The Update Issue: Disney Earnings, Wall Street Pay Bumps, What You Can Buy With Bitcoin

Media titan Disney (DIS) reported earnings last week and bucked the sell-off trend we have seen in many 'pandemic winners'... It's hard to call Disney a clear-cut pandemic beneficiary because the theme parks are a huge profit center for the company, and they came under big pressure last year. First, they were hit by lockdowns, […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] The Update Issue: Disney Earnings, Wall Street Pay Bumps, What You Can Buy With Bitcoin By Berna Barshay Media titan Disney (DIS) reported earnings last week and bucked the sell-off trend we have seen in many 'pandemic winners'... It's hard to call Disney a clear-cut pandemic beneficiary because the theme parks are a huge profit center for the company, and they came under big pressure last year. First, they were hit by lockdowns, then later by the deleveraging that came with increased operating costs due to safety protocols while at the same time enduring the revenue headwinds presented by limited capacity. Having movie theaters shut down or operate at limited capacity wasn't exactly the best thing to happen to the studio business either. But never mind any of that... Haven't you heard? [Disney is a streaming company now](. I got the message myself rather late, [initially being bearish on the stock last year]( as I saw a 65% earnings per share ("EPS") drop in the cards, months before most of Wall Street wanted to face that reality. But in the end, none of that really mattered because the Disney+ streaming service was crushing it, securing a solid No. 2 positioning behind market leading streamer Netflix (NFLX). Disney piled on the streaming subs during the pandemic, and as a result, DIS shares were up 25% last year – solidly outperforming the S&P 500 Index, which rose 16% in 2020. Perhaps no other company was as much a 'COVID winner' and a 'COVID loser' at the same time as Disney... People stuck at home during the pandemic leaned hard into streaming services. Disney+ was a big beneficiary of this trend, more than doubling its subscriber base in 2020 and ending the year with more than 90 million subscribers... Source: Statista On the other hand, the company's Parks, Experiences, and Products division was crushed... with more than $7 billion in 2019 operating profits giving way to more than $2 billion in operating losses in 2020. But when it came to the stock, investors were willing to write off the bleeding at the Parks division as temporary and instead chose to focus on the explosive growth in subscribers in the streaming operation. Of course, we've been duly warned by industry leader Netflix that 2020's massive jump in subscribers at the streamers was to a large extent a pull-forward of future subscriber growth. This sets up the streamers – at least the ones that have been around for more than a year – for a period of decelerating subscriber additions and more muted revenue growth generally. Everyone assumed that Disney+ was also borrowing from its future growth... but as both a pandemic winner and loser, it had the natural offset of improving park operations to counter any digital growth slowdown. The rapid comeback at the Parks division was a big reason that [I told Empire Financial Daily readers on July 13 to stick with DIS shares, but to skip those of Netflix](. Shortly after that piece, [Netflix exceeded low expectations for second-quarter subscriber adds – but lost 400,000 subs in North America]( and gave very light guidance for third-quarter subscriber growth. After Netflix, expectations were tempered a bit for Disney... which nevertheless managed to pull a rabbit out of the hat, beating expectations for subscriber additions in the June quarter by 1.5 million. Disney ended the quarter with 116 million Disney+ subscribers, a 12% sequential increase from the prior quarter's 103.6 million. The company also reaffirmed its expectation of hitting 230 to 260 million subscribers by 2024. Calls that Disney could "catch Netflix" within a few years seemed premature in 2020... but now, that statement seems like less of a hyperbole. As Chartr pointed out in its e-mail blast last Friday, Disney+ closed the gap to Netflix by around 10 million last quarter... Source: Chartr It will be hard to keep up this pace of outperformance... But if it happens, Disney+ could catch up in less than three years. The quarter was bolstered by strong subscriber adds for the Disney+ and Hotstar product that is marketed in Asia – at lower price points, which is dragging down average revenue per user ("ARPU"). So the pandemic winner division kept winning... while the pandemic loser division had a strong recovery quarter... The Parks, Experiences, and Products division swung back into the black, posting $356 million in operating profits versus a $1.9 billion loss in the prior year quarter. The profit number was entirely dependent on the Products group doing well, as the Parks are still losing money – with U.S. locations breaking even essentially and international parks losing $210 million during the second quarter. But the Parks are definitely in recovery mode, and Disney management was confident that the recovery can continue. With the company continuing to surprise to the upside in streaming – while recovering in the Parks division, which was its largest by revenue pre-pandemic – it seems this pandemic winner has the potential to also be a recovery winner. Since that July 13 essay on the streaming slowdown, DIS shares have slightly outperformed NFLX shares... I expect this trend to continue, so I'm sticking with DIS shares and taking a pass on those of Netflix. --------------------------------------------------------------- Recommended Links: [Legend Who Bought Apple at $0.35 Says Buy 'Citizen IPOs' Now]( Wall Street legend Whitney Tilson says there's a huge opportunity to invest in valuable private companies before they go public – [and he's revealing the No. 1 company to buy ASAP](. --------------------------------------------------------------- [Urgent crypto buy alert]( Early backers in ethereum are up as much as 1,007,319%. After seven years, its co-creator is launching a new crypto project... And this time, you can get in early. RSVP now for Jeff Brown's first-ever crypto livestream on Wednesday, August 25, at 8 p.m. Eastern time, where he'll reveal the name of the next ethereum. [Get the details here](. --------------------------------------------------------------- The increases to junior pay on Wall Street just keep coming... Having initially set off a [chain of raises for junior analysts across Wall Street]( back in June, investment bank JPMorgan Chase (JPM) is going back and expanding its hikes. JPMorgan had initially taken first-year analyst pay to $100,000, forcing banking rivals like Morgan Stanley (MS) and [Goldman Sachs (GS) to match or beat the new pay rates](. Now JPMorgan is going back and expanding its pay increases to include a wider range of positions, according to Bloomberg reporting last week. Junior analysts in sales, trading, and research can now look forward to raises, just like their peers in investment banking. Investment bank Jefferies Financial (JEF) also announced last week that it would raise salaries for first-year analysts by 30%, to match the $110,000 level announced by Goldman last week. All the firms that previously raised first-year salaries to $100,000 – like Morgan Stanley, Citigroup (C), and Barclays (BCS) – are now in the hot seat and may need to do a second round of hikes. Recruiters say it's a hot job market with banks, hedge funds, and private equity shops all poaching each other's junior employees, buoyed by a strong stock market and a [banner year for initial public offerings]( ("IPOs"). I continue to think an underdiscussed factor in all this is the appeal of Big Tech and Silicon Valley-backed startups, due to the same factors – rising stock prices and a market hungry for IPOs. Movie-theater chain AMC Entertainment (AMC) is really playing to its audience... And that audience isn't the folks who want to sit down and watch The Suicide Squad or Black Widow... It's the legion of new investors – the self-proclaimed "apes" – who have bought into its stock and are pressuring each other online to "hodl" (short for "hold on for dear life"). Give them what they want... and apparently what they want is to be able to pay for their ticket in bitcoin. Really? Even at the inflated cost of a ticket in New York City, we're talking 0.0004 bitcoin for a movie ticket. Seems practical! Source: Twitter/@MobieMoonMan Going back to things that matter in the real world... AMC handily beat revenue estimates by 16%. It was an impressive beat... until you remember that revenues were still down 70% from 2019 levels in this high fixed-cost, real estate-intensive business. And the company's enterprise value is almost 4 times what it was back in the second quarter of 2019. This won't end well. This business is a much worse one post-pandemic, now that windows of theatrical exclusivity have eroded considerably, sometimes to exactly zero days. However, it's impossible to predict when this bubble will burst. Speaking of buying movie tickets with bitcoin... An economist friend read my recent piece on cryptocurrencies and sent me some thoughts... Since he knows more about global payment systems and systemic risk in the banking system than anyone I know, I thought I would share his insights. I'm also sharing because his list of what you can buy with bitcoin right now is hilarious in its specificity... Bitcoin doesn't have an underlying asset value. It is worth something to one investor because another will buy it because it is worth something to the next because they can use it to... - buy a Tesla (TSLA) - obtain cyber blackmail money outside the banking system - evade currency controls to move funds to buy a house in Vancouver - pay for wholesale drug transactions The largest volumes of transactional use (as opposed to speculative asset holding) are not particularly savory. He goes on to suggest a risk to the cryptocurrency markets which I had frankly not contemplated... Suppose [global money laundering and terrorist financing watchdog] FATF issues a directive in which all its members agree that anyone who touches bitcoin is suspect for money laundering. Do legit institutional investors still want to play? Or suppose China designates another way for its state-sponsored cyber-crooks to get paid and cracks down on everyone else. Given both the supply and demand concentrations in China, one regulator could crash the markets. I can't handicap the probability of any of these things happening, but it's a good reminder to treat your crypto investments as highly speculative, prepare for volatility, and keep position size in line with the risk level. In the mailbag, a reader offers thoughts on cryptocurrencies, and another weighs in on the tax code... Are you still holding your "pandemic winners" or have you transitioned to investing in "recovery winners"... or a mix of the two? What do you think of AMC's clear investor relations strategy of catering to the Reddit and FinTwit users who appear to make up the bulk of its holders right now? Have you ever bought anything with bitcoin or another cryptocurrency... or would you want to? Send an e-mail to feedback@empirefinancialresearch.com. "What any article about purchasing bitcoin or other cryptocurrencies should emphasize is the need for at least one other person to have a copy of your access code, because if you die suddenly in a car crash, flood, earthquake, or building collapse, and no one knows you owned bitcoin or other cyber coins (such as the Emperor's new clothesCoin). and doesn't know how to access it, it will be lost forever... so much for security..." – Jake J. Berna comment: Great point, Jake. Thanks for sharing it. "Berna: The government needs to radically restructure the tax code. From the inception of this country, the tax code was always built to favor wealthy (men and businesses, especially the slave business at the time) entities in power. That's the foundation of America. "Restructuring the tax code would piss off just about everyone who has an extra buck or two (and it will NEVER happen, but hey, let's let the thought experiment think). "The first radical change in my view is the elimination of deductions. Sorry, no more deducting all your office furniture, lightbulbs, water coolers, desks, computers, and software. Let's not even get into 'creative' business deductions that appear on audits (like private airplanes and such). Let's be honest, this helps the CEO of Kroger (KR) more than the employees who stock the shelves there. No more deductions. "Secondly, I believe a dollar earned is a dollar earned. Warren Buffett shouldn't be paying less in tax because it's 'capital gains' over his secretary who makes 'earned income.' Those tax designations or brackets need to join deductions in the graveyard. "The solution and/or replacement to that is a simple flat tax. I don't care who you are, you're paying the government X% whether you're Warren Buffett or his secretary. Let's just keep it simple at 25%. "But wait... there's more! We need a 'wealth' tax. The structure here is unique because it isn't a wealth tax at all, rather a consumption tax. The logic is simple, whatever you consume, from a can of soup to an illustrious Central Park West penthouse, you're taxed for. By taxing in this manner, you in a roundabout way tax the rich ponderously rather than waged workers. It's viciously effective because the theory goes... as your income grows so does your expenses. "This plan would put a lot of CPAs, financial planners, and advisors out of business. Restructuring the tax code would gut entire industries. No more sophisticated loans on your stock so you can skip those long-term capital gains taxes. And the interest offered to those people is pitiful, I mean .5%-4% interest on stocks that appreciate at minimum 12% (using the S&P 500 as a rule of thumb) is ostentatious and spits in the face of the disadvantaged and poor. "Of course, it will never happen. Despite me knowing this would work, make the tax code efficient, ensure the wealthy pay more, reduce costs, and improve government revenues, and so much more... it's a fantasy. That's the American way! "All the best!" – Seth R. Berna comment: So much to chew on here, Seth... Your letters always make me think. Thanks for writing in, and keep them coming! Regards, Berna Barshay August 17, 2021 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2021 Empire Financial Research. 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