TWDC Q2 Earnings & Conference Call

[PhotoDave219]

It is important to note that Michael took stock options when the company was in the threat of takeover. Michael taking that compensation was him saying if I fix this I should get paid. He fixed it along with Frank Wells and Sid Bass.

Yes it is. He saved the company, yes. That points not up for discussion.

But in doing so, the choice of compensation married the company to Wall Street forever.

I feel a bonus would've been a much better choice for executive compensation than stock. I agree he should of been compensated for it. And I thank him for saving the company.

But that was 30 years ago. It's time to change how we compensate the executives.

 

[Darth Sidious]

Sorry bro, you're grasping at straws and trying to prove something I already knew. You thought Walmart had good margins when they irrefutably have some of the lowest margins in the world. They are a great company, but they are IN the low margin business.

Almost any finance guy will tell you market cap and protiablity are king when valuing companies, IE size. I know you're backpeddling and trying to prove your point, but I knew Walmart had a lot higher sales than AAPL. Doesn't mean they are a bigger company, more valuable, or more profitable. AAPL is by far the more valuable company and it isn't close.

Anyway dude, I'm not going to argue finance or really anything with you. I know you're a good guy and like to banter a lot here, but after this, I'm not really going to keep responding. I don't think we are going to learn a lot from each other on finance...

To help end it, if you want me to tell you you're right on comparing by sales figures, fine...you're absolutely right. But when talking about company size, market cap is king and that's what I was talking about as most finance guys will....Walmart is a great company but isn't close to as valuable as AAPL.

I'm a finance guy and market cap is the valuation of a company. Company's are valued differently depending on who is doing the valuation and what model they are using. They project growth over years using a rate they expect and using rates such as the rate of an alternative return. There are many ways to value companies though. Most have to do with retained earnings, revenues and dividends.

Apple is valued higher than other companies because despite their size they are still expected to grow above normal GDP growth rates, whereas I'd assume WalMart is not (haven't seen the numbers). When you buy shares you pay a price that incorporates the Street's estimate of future earnings.

When companies release earnings and meet their own estimates yet share prices decline it's because the Street expected higher (that's a very basic example though, there's a lot to it).

 

[Darth Sidious]

Yes it is. He saved the company, yes. That points not up for discussion.

But in doing so, the choice of compensation married the company to Wall Street forever.

I feel a bonus would've been a much better choice for executive compensation than stock. I agree he should of been compensated for it. And I thank him for saving the company.

But that was 30 years ago. It's time to change how we compensate the executives.

I agree, just wanted to point that out for those reading who aren't aware and would therefore be quick to vilify Michael.

 

[BigTxEars]

I'm a finance guy and market cap is the valuation of a company. Company's are valued differently depending on who is doing the valuation and what model they are using. They project growth over years using a rate they expect and using rates such as the rate of an alternative return. There are many ways to value companies though. Most have to do with retained earnings, revenues and dividends.

Apple is valued higher than other companies because despite their size they are still expected to grow above normal GDP growth rates, whereas I'd assume WalMart is not (haven't seen the numbers). When you buy shares you pay a price that incorporates the Street's estimate of future earnings.

When companies release earnings and meet their own estimates yet share prices decline it's because the Street expected higher (that's a very basic example though, there's a lot to it).

WM is growing again after a steep slowdown for years. Texas is seeing the bulk of the growth the next couple of years within WM. That of course is inline with the general growth and economy in Texas compared to the rest of the country.

 

[PhotoDave219]

I agree, just wanted to point that out for those reading who aren't aware and would therefore be quick to vilify Michael.

No him and Frank Wells and Sydney bass and Roy Disney saved the company in 1984.

No argument from me because that's straight up facts.

 

[flynnibus]

Yes it is. He saved the company, yes. That points not up for discussion.

But in doing so, the choice of compensation married the company to Wall Street forever.

I feel a bonus would've been a much better choice for executive compensation than stock. I agree he should of been compensated for it. And I thank him for saving the company.

But that was 30 years ago. It's time to change how we compensate the executives.

Sorry - removing stock options or compensation would do nothing to disconnect the company from chasing the quarter to quarter metrics. Execs do that because that is what they are held to by the investors->board ... not because it is what lines their pockets.

 

[PhotoDave219]

Sorry - removing stock options or compensation would do nothing to disconnect the company from chasing the quarter to quarter metrics. Execs do that because that is what they are held to by the investors->board ... not because it is what lines their pockets.

There has to be a way to fix the quarter to quarter mentality.

 

[Rodan75]

There has to be a way to fix the quarter to quarter mentality.

That just won't happen without regulating Wall Street heavily, which won't happen. However, analysts can be trained to better understand capital investment requirements..which I think we are seeing in the way TWDC is framing their Cap investments in the parks and more importantly with Comcast helping to reinforce Cap investments. Having two giants in the same boat will help the analysts, which removes some pressure.

 

[Vegas Disney Fan]

Iger is a margins guy or at least trying to be. He is all about getting more butts in and sucking as much as he can out of each of them. However, it seems his style of management isn't yielding a better product and could harm the long term prospects of parks and resorts. I also don't think they are controlling spending very well because margins are still poor. They aren't being cheap, but they are wasting a ton of money and not investing it back in the parks.

It seems just the opposite to me. In the last 7 years they have spent over a billion redoing DCA, another billion on new fantasyland (the largest expansion in MK history), are starting a huge expansion in AK, and are building a new park in Shanghai. I've only been a Disney parks fan for a few years but that seems like a lot of investment into the parks.

 

[asianway]

It seems just the opposite to me. In the last 7 years they have spent over a billion redoing DCA, another billion on new fantasyland (the largest expansion in MK history), are starting a huge expansion in AK, and are building a new park in Shanghai. I've only been a Disney parks fan for a few years but that seems like a lot of investment into the parks.

Where are you getting a billion on NFE...

 

[Chef Mickey]

I'm a finance guy and market cap is the valuation of a company. Company's are valued differently depending on who is doing the valuation and what model they are using. They project growth over years using a rate they expect and using rates such as the rate of an alternative return. There are many ways to value companies though. Most have to do with retained earnings, revenues and dividends.

Apple is valued higher than other companies because despite their size they are still expected to grow above normal GDP growth rates, whereas I'd assume WalMart is not (haven't seen the numbers). When you buy shares you pay a price that incorporates the Street's estimate of future earnings.

When companies release earnings and meet their own estimates yet share prices decline it's because the Street expected higher (that's a very basic example though, there's a lot to it).

Can't tell if you're agreeing with me or not but AAPL is actually a slightly cheaper stock than WMT because people believe WMT has more future growth potential. AAPL trades at a low PE multiple bc investors don't believe the company can continue to grow like WMT. hard to grow at a $500b valuation. AMZN is expected to grow a lot bc the multiple is insane. Earnings have to catch up to the multiple.

I think we both understand how stocks are valued but others are struggling.

 

[Darth Sidious]

Can't tell if you're agreeing with me or not but AAPL is actually a slightly cheaper stock than WMT because people believe WMT has more future growth potential. AAPL trades at a low PE multiple bc investors don't believe the company can continue to grow like WMT. hard to grow at a $500b valuation. AMZN is expected to grow a lot bc the multiple is insane. Earnings have to catch up to the multiple.

I think we both understand how stocks are valued but others are struggling.

I see 10 plus % growth for AAPL and ~3% (GDP ish) for WMT. That is a quick look at Bloomberg terminal estimates. My point in my previous post was that market cap is not a factor in valuation of a company as that is the valuation. Market Cap changes as the price per share changes because it is simply shares outstanding x price. P/E for tech companies and P/E for retailers shouldn't be compared as the 'normal' for each is different. AAPL is also a unique stock and an outlier of sorts. Without having looked into it, you could probably compare WMT to XOM better just based on what the growth rates and P/E ratios are (they are likely close).

 

[PhotoDave219]

It seems just the opposite to me. In the last 7 years they have spent over a billion redoing DCA, another billion on new fantasyland (the largest expansion in MK history), are starting a huge expansion in AK, and are building a new park in Shanghai. I've only been a Disney parks fan for a few years but that seems like a lot of investment into the parks.

No, 2005/6 has that gold standard. Epcot got Soarin. DAK got Everest. MK got iasw rehab, potc rehab & Cinderellabration. MGM got LMA.

Disneyland got a LOT of stuff. Every park got something. http://en.wikipedia.org/wiki/Happiest_Homecoming_on_Earth

 

[Chef Mickey]

I see 10 plus % growth for AAPL and ~3% (GDP ish) for WMT. That is a quick look at Bloomberg terminal estimates. My point in my previous post was that market cap is not a factor in valuation of a company as that is the valuation. Market Cap changes as the price per share changes because it is simply shares outstanding x price. P/E for tech companies and P/E for retailers shouldn't be compared as the 'normal' for each is different. AAPL is also a unique stock and an outlier of sorts. Without having looked into it, you could probably compare WMT to XOM better just based on what the growth rates and P/E ratios are (they are likely close).

Right. My whole point. I don't think we are telling each other anything the other doesn't know. The valuation is the valuation, period. Market cap is king, period because that is the value. Trouble with sales is there are a lot of situations sales are just passthrough and not truly representative of the company's earning power. CVS is a great example. Billions of dollars in drug rebates paid by big pharma just flow through the company and are reported as revenue, but CVS only sees essentially a management fee as most are paid to clients for which they manage their prescription drug programs.

P/E ratios for 2 stocks can be compared to quickly determine how expensive a stock is or is not. Yes, tech usually has higher growth rates, thus higher P/E ratios, but AAPL is a cheaper stock than WMT based solely on that measure. If investing were simple, everyone would be an expert.

AAPL actually has a pretty crappy earnings multiple because no one thinks they can get much bigger. Same problem MSFT had. If AAPL traded at GOOGL's multiple, it'd be close to a $1,000 stock. AAPL has become a value stock and it actually isn't valued "higher" than the rest of the tech sector. It's valued lower because people think future earnings will be lower or not as high as others in tech.

Anyway, carry on...

 

[jlsHouston]

It is important to note that Michael took stock options when the company was in the threat of takeover. Michael taking that compensation was him saying if I fix this I should get paid. He fixed it along with Frank Wells and Sid Bass.

You're kidding right? Sid Bass?

 

[PhotoDave219]

You're kidding right? Sid Bass?

Yes. He bought 18% of the company and brought in Eisner. http://en.wikipedia.org/wiki/Disney#1972.E2.80.931984:_Theatrical_malaise_and_new_leadership

 

[flynnibus]

There has to be a way to fix the quarter to quarter mentality.

this is where you move into opinion.. and I'm sure there are many of this subject. It's a vicious cycle that is going to be very hard to break because it means telling people to not make money.. people with crazy amounts of money.. which means huge influence.

I mean.. you'll never be able to stop the theory of making money through investment.. and you don't want to. But I think it's the 'flipping' of investments that is the root of evil IMO. And it's the speed of the market and opening of it to everyone that has fueled the explosion.

If you could shift the market to stop being speculative and focusing on dividend returns it would encourage people to hold, instead of make money purely through value speculation.

The idea that things can grow "indefinitely" is a huge problem in our society.. you see it everywhere.. stocks, revenues, salaries, etc.

I'm no economist - but being pretty close to Vulcan... the whole thing seems a train wreck. But I'm almost certain the political correctness and inability to do anything ourselves is going to have our society collapse due to a diaster or invader before the moguls sink us completely.

 

[PhotoDave219]

this is where you move into opinion.. and I'm sure there are many of this subject. It's a vicious cycle that is going to be very hard to break because it means telling people to not make money.. people with crazy amounts of money.. which means huge influence.

I mean.. you'll never be able to stop the theory of making money through investment.. and you don't want to. But I think it's the 'flipping' of investments that is the root of evil IMO. And it's the speed of the market and opening of it to everyone that has fueled the explosion.

If you could shift the market to stop being speculative and focusing on dividend returns it would encourage people to hold, instead of make money purely through value speculation.

The idea that things can grow "indefinitely" is a huge problem in our society.. you see it everywhere.. stocks, revenues, salaries, etc.

I'm no economist - but being pretty close to Vulcan... the whole thing seems a train wreck. But I'm almost certain the political correctness and inability to do anything ourselves is going to have our society collapse due to a diaster or invader before the moguls sink us completely.

Im still of the opinion that you can do both: You can make a ton of money and reinvest for the future, building for the long money and doing well in the short term.

I also think wall street demands drug dealer level profits and thats not realistic....

 

[flynnibus]

Im still of the opinion that you can do both: You can make a ton of money and reinvest for the future, building for the long money and doing well in the short term

Well I was talking about the investors... they are the ones driving the companies and they are the ones you need to 'fix'. Companies would stop chasing the 10k every quarter if the market would let them. So IMO it's about changing how the investor market works.

The market isn't driven by people investing in companies looking for a return from that company... it's driven by flipping shares. People buying a share and looking to sell it at a profit - that is what is considered 'investment' now -- and that IMHO is the problem.

It's not enough to to be healthy and profitable... you must drive the share price up through 'growth opportunity' so the share can be sold. Then you have the entire industry built upon making money off those transactions..

Maybe if we made it really expensive to sell stock.. maybe (??) it might encourage people to hold shares and instead look for return through dividends rather than return through share flipping.

 

[Vegas Disney Fan]

Where are you getting a billion on NFE...

My bad, thinking of MM+ budget. Doesn't change my point that under Iger they seem to be investing non stop. Not as much as most of us visitors would like but major construction seems constant between DCA, MK, AK, DTD, DVC, Disney Shanghai, cruise ships, etc.