, we already tried this once do we really want to do this again but it does seem you're right it does seem like the linear

Starting point is 00:05:13 business and the streaming business at least sort of makes sense now back back that back in 2019 2020 it was disney plus was a rocket ship but they obviously overbuilt you had all this confusion during the pandemic but now we know that look the parks is the core of the business now the question is what happens to the rest of the business what happens to these linear networks in particular what happens to ESPN? Where do you think Disney goes from here? Yeah. So here's a bold prediction. I can't imagine Disney without the studio. So I'm not going to go as far as like, you know, a total spinoff. Which, which studio, all the Disney studios?

Starting point is 00:05:51 The production, because there's so much tie-in. I mean, maybe they just do it with alliances, but some form of a media spinoff. I think definitely ESPN, maybe Hulu and ABC. You know, we've talked a lot about what's going on with Warner Brothers Discovery and about the limited number of chess pieces. I think there's more chess pieces than we know. I think the Disney of the future is going to be somehow more streamlined. We talked about the stock. Stock has done nothing for years with all of these great assets. And it really feels like, whether we're talking about GE, whether we're talking about so many of these companies, that it's time to wonder, is the sum of the parts trailing the valuation of the whole?

Starting point is 00:06:28 Maybe they do go with everything and just form some sort of perpetual marketing agreements, so they can use the IP of the studios and the parks. But I really think that there's going to be some sort of a spin-out of media or some sort of a separation of Disney. I'm going to say we're going to hear something about this in the next couple of years, but definitely in the next five years. Yeah. If we look back on the early Bob Iger tenure, a lot of those big moves that he made buying

Starting point is 00:06:58 Pixar, buying Marvel was done in the first couple of years. I think Pixar, he, it sounds like he made that call to, to Steve jobs basically as soon as he got the job. So the wheels were spinning there. It will be interesting to see what tomorrow does. When we come back, we are going to talk about Chipotle and why people are eating out less. You're listening to Motley Fool money. Welcome back to Motley Fool money.

Starting point is 00:07:23 Chipotle's results were reported last night, and they left a lot to be desired in a lot of ways. Rachel, what should we take from this quarter at Chipotle? We had a lot of negative comps, but this seems like a theme with a lot of restaurant stocks right now. Yeah, there's certainly a theme that we're seeing with a lot of these fast, casual chains. For Chipotle, transactions in Q4 dropped by about 3.2%, and this is as we're seeing consumers, particularly those in the 25 to 35 age group, that's really a core cohort for Chipotle,

Starting point is 00:07:54 as well as those earning under $100K annually. Those are people that are really pulling back on discretionary spending. Operating margins actually fell a bit compared to a year ago, down to 14.1%. We're also in a time where rising beef, avocado, and labor costs, that the company's chosen not to fully offset are impacting margins there. They slightly beat on earnings per share. They were marginally ahead of the consensus estimates for revenue. That was up about 5% year over year. They're still growing aggressively. They opened about 132 new restaurants in Q4 alone. They're looking to open up to 370 new locations in 2026. A few things that I think we should note looking at this space, Chipotle is dealing with issues

Starting point is 00:08:36 that some of its rivals are as well. Sweetgreen, Kava are a few that come to mind. We're seeing kind of a shift in how consumers are approaching restaurant spending. We're seeing some of these sit-down chains. Think of, you know, Darden restaurants. They own Olive Garden, Texas Roadhouse are gaining market share. I think consumers are becoming increasingly picky about where they're going to put their money to work. And sometimes they're prioritizing those sit-down experiences. At the same time, McDonald's has been actually holding pretty steady in terms of their growth. Taco Bell has been a standout performer within Yum! Brands. Starbucks is even showing some improvements. So systematic challenges in the industry at large. Chipotle, I think,

Starting point is 00:09:13 is dealing with more broader industry headwinds than company-specific issues, but I would not expect this to resolve in the next few quarters. Lou, one of the things I'm looking at with restaurant stocks is how many times have they mentioned GLP-1s? In Chipotle's call, they mentioned it twice, and it was actually in relation to their new protein bowl, bowl of chicken, for $3.80. Yeah, they invented the nugget. Yeah, it's the new version of the nugget. Slightly healthier than a nugget, maybe.

Starting point is 00:09:41 But it is interesting that that seemed to be their answer not only to GLP-1s, but also people spending less. Saying, hey, if you just want to spend four bucks on some chicken, come here. Yeah. It's a weird time because Rachel's right. Some of this does seem to be just maybe stress on the consumer. I think it kind of makes sense that if the consumer is stressed, they still do planned night outs or special occasion. and you're still on the fly, but that middle ground where you could go home and cook or save a little money, but you may just get carry out or something, that fast casual is what's

Starting point is 00:10:15 suffering. I do wonder though, I mean, that implies it's short-term. I do wonder if some of this is, we're just so saturated. We've talked about this before. This category didn't exist when I was growing up. It is from scratch and it has been nothing but growth. Maybe we've reached the natural limit to this market. And we have a lot of competitors here. So maybe this speaks to kind of a longer-term problem. What I do know, fourth straight quarter of traffic declines. The good news is they are forecasting flat same-store sales in 2026, which would be better than down. Down in 2025, Travis, last time they were down was the E. coli scandal a decade ago. Which, by the way, was a great buying opportunity.

Starting point is 00:11:00 It was that time because they were young. Here's my question. I mean, they're talking about growth overseas. That's the big thing. Maybe Middle East wants this, Singapore, South Korea, and yes, Mexico. I don't know if that's going to be the path forward the way from, say, 2016 to 2025, things improve. You're still paying 30 times forward earnings for a mature business, period okay and you know i'd rather get a burrito bowl right now from them than get a share of the stock i i like the company i just the growth phase is over and what are you left with it will be very interesting to see what happens not only with chipotle but with restaurants in general we'll have another uh few earnings reports coming out in the next few weeks and glp ones are going to

Starting point is 00:11:48 be a topic and speaking of those glp ones they're not all great for even the pharmaceutical companies We'll get to that in a moment. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. The GLP-1 craze was started by Eli Lilly and Novo Nordisk, are really the two companies that are associated with this. But Rachel, Novo Nordisk took a huge hit in the market, and they're actually expecting a decline in the business. What is the story behind this? It seems like GLP-1 should be just growing forever, but it seems like the competitive dynamics are really changing there. Yeah, this is really a tale of two very different businesses. I mean, you think about Novo Nordisk, they had a much kind of slower growing insulin

Starting point is 00:12:30 business before they enjoyed the boom from their GLP-1 success. Eli Lilly had a much more kind of established, broader, diverse range of products that they were selling and a much more profitable foundation from which to launch into that growth. And we are seeing a real disparity in how these two companies are performing. So Novo Nordisk, they're targeting anywhere from a 5% to 13% decline in sales and profits for 2026. They've said that the most favored nation pricing deal they reached with the Trump administration has been impactful here. But there's a lot of factors here as well. You've got key patents for semaglutide. That's the active ingredient in Ozempic and Wegovy. Those are expiring in major international markets soon, including China,

Starting point is 00:13:09 Canada, and Brazil. There's, of course, the loss of market share to key rivals like Eli Lilly, but also some of the cheaper copycat, if you will, compounded versions of its drugs. The CEO is saying this is going to be a very challenging year. So all of that does not bode particularly well for the company. Now, contrast that. You've got Eli Lilly. They had record results. They're looking for their full-year revenue to rise as much as 25% in 2026.

Starting point is 00:13:35 Meanwhile, even as Novo Nordisk, they launched their oral semaglutide. Eli Lilly is looking for approval for their next-generation weight loss pill in mid-2026. That's broadly expected to really cannibalize a lot of the sales in the market. they had a 43% revenue increase in Q4 alone. They saw sales of their key GLP-1 drugs both jump by more than 100%. And Eli Lilly became the first pharma company to surpass a $1 trillion market cap in 2025. So, yes, there are some industry-specific challenges, but I think the issues that Novo Nordisk is facing are much more specific to that business. Yeah. I mean, it's a terrible joke here. Who knew the GLP-1s were slimming for

Starting point is 00:14:19 Novo Nordisk, right? Does anyone not have a GLP-1 at this point? It feels like Rachel said. Yeah, and there's more coming to the market over the next couple of years, too. Pricing headwinds in an increasingly competitive market. How many times was that said? You talk about the restaurant stocks. How awful was GLP-1s said in their calls? How often was just pricing headwinds set on the Norvo. The oral was supposed to be the solution here. But if you look at it, it's 2.4 milligrams versus 25 milligrams for the oral. That's 10x the amount of active ingredient. I'm curious, we're seeing margins fall. How much of that is just startup here and how much of that is somewhat permanent if they do quote unquote succeed in moving people to

Starting point is 00:15:04 the oral version? What does that do to profitability? That seems like a slippery slope as far as that being the answer. I don't know if Novo has a good answer right here. And as you say, it's only going to get more competitive from here. I get the market's reaction. Again, another thing that is going to be fascinating to follow because this has been a huge growth story for a number of different companies and a lot of speculation behind some of the new GLP ones that are coming. But yeah, like Lou said, if you're coming into a very competitive market, maybe it's not the best to be those producers which are having margin pressure, even if you have higher volume as always people in the program may have interest in the stocks

Starting point is 00:15:42 they talk about and the motley fool may have formal recommendations for or against so don't buy or sell stocks based solely on what you hear all personal finance content follows the motley fool's editorial standards is not approved by advertisers advertisements are sponsored content and provided for informational purposes only to see our full advertising disclosure please check out our show notes for lou whiteman rachel warren dan boyd and christy waterworth behind the glass I'm Travis William. We'll see you here tomorrow.

Motley Fool Hidden Gems Investing - Disney Has Its CEO

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.