Ticker Reports for January 7th
Disney: Forging a 3-Headed Sports Streaming Giant With Fubo Deal
The battle to gain influence in the live sports market is heating up among streaming platforms. Netflix (NASDAQ: NFLX) has been pushing hard over the past few months to integrate live sports. Its Mike Tyson versus Jake Paul boxing match attracted 65 million viewers and led to 1.4 million new subscribers in the days after. The company also saw record-breaking success in broadcasting two Christmas Day National Football League games.
Walt Disney (NYSE: DIS) is striking back hard. On Jan. 6, the communication services company revealed that it would be purchasing a controlling stake in the sports streaming platform FuboTV (NYSE: FUBO). On the same day, shares of Fubo skyrocketed by an incredible 251%. They rallied another 15% in after-hours trading. Below, I’ll explain the details of the deal, as well as the important implications for both Fubo and Disney.
Breaking Down Disney and Fubo’s Massive Deal
Under the terms of the deal, Disney will split off the Hulu + Live TV part of its streaming business and combine it with Fubo to form a new company. Disney will own 70% of the resulting company. It will continue on as a publicly traded stock under the ticker symbol FUBO. The Fubo management will continue to run the company; however, Disney will appoint the majority of the board of directors. The streaming services will have a combined 6.2 million subscribers in North America. This nearly quadruples the number of Fubo subscribers, a clear reason for the skyrocketing share price.
A very important development is that the agreement settled all litigation involving Fubo with FOX (NASDAQ: FOX), Warner Bros. Discovery (NASDAQ: WBD), and Disney. The three giants were collaborating on a previously announced streaming service, Venu Sports. Their goal was to combine their live sports rights to create an industry juggernaut. It would have killed Fubo, which had less than 2 million subscribers on its own. Luckily for this small fish, Fubo won a preliminary injunction against Venu launching. Fubo’s lawyers successfully argued that these three giants combining to create one sports streaming app violated antitrust law. Fubo's lawyers said that had they not won the injunction, the company would have run out of cash by the first quarter of 2025.
Is Fubo Still a Buy After Trippling Its Value?
For Fubo, the deal is clearly a massive win. We may never know, but it's possible this was the result management was hoping for with the lawsuit all along. Moving forward, Fubo is also now supported by Disney’s vast financial resources, know-how, and content. Fubo will be able to create a new Sports & Broadcast service where it can utilize Disney’s plethora of broadcast networks. Fubo was in a very tough spot prior to the deal. Analysts expected revenue growth to start decelerating rapidly, and the company still hadn’t been able to achieve profitability despite generating over $1 billion in annual revenue.
Now, Fubo and Hulu can combine forces to try to reignite growth. Hulu was part of Disney’s streaming segment, which made $321 million in Q4. The combined entity is now expected to have positive cash flow going forward, per the special call the firms held. This also puts the firm in a much better spot. However, it's still very difficult to say that Fubo stock has more room to run after this massive price uptick.
Disney: Maneuvering Into an Envious Position in Live Sports
With this deal, it appears Disney was done messing around with Fubo. Fubo dropped the lawsuit, clearing the way for Venu Sports to become a reality. Disney also plans to launch its ESPN Flagship streaming service later in 2025. The combination of Venu, ESPN Flagship, and Fubo could be a fierce three-headed monster that Disney controls when it comes to live sports. Yet, shares of Disney didn’t budge on the day. The company will still be losing the Hulu + Live TV part of its business, which is generating approximately $5.3 billion in annual revenue.
Disney wouldn't have made this deal if it believed this loss was worth more than the potential gain. Venu Sports can now proceed. Given the massive power that Fox, Disney, and Warner Bros. Discovery still collectively hold over live sports, it should be a very difficult platform to compete with. The $42.99 stated price point blows Fubo’s $79.99 starting price out of the water. As a believer in live sports being increasingly important in the future of digital media, I see the deal paying off big time for Disney in the long term.
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How Buffett's Best and Worst Stock Bets Have Fared 5 Years Later
When it comes to famed investors whose moves others watch like hawks, Warren Buffett stands in a league of his own. As one of the world’s richest people, the 94-year-old “Oracle of Omaha” is still the chief executive officer of Berkshire Hathaway (NYSE: BRK.A). The company has many large businesses in insurance, rail, and utilities. It also maintains a large investment portfolio.
As of Q3 2024, the portfolio was worth approximately $266 billion. The holdings are commonly accepted to be the stock picks of Buffett himself. Below, I’ll detail the two best-performing and two worst-performing stocks from the Berkshire Hathaway Q4 2019 13F filing. For simplicity, I’ll be looking at investments that made up 1% or more of the total portfolio’s allocation at that time. All return figures are as of the Jan. 6 close.
The Bad: Southwest Airlines and Charter Communications Disappoint
I’ll start by getting Buffett’s two worst picks out of the way. In the past five years, Southwest Airlines (NYSE: LUV) and Charter Communications (NASDAQ: CHTR) have taken the last and second-to-last spots. They have provided total returns of -30% and -34%, respectively. One positive note is that the negative performance of these names is an outlier. No other holding that made up 1% or more of the portfolio at that time has had a negative total return over the past five years. So, what made these stocks such poor investments?
Starting with Southwest, one obvious cause of its horrible performance is the COVID-19 pandemic. It doesn’t help at all that this analysis started just before the pandemic went into full swing. Southwest is by no means unique in its bad performance when looking at its industry. No U.S. passenger airline stock has come even close to the return of the broader market over the period. Among nine mid-cap or larger U.S. airline stocks, the average return over the period is -11%. Overall, it's hard to blame Buffett for the pick, given it was a result of an event no one saw coming. It’s probably a good thing Buffett exited the position by Q2 2020. The stock hasn’t recovered much since.
It's easier to be more critical of the other worst performer, Charter Communications.
Berkshire has continued to hold the stock, although its allocation has been significantly reduced.
Over the past five years, streaming services have crushed cable and traditional media stocks as more people use them.
Buffett's contrarian bet on cable over streaming through Charter Communications hasn’t worked out.
The Good: Apple and American Express Take the Cake
The best-performing stocks in the Berkshire Hathaway portfolio from Q4 2019 were tech giant Apple (NASDAQ: AAPL) and credit card company American Express (NYSE: AXP). Apple’s five-year total return of 237% over that time beats the S&P 500 by around 140%. Luckily for Berkshire, Apple has consistently remained its largest portfolio holding. It reached over 50% of the total assets back in Q2 2023.
Since fiscal 2019, Apple has increased its revenue by 50% and increased its adjusted earnings per share (EPS) by 127%. Adding to the company’s incredible rise in valuation is an approximately 45% expansion in its forward price-to-earnings (P/E) multiple since the beginning of 2020.
It's reasonable to point out that although Buffett didn’t have any investments in pure-play streaming companies, he did implicitly. This comes through the Apple TV+ streaming service, which launched in November 2019. Berkshire’s portfolio maintains a 26% allocation to Apple as of its latest 13F filing. Interestingly, it is currently the only one of the Magnificent Seven stocks where the firm has a 1% or greater allocation. Amazon (NASDAQ: AMZN) is the only other Mag Seven name in the portfolio, with a 0.7% allocation.
The Goldman Sachs Group (NYSE: GS) has technically been the second-best performer from the Q4 2019 portfolio, with a 182% total return. Unfortunately, Berkshire liquidated the position in Q2 2020.
The next biggest winner, which still remains in the portfolio today, is American Express. It has a five-year total return of 160%. It is currently Berkshire’s second-largest holding, with a 15% allocation.
Using the consensus Q4 2024 earnings estimates, the company will have increased its adjusted EPS by 66% since fiscal 2019. The total U.S. credit card debt is around 26% higher now than it was at the end of 2019, which is a significant tailwind for the company over this period. Additionally, American Express has one of the lowest 30-day delinquency rates in its industry.
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Bill Ackman's Bold Case for Fannie Mae and Freddie Mac
Billionaire investor and Pershing Square Holdings founder Bill Ackman recently made waves on X (formerly Twitter) by doubling down on his bullish outlook for Fannie Mae (OTC: FNMA) and Freddie Mac (OTC: FMCC). Ackman, whose investing acumen earned him comparisons to Warren Buffett and the “Baby Buffett” nickname, believes these government-sponsored enterprises (GSEs) are nearing a pivotal moment that could deliver massive returns for investors.
Ackman’s renewed enthusiasm stems from his confidence in the policies of a potential second Trump administration, which he argues could create a regulatory environment favorable to ending the GSEs’ long-running conservatorship. With predictions of triple-digit upside, Ackman’s thesis has sparked interest but also underscores the substantial risks involved.
History of Conservatorship
In 2008, amid the global financial crisis, the U.S. Treasury placed Fannie Mae and Freddie Mac under conservatorship due to their exposure to risky subprime mortgages. This intervention provided a $187 billion lifeline but came with stringent conditions: the GSEs were required to pass all profits to the Treasury under a "net sweep agreement." Over time, they have returned nearly $300 billion, surpassing the initial bailout.
Fannie Mae and Freddie Mac play critical roles in the U.S. housing market. They purchase mortgages from lenders and package them into securities sold to investors. Fannie focuses on larger banks, while Freddie works with smaller institutions. Despite their financial recovery, both remain under government control. The Treasury holds warrants equivalent to 80% of their common stock and senior preferred shares valued at $193 billion.
Momentum Toward Independence
Under the first Trump administration, significant steps were taken toward reforming the GSEs. Treasury Secretary Steven Mnuchin ended the net sweep agreement, allowing the entities to retain earnings and rebuild capital reserves. The Federal Housing Finance Agency (FHFA) also introduced new capital requirements, setting the stage for a potential exit from conservatorship.
Ackman believes a second Trump administration would pick up where these reforms left off. He estimates that a successful exit could yield an additional $300 billion in profits for the government while removing $8 trillion in liabilities from its balance sheet. Furthermore, Ackman projects that the GSEs’ initial public offerings (IPOs) in late 2026 could price shares at around $31, with valuations reaching $34 per share by 2028. This represents potential gains of 679% for Fannie Mae and 705% for Freddie Mac as of Monday’s close.
The Case for and Against the GSEs
Ackman’s optimism hinges on several assumptions. First, he anticipates that the Treasury will credit past profit distributions toward senior preferred stock, easing the path to privatization. Second, he expects the FHFA to set the capital requirement at 2.5%, which he argues is achievable given the GSEs’ earnings power and ability to accumulate capital quickly.
However, the Congressional Budget Office (CBO) previously suggested higher capital thresholds and political resistance could complicate the process. Additionally, Ackman acknowledges that raising the necessary $30 billion through equity issuance would dilute existing shareholders, potentially tempering returns.
While Ackman’s projections are compelling, they are far from guaranteed. The GSEs’ future depends on numerous factors, including regulatory decisions, political dynamics, and market conditions. A higher capital requirement or failure to resolve the Treasury’s senior preferred shares could derail efforts to exit conservatorship.
Moreover, the timing of reforms is uncertain, and any delays could undermine the investment thesis. For these reasons, Ackman warns investors to risk only what they can afford to lose, as he mentioned in his X post.
The Bottom Line
Ackman’s latest push for Fannie Mae and Freddie Mac highlights his belief in their long-term potential, especially under a pro-deregulation administration. With the possibility of high triple-digit returns, the GSEs offer an exciting or “asymmetric” opportunity, as Ackman put it, but only for those prepared to navigate the significant uncertainties.
For investors willing to take on the risk, these stocks represent a high-stakes bet on regulatory reform, political will, and the resilience of the U.S. housing market. As the debate over their future unfolds, the coming years could mark a turning point for these GSEs and their shareholders.
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