Motley Fool Hidden Gems Investing - Will the NFL Bring the Magic Back to Disney Stock?

Starting point is 00:00:00 Disney pulled off a coup locking up the NFL as not just a partner, but a part owner of ESPN. Motley Fool Money starts now. Today, we're going to get to some of the recent earnings from Rivian, Shopify, and Upstart. But let's start with Disney in the NFL. disney reported results this morning as we're recording and they were fine revenue was up three percent to 23.7 billion dollars there was a 15 drop in linear tv so cord cutting is still a huge problem but the big news is espn officially announcing a deal to acquire the nfl network they get red zone distribution nfl's fantasy football business and more this coincides with

Starting point is 00:00:50 espn streaming app launching august 21st so you're going to be able to access all of these things all through the streaming app. ESPN also gets six additional NFL games going from 22 to 28 on that platform. Lou, if you take out political programming over the past year, the NFL accounts for about 98 out of the top 100 shows each year. This seems like a huge get for ESPN. Yeah, it's definitely a logical fit, right? It's hard to screw up if your goal is to, I'm going to try and make money off the NFL. That's what history tells us. I'm not really an NFL guy, to be honest. But look, it is the most important live content out there, at least sports content. So, adding NFL games and content ahead of launching a streaming service,

Starting point is 00:01:38 yeah, kind of a no-brainer. But Travis, if I had any pushback, I'd say I think ESPN streaming is going to be a success either way. So, I'm not sure, Disney, how much I'd want to give up to secure this. I think it's a nice-to-have, not a need. The biggest impact might be outside of ESPN. Fox is launching a similar service. Discovery, Comcast, Paramount, they all have streaming services. They're all scrambling to add live sports. For me, the biggest benefit to Disney having the NFL is that all of these guys won't have the NFL. The deal makes it a lot harder for all of those competitors. This is a landmark deal. There's no doubt about that. That could also be really beneficial for both parties. Bear in mind, you've still got some regulatory

Starting point is 00:02:24 hurdles that could be ahead. The agreement's also subject to the negotiation of definitive agreements and approval by NFL team owners. But for example, merging NFL fantasy with ESPN fantasy football creates a combined official NFL fantasy football experience that could potentially dominate a large and lucrative market. We've also seen that ESPN will license an additional three NFL games per season to air on the acquired NFL network, which ESPN will now own and operate. That allows Disney to integrate NFL content across its platforms. That could potentially include merchandising opportunities, theme park experiences, ways of capitalizing on the broader Disney ecosystem. This also, I think, very much aligns with the NFL's interest

Starting point is 00:03:09 as well as they seek to really further monetize their media assets. NFL has previously stated their ambition to reach $25 billion in annual revenue by 2027. But I think if you're looking at this as a Disney shareholder, this is great news for ESPN. And the story isn't just about ESPN. This is really a Disney streaming story. Every streamer has essentially two challenges. How do you acquire customers and how do you prevent them from churning? This was something that came up a bunch of times during their conference call. The NFL should help with both, especially when you think about bundling them with Disney Plus and Hulu. That's going to launch at $30 a month. That sounds expensive, but that's a lot of content for that. We know that Netflix is

Starting point is 00:03:48 the number one streaming company with over 300 million subscribers, but Disney Plus has 128 million, 56 million for Hulu, another 24 million for ESPN. Could the bundle that Disney is building position them to be at least number two and potentially challenge Netflix on a different vector with sports and this family entertainment that they have with Disney properties as kind of their competitive advantage. Rachel, what do you think? You know, I do think this is a game changer for Disney. I do think it could give it a leg up as it continues to really, you know, battle it out for streaming domination against the likes of Netflix. Although these two businesses aren't necessarily one-to-one, you know, as traditional cable subscriptions decline though, this deal does

Starting point is 00:04:32 allow ESPN to better adapt to the changing media consumption habits of fans. You know, Netflix is also investing in live sports. But I do think this ESPN NFL deal really positions Disney to offer a much more robust and specialized sports experience that could be a key differentiator in the competitive streaming market. They could even leverage the deal to boost advertising revenue through more targeted advertising enabled by that massive sports ecosystem. ESPN is building a comprehensive sports platform. It's creating this one-stop shop approach that can appeal both to casual as well as hardcore sports fans. And while other streaming services like Netflix are investing in live sports, I think that there is this reality where the combination of ESPN's

Starting point is 00:05:19 established brand, the NFL's popularity, and just the underlying financial strength of Disney, it does give ESPN a unique advantage. And I do think that it's fair to say that few other platforms can offer such a complete and compelling sports experience. My only real pushback is, I think Disney was pretty well set up even prior to this deal. I think all the moves they've made, Hulu, everything they've done, they are well on their way to being a strong No. 2. So, in that regard, I'm not sure this is a game-changer. But look, my household, we pay for YouTube each month. We subscribe to ESPN+. We don't watch a lot of other channels. I'm a soccer geek, so I'm going to hang on to Paramount

Starting point is 00:05:57 and Peacock, but I know that's not the majority. I can see a world where Netflix and Disney are all most families really need. And for investors, I don't think it matters who's one and who's two there. Yeah, you touched on it, Lou. The interesting thing coming up is going to be how much gravity does the NFL hold when it comes to sports rights for other leagues? If this is the place to go for sports, and if you're a sports fan, you have to have ESPN and essentially the Disney bundle. What does that mean for other content? We saw a deal with the WWE and their premium live events announced also this morning. That's going to start in 2026, last for five years.

Starting point is 00:06:35 That company is actually owned by TKO, who also runs the UFC. They're negotiating a rights deal that ESPN currently has, and they're kind of playing all the streamers off of each other. So there's different ways that these companies can go. One would be the MLS route, which went with Apple TV, hasn't seemed to be a big success. So is this going to create a gravity for more sports content to end up on the ESPN platform? I think it will. I mean, MLS talks growth, and they love to talk about growth. But look, I'm a soccer fan,

Starting point is 00:07:06 and I don't have Apple TV. And I think a lot of that growth, you better look at the denominator, because you're talking about small numbers overall. I'm not the first person to say this, but it does feel like we're going back to the past. We're going back to, we pay one or two large sums to an aggregator or a couple of aggregators instead of just a dozen $9 a month subscriptions. I'm not sure that's good news for the consumer. It's maybe just whatever news. but if you're a Disney shareholder, and Disney is transferring all of that value that used to go to the Comcast of the world, and they are now the aggregator and they're getting that value, I think it's certainly good news for Disney shareholders.

Starting point is 00:07:43 Yeah, you're right, Lou. I do think this recent development as well could really bring other players in this space into the fold. The funny thing about MLS, Commissioner Don Garber had recently said that the season pass available on Apple TV, It's leveraging about 120,000 unique viewers a match. That's a 50% increase from a year ago, but it's considerably lower than the average viewership that MLS Games achieved on ESPN. I think it really underscores the importance of that ecosystem. For what it's worth, Disney, ESPN, this is very much a dynamic of going all in on live

Starting point is 00:08:19 sports as a core part of the streaming strategy. That recent WWE deal really reinforces this commitment. And UFC remains a high, valuable property for them. It's generated record revenues for the business. It looks like they're still working on renewing their relationship with UFC, who's reportedly seeking a significantly higher deal than they have in the past. But I think the WWE deal could be an indicator of a potential path forward for UFC. And the NFL deal could create an environment where other players could fear getting left

Starting point is 00:08:48 out in the cold if they don't ink a deal soon. now ESPN is trying to kind of integrate everything together not only all these sports rights but also as Rachel mentioned fantasy sports and sports betting now this is going to be a interesting thread for Bob Iger and team to try to work their way through because only a small percentage of people are actually betting on sports but it sounds like they're going to be integrating this quite a bit do you think that they're going to be able to pull this off correctly Lou because if I'm seeing all kinds of betting information on the ESPN app, that could be a turnoff for me. As excited as I am to see something like fantasy sports there.

Starting point is 00:09:26 I think Pandora's box is open and I think it's, I think it'll be fine. Disney, look, they have the history of trying to be more thoughtful about this stuff than others. I definitely think it's something they have to worry about, but I wouldn't, I don't think this derails them. I think they figured this out. Cause I think we're all getting used to betting a lot quicker than than we thought we would whether we do it or not all right let's end this segment with a bold prediction i have a bold prediction for you too that i want your thoughts on disney streaming revenue with disney plus and hulu is currently on a 24.7 billion dollar run rate that does not include espn plus netflix has a 44.3 billion dollar run rate as of the most recent quarter

Starting point is 00:10:09 ESPN is going to be going over the top with $30 per month. So is Disney's streaming business going to be bigger than Netflix in 2026? I think it is. But what are your thoughts, Rachel? Yeah, I do think that that's absolutely the case, that they could in fact be the bigger streaming company than Netflix by 2026. One analyst report that I saw had estimated that Disney Plus could reach something like 294 million subscribers by next year, and that would exceed the projections for Netflix of around $286 million. Ultimately, these are two fantastic businesses. They do cater to different types of streaming needs as well. And I think Disney can be a winner and continue to be so, really regardless of whether or not it actually exceeds Netflix's

Starting point is 00:10:55 subscriber figures. But bold prediction, I think it's possible. I think probably is the answer. But like Rachel said, I don't think we should obsess on this. And I don't think as investors, it really matters. I don't think Disney's really competing with Netflix. I think they are competing to make sure it is them and Netflix and they are the big other thing here. Look, Disney and Netflix have much different economics inside streaming, much different total businesses. Just Disney has all sorts of things going on. As an investor, I don't want to read too much into comparison. I'm ready to call Disney a winner. I'm not ready to call them Netflix in terms of profitability and stuff. And that's kind of how I view it as an investor. Yeah, their experiences business hit

Starting point is 00:11:37 $2.5 billion in quarterly operating income. That's a business that Netflix doesn't have. So they are playing a different game. Next up, we're going to check in on EVs and shopping trends. You're listening to Motley Fool Money. doing business is at money 2020 live and in person this october in las vegas search money 2020 usa to find out more the ev space has struggled in 2025 and it looks like things are gonna get worse before they get better the elimination of the ev tax credit and restrictions on state's ability to create emissions restrictions, which ends up being regulatory credits for companies like Rivian and Tesla, are hitting companies hard. Rivian said last night

Starting point is 00:12:39 that they're going to generate $140 million less in revenue than they thought from those credit sales. This seems like a huge hit for EV companies, but is this going to be a boon for Detroit, Lou? You know, change is inherently risky for the incumbents, right? That's the whole point. And So, the simple fact, and I think we have enough data to call it fact, that things are going slower than planned and we're losing some of these subsidies, yes, that is indeed a boon for the incumbents. It could be bad news for the newcomers. I think Rivian is probably fine.

Starting point is 00:13:11 I respect what they do. But look, Travis, it always cracks me up to see it. The number of words and the number of kind of calisthenics they use to get to the word profit in their profitability timeline, that's never a great sign. Meanwhile, Detroit's legacy business provides cash flows that Rivian and Tesla's can't match. So, I think it's a pretty good time to be the incumbents. One word of caution, though, is I don't necessarily want to call especially all of the legacy automakers winners because of this. I think the future is going to be messy and uncertain. I think it'll involve consolidation,

Starting point is 00:13:45 it'll involve reshuffling. I would really honestly be surprised if any of these stocks outperform the market over the next five years. But if nothing else, the idea that Detroit is toast and these newcomers are just going to inherit the world, I think that's done and dusted. The future likely involves Tesla, GM, Toyota, Ford, and maybe even Rivian, at least in brands. But it's going to be messy from here. Yeah. Regulatory credits are earned by producing vehicles with low or zero emissions. And that was a crucial revenue stream for EV manufacturers like Rivian and Tesla. And while those regulatory credit changes do negatively impact EV makers. They could absolutely be a positive development for more traditional

Starting point is 00:14:25 automakers. But I think the long-term impact on EV adoption really remains to be seen. Some analysts have anticipated something like a short-term surge in sales, at least, as consumers are trying to really take advantage of the expiring federal EV tax credit. But I still think there's tremendous potential in this space. The short-term look ahead could be challenging, though. Shopify is the big winner in trading today after they came out with earnings. This This is a Hidden Gems recommendation going all the way back to 2018. It's been recommended multiple times, starting at $14.05, so well over a 10-bagger since then. Rachel, what did we learn from Shopify about the quarter? This was a great quarter for Shopify.

Starting point is 00:15:04 They beat on essentially all key metrics of note. They reported revenue of $2.7 billion. That was a beat from what analysts were projecting. They beat on the bottom line. GMV rose 31% year over year, that was also a beat. But importantly, and this is something that investors were really wanting to hear, what is the impact of tariffs? So, at least for now, Shopify leadership has indicated that while they had anticipated some impact from tariffs, those effects really did not materialize as strongly as they expected in Q2. For example, CFO Jeff Hoffmeister stated that they hadn't observed a slowdown in U.S. demand in transactions. And even though they saw merchants raising prices in some cases, this seemingly wasn't due to significant tariff-related cost

Starting point is 00:15:48 increases. They also noted that Shopify hadn't seen any meaningful changes in cross-border activity or buyer behavior, despite the existing trade tensions. And importantly, only 4% of Shopify's global gross merchandise volume is shipped under de minimis exemptions. So, this suggests that the impact of removing that exemption is having a limited effect on the company's overall business. This was a really, really great quarter, and certainly the market responded positively to those developments. Yeah, I think the tariff news, the tariff commentary is what's juicing the stock. And I think a lot of us were kind of confident that tariffs wouldn't ruin Shopify's business, but it was still really interesting to hear them

Starting point is 00:16:29 talk about how little of an impact it has had. Here's the thing, though. I don't think the tariff story has played out yet. I do think the impact on Main Street will creep higher in the quarters to come, and it will inevitably, to some extent, impact consumer spending. Just as before, I don't for a second think this is going to ruin Shopify, but investors who might have been overly worried yesterday should not be totally dismissive today. I'm a happy holder of Shopify, but I'm personally zero interest in buying into this rally. I want to get to Upstart quickly. They reported over 100% revenue growth, but the stock is down today. Rachel, quickly, what did we learn from Upstart. They had their first gap profitable quarter since Q2 of 2022. As you noted,

Starting point is 00:17:13 revenue surged 102% year over year. They also originated 159% more loans than one year ago. More than 90% of its loans processed through its AI-driven underwriting platform are completely automated without human intervention. They're continuing to build really strong relationships with their funding partners, seeing the success from their newer home equity line of credit product. Over 50% of funding is coming from committed partnership agreements. It's adding a lot more stability to its business model. It was pretty great results for Upstart. Yeah, I'm a happy shareholder here, too. But if we're honest, the risk-reward here remains high. We had another quarter where evidence of the partners liked the platform. They're doing a

Starting point is 00:17:54 good job filling the demand that's there. But to me, the COVID recession, with all the stimulus, that doesn't really count as a true downturn. With fintechs, there are always a lot of unknowns until a company has proven its model works through a real sustained downturn. My big takeaway from Upstart is they did nothing to diminish the bull case, but there's still just so much we won't know for a while. As always, people on the program may have interests in the stocks 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 Motley Fool editorial standards and is not approved by advertisers. Advertisers

Starting point is 00:18:31 our 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, and Dan Boyd behind the glass, and the entire Motley Fool team, I'm Travis Hoyum. We'll see you tomorrow.

Motley Fool Hidden Gems Investing - Will the NFL Bring the Magic Back to Disney Stock?

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