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    Disney’s New Magic: Saving Money

    enFebruary 08, 2024

    Podcast Summary

    • Bumble's new features for better dating experience and Disney's focus on savingsBumble updates to boost compatibility, start conversations, and ensure safety. Disney saves $7.5B, exceeding goals, and invests $1.5B in Epic Games to expand gaming opportunities

      Bumble is introducing new features to enhance compatibility, start conversations, and ensure safety in dating, aiming to make the experience less exhausting for users. Meanwhile, Disney's focus on savings is crucial as its top-line growth isn't as exciting organically. The company aims to save $7.5 billion, surpassing its initial goal, and these savings are revitalizing Disney as an earning story despite lackluster top-line growth and challenges from cord cutting and attendance sluggishness at theme parks. Additionally, Disney's investment in Epic Games for $1.5 billion is a strategic move to bring gaming opportunities to Disney IP, which could take time to yield results but shows promise in leveraging external expertise to succeed in the gaming industry.

    • Disney's investment in Fortnite and familiar franchisesDisney invests in Fortnite to engage younger demographic and maintains relevance, balances new and familiar content, and focuses on established franchises to ensure audience comfort and capitalize on potential ecommerce opportunities.

      Disney's strategic investment in Fortnite and its younger demographic, along with the release of familiar and new franchises, represents a significant move to remain competitive and reach new audiences. Fortnite, which has seen a resurgence in popularity, is a key platform for Disney to engage the elusive younger demographic, who are increasingly jaded towards traditional advertising. Disney's investment in this space, despite the significant cost, is seen as a necessary step to maintain relevance and capitalize on potential ecommerce opportunities. Additionally, Disney's focus on established franchises, such as Deadpool 3, Inside Out 2, and a new Lion King movie, provides a sense of comfort and familiarity for audiences, especially after a challenging year. While there is a risk of relying too heavily on these moneymakers, the balance between new and familiar content ensures that Disney is taking calculated risks. Furthermore, ESPN's recent concrete plans, including the release of content related to Taylor Swift's Eras Tour, and the company's focus on delivering on its promises, are positive signs for the future of the sports media giant. Overall, Disney's strategic moves in entertainment and media demonstrate a commitment to innovation, audience engagement, and maintaining a strong market presence.

    • ESPN's strategic moves in sports content industryESPN partners with rivals to create a skinny sports bundle and launches own DTC streaming service to maintain dominance amid cord-cutting. Disney's cautious approach to gambling may lead to an ESPN Bet partnership and eventually, Disney launching its own online sportsbook.

      ESPN's announcement of joining forces with Warner Brothers, Discovery, and Fox in a sports bundle, as well as launching their own direct-to-consumer streaming service, is a strategic move to maintain their dominance in the sports content industry. This comes as cord-cutting continues to impact their legacy carrier rights. The creation of a skinny sports bundle with rivals and going directly over the top to reach consumers is seen as a good thing, as it simplifies the viewing experience for consumers. Additionally, ESPN's immersive solo streaming experience, which includes shopping and betting, is a growing area of interest. Disney, the parent company of ESPN, has been cautious about gambling in the past, but the prevalence of sports betting and the success of competitors has led them to partner with Penn for ESPN Bet. While Disney has been hesitant to launch their own online sportsbook, the industry trend and acceptance of sports betting may eventually lead to Disney doing so on its own.

    • Disney's Exploration of New Revenue StreamsDisney is balancing new revenue streams in sports and gambling with its parks business, integrating tech for personalized experiences, and addressing high park costs to provide value to consumers.

      Disney is exploring new revenue streams, particularly in the sports and gambling industries, to offset domestic weakness in its parks and experiences business. The discussion highlighted the potential of integrating sports betting with streaming services and the financial impact of rising park prices on attendance. Despite some sluggishness post-pandemic, Disney World continues to generate higher revenue per capita compared to pre-pandemic levels. However, the high costs associated with visiting the parks remain a concern for families. The future success of Disney will depend on its ability to balance these revenue streams and provide value to consumers. Additionally, the integration of technology, such as remote betting and personalized app experiences, could be game-changers in the entertainment industry.

    • Disney's $60 billion investment in theme parks and experiencesDisney invests $60 billion in theme parks and experiences, and cracks down on password sharing to boost subscriptions, following Netflix's lead.

      Disney is significantly investing in its theme parks and experiences, committing $60 billion in capital expenditures over the next decade. This includes upgrades at both U.S. resorts and international locations. Additionally, Disney is following Netflix's lead in cracking down on password sharing to boost subscriber growth and reduce churn. Despite initial concerns, Netflix has seen success in this area, and Disney aims to replicate that success. However, not every service can implement this strategy, and some, like activist investor Nelson Peltz, may view Disney's actions as a repeat of past tactics. Overall, Disney's commitment to enhancing its offerings and implementing subscription policies similar to Netflix demonstrates its dedication to remaining competitive in the entertainment industry.

    • Disney's Unexpected Dividend Increase and New InitiativesDisney surprised investors with a dividend increase and new projects, signaling financial strength and a strong position in the market.

      Disney's recent earnings report was packed with surprises, aimed at appeasing shareholders before the annual meeting in April. Iger and the company announced a dividend increase, which is unusual for a company to do five months before it's due. This move can be seen as Disney's way of saying, "We have this, and we came to play." The company also announced unexpected projects and initiatives, such as the unexpected release of the Moana movie in November. These moves are likely to make it harder for activist investors like Pelton and Tryon to make their case for change. However, it doesn't mean that they don't have good ideas. Overall, Disney's report was a strong one, with impressive earnings and savings, making it clear that they are in a strong position. For income investors, the low yield of 45 cents every six months on a stock over $100 might not be exciting, but the company's financial strength and unexpected dividend increase are worth noting.

    • Creating a Celebratory Ecosystem for Gift-Giving1-800-Flowers expanded their offerings beyond flowers through acquisitions and brand creation, implemented cross-product suggestions and multi-brand bundles, and focused on logistics and convenience to attract and retain customers, generating revenue from a small percentage of multi-brand purchasers.

      1-800-Flowers has built a "celebratory ecosystem" by acquiring various gift-related businesses and creating their own brands, offering a wide range of options from flowers to seafood, and implementing intelligent cross-product suggestions and multi-brand bundles to increase revenue. They have also focused on improving quality control and logistics to ensure timely and accurate delivery, making the shopping experience more convenient for customers. With a loyalty program and automated distribution centers, they aim to keep customers coming back for their gift-giving needs. Despite some branding concerns, their strategy of providing a one-stop-shop for gifts and investing in technology has proven successful, generating significant revenue from only 13% of multi-brand purchasers.

    • Automation boosts 1-800-Flowers' capacity and consistency1-800-Flowers increased output by 40% through automation, ensuring consistent quality in deliveries and products. Diversification into gourmet food and gift baskets helped mitigate revenue loss due to consumer weakness.

      Automation has significantly increased the efficiency and capacity of 1-800-Flowers' operations. Before automation, one of their largest facilities could handle around 80,000 packages on a peak day. However, after automation, the same facility could handle 125,000 packages, representing a 40% increase in output. Additionally, automation helped ensure consistent quality in deliveries and the product itself. The McCann family, who founded the company in 1995, still owns 47% of it, with Jim McCann, the founder and current CEO, owning 45%. The business has faced consumer weakness in recent quarters due to economic conditions, but its diversification into gourmet food and gift baskets, which now account for more than half of its revenue, has helped mitigate the impact on overall revenue growth. Despite fluctuations in demand, the company's revenue has historically climbed every year except during the Great Financial Crisis.

    • Stability through Holiday Sales, Unpredictability in Everyday Gifts1-800-Flowers finds consistent revenue during holidays but unpredictable sales in everyday gift-giving. They're promoting repeat business through a membership program, making it an intriguing investment despite recent financial struggles and lack of analyst coverage.

      1-800-Flowers has found stability in its revenue through consistent demand during holidays, while revenue from everyday gift-giving is more unpredictable. The company is trying to encourage repeat business through a membership program, which offers incentives like free delivery and discounts, creating an ecosystem that keeps customers coming back. Despite recent financial struggles, the company's low valuation and lack of analyst coverage make it an intriguing investment opportunity for those willing to look past the short-term revenue downturn.

    • Focusing on 1-800-Flowers returning to normal operations and gross marginsInvestors should focus on 1-800-Flowers improving operations, reaching historical gross margins, and leveraging tech and fulfillment investments for potential undervaluation

      Investors should focus on 1-800-Flowers returning to normal business operations and reaching historical gross margins of around 41%. Economic pressures have impacted the top line, causing a decrease in everyday purchases and an increase in freight and commodity costs, resulting in a gross margin of 37%. However, insiders, including the CFO and president, have shown confidence in the business by purchasing shares on the open market. If the company can not only return to normal but also leverage tech and fulfillment investments, attract more consistent gift givers, and push further into corporate gift giving, it could still be undervalued. Remember, this information should not be used as a sole basis for buying or selling stocks. I'm Deidre Willard, and that's it for today. Tune in tomorrow for more insights.

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