Three Things (11/22)

Tuesday, Nov 22nd 2022

Commentary

“The heart and soul of the company is creativity and innovation.” -  Bob Iger


1) Chapek Gets the Boot: Disney's Board is replacing CEO Bob Chapek with the company's former chairman and CEO, Robert Iger, in a bid to restore momentum for the entertainment giant. The moves come after weaker-than-expected earnings in the 4th quarter and as losses in its streaming unit continue to widen. Chapek served as CEO since February 2020, and his contract was recently renewed through the end of 2024. 

Titan's Takeaway: Iger's return will likely amplify the company's legacy media assets into a profitable streaming entity. We expect a refocusing for the company on high-quality content production alongside a clearly defined path toward profitability for the direct-to-consumer businesses. Taking a step back, Disney's stock has derated due to cord-cutting from traditional cable TV plus weakness in Disney+ profits. We think the market has overreacted and isn’t appreciating the imminent inflection point in Disney+ profitability and subscriber growth driven by the company's best-in-class content. With the meaningful pullback in valuation this year, despite no structural change in its prospects or the competitive landscape, we remain bullish as shareholders, and even more so with Bob Iger at the helm. 

2) Pizza and EVs: The world's largest pizza chain is investing with General Motors to purchase electric vehicles to help incentivize workers amid a driver shortage. Dominos is purchasing 800 Chevrolet Volts for its 37 stores and hundreds of franchisees. The investment is the latest in a spate of distributor/ EV deals in recent months, including Amazon, PepsiCo, and FedEx Corp. 

Titan's Takeaway: Dominos is reluctant to partner with third-party food-delivery companies and is still keen on growing its massive in-house distribution network. A push to EVs is one way to help the innovative company retain drivers, as high fuel costs led workers to change professions. 

3) Credit Card Demand Remains Hot: Despite higher borrowing costs, credit card demand remains strong, with application rates reaching 27.1% in October, up from 26.5% a year earlier. It is a tale of two consumers with application rates for consumers with credit scores about 760 above pre-pandemic levels and below 2020 levels for consumers with credit scores lower than 680.

Titan's Takeaway: The housing market is being impacted by the Fed's pace of rate hikes, but the effect on credit borrowing remains muted as consumers are still spending. While prices have come down from their record levels over the summer, inflation continues to be a pervasive issue, consumers are still making purchases- just a little more cautiously. 


As of this writing, DIS was a portfolio holding of Titan. This security may cease to be a portfolio holding at some point in the future.
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