Monday's Headlines: Disney Pushes Back Against Activist Investor
Here were the biggest movers in the MyWallSt shortlist on Friday:
Moving Up ⬆️
Peloton Interactive (PTON) +13.3%
DocuSign (DOCU) +10.5%
Bumble (BMBL) +9.7%
Shopify (SHOP) +9.0%
Lovesac (LOVE) +8.6%
Moving Down ⬇️
Core & Main (CNM) -1.1%
Nordstrom (JWN) -1.0%
Starbucks (SBUX) -0.9%
Copart (CPRT) -0.7%
Here are the stories that you need to know ahead of market-open today, Monday the 12th of September.
Loeb’s Third Point Does U-Turn on Disney, Again 🔃
Daniel Loeb has signaled that he will no longer push for Disney (DIS) to spin off ESPN. The activist investor behind Third Point Capital had recently written a letter to Disney’s management urging them to move away from the sports broadcasting unit and double down on their streaming ambitions. That included a plea to buy out the remainder of Hulu from media rival Comcast and for the board of directors to be refreshed.
Third Point had acquired approximately 1% of Disney shares last month, having dumped its previous position earlier in the year.
At this weekend’s D23 Expo — an annual event for Disney fans — CEO Bob Chapek said that he believed ESPN was a fundamental part of the company's future plans and that it could be a big growth driver going forward.
On Sunday, Loeb tweeted, “We have a better understanding of ESPN’s potential as a stand-alone business and another vertical for $DIS to reach a global audience to generate ad and subscriber revenues.”
ESPN was once the jewel in the crown of Disney’s cable business, but has suffered in recent years as customers migrate to over-the-top streaming.
Shares of Disney are currently down over 25% this year, but it posted stronger-than-expected results in August, bolstered by the addition of 14.4 million new Disney+ subscribers. The company now has more subscribers than Netflix across all its platforms.
Roblox Resorts to Advertising 💸
Roblox is looking to diversify its revenue through the introduction of advertisements on its platform as soon as next year. The video game developer aims to test ads before the end of 2022 in an attempt to add additional revenue streams following a disappointing quarter where both earnings and revenue fell short of the mark.
Roblox currently makes effectively all of its revenue from the sale of its proprietary online currency, Robux. Chief Product Officer Manuel Bornstein says that the company’s resolve on its current model isn’t changing, explaining that “we have an amazing transactional economy, and we will continue to invest in it.” However, there’s a clear need for more diversified revenue for the company and, with a user base in excess of 50 million, advertising could prove to be ultimately lucrative.
This plan isn’t without issue, however. The online advertising space is going through somewhat of a rocky period of late, with companies such as Meta and Snap having been massively affected by Apple’s infamous iOS14 update. Ad spending has dropped, so Roblox will need to prove its mettle before companies are willing to shell out substantial amounts to appear on its platform.
Another issue is that of Roblox’s primary demographic. Roblox is a child-first platform, and will have to adhere to strict regulations regarding advertising to children. Should it navigate these problems though, this move could be the springboard on which the company launches itself forward from year-to-date losses of almost 54%.
Nikola Founder’s Fraud Trial Kicks Off 👩⚖️
The chickens have come home to roost for Trevor Milton, the disgraced founder of the infamous electric truck company Nikola, as his fraud trial kicks off today. Milton, who brought Nikola public via SPAC in 2020, was indicted for wire fraud and securities fraud last year. The trial centers around Milton's false or fraudulent comments and actions around the company’s public debut to pump up the share price.
These range from deceitful to outright absurd. He claimed that Nikola was producing hydrogen at $4 a kilogram, a quarter of the market price. Nikola has never produced hydrogen at any price, according to prosecutors. With regards to Nikola’s electric pickup truck, the Badger, Milton alleged that a fully functioning prototype had already been produced. Prosecutors claim the Badger never got passed concept sketches. Lastly, the coup de grace for all shysters, was the infamous promotional video in which a non-functioning Nikola truck is filmed rolling downhill to mislead investors.
Milton’s bank account benefitted greatly from the rapid rise of Nikola stock, which climbed tenfold shortly after its SPAC, reaching a valuation of over $30 billion. It surpassed industry stalwart Ford (F) in market cap at one point despite never having sold a car. This made Milton a multi-billionaire, and he wasn’t afraid to splash the cash, purchasing the most-expensive residence in Utah, and a Gulfstream jet. It is reported he received $94 million from the company’s SPAC and has sold more than $300 million in stock since his resignation in late 2020.
It is important to note that Trevor Milton is the one on trial, not Nikola. The electric company remains a public company and is attempting to come out from under Milton’s shadow through the production of its first functioning vehicle, the Nikola Two. Work started on the hydrogen-powered semi-truck in April and it is expected to go on sale in 2024. Down almost 50% year-to-date and over 90% from all-time highs, even if Nikola did not have a history of fraud it would be a highly speculative investment.