Big Entertainment Has Good and Bad News
But as CEOs like to do, Disney’s Bob Iger and WBD’s David Zaslav emphasized the positive. On separate calls with analysts—before the strike news—both talked about all the work they’d done over the past year overhauling and cutting costs, and how they’re now able to pivot to expansion. Iger called it moving from “a period of fixing to a new era of building,” while Zaslav talked about WBD having the chance to “fight to grow in the next year.” Still, the overall picture for the two companies remains bleak. WBD eked out top-line growth of just 1%, while Disney’s entertainment businesses did only marginally better with an increase of 1.8%, both due in large part to price increases on streaming. Revenue from the old-school TV business, their biggest source of profits, declined for both, reflecting continued cord cutting and the advertising slump.
As for streaming, the picture is better than it was, although that’s not saying a whole lot. WBD generated $111 million in earnings before various expenses in the quarter, emboldening Zaslav to take thinly veiled shots at his rivals over the money they’re blowing on streaming. Not to rain on his parade, but that profit came as the streaming business lost subscribers for the second quarter in a row. Also, WBD’s streaming segment includes the contribution of its old-fashioned HBO cable business, which undoubtedly makes it look healthier than it would otherwise. Disney, meanwhile, has a reasonable story to tell on this front. Its streaming losses plunged to $387 million in the quarter, down from $1.47 billion a year earlier, even as subscribers continued to grow. That’s arguably a better result than making money off a shrinking subscriber base.
The biggest worry for the industry right now may be the parlous state of TV ad sales, one that is industrywide, as earnings results from CBS parent Paramount Global and NBCUniversal in recent weeks also showed. What’s striking is that the TV folks are struggling even as Meta Platforms and Google reported decent ad growth. Notably, while the TV companies are trying to sell ads on their streaming services to capture some dollars moving to digital, the amount they’re generating doesn’t come close to offsetting what they’re losing. The big beneficiary of the TV ad shift seems to be Google’s YouTube, which gained $881 million in ad dollars in the third quarter, an increase of 12.5% over the year-earlier period. Back-of-the-envelope math suggests the big four TV companies lost around $670 million in ad dollars in the quarter. TV executives sound nervous—WBD’s finance chief, Gunnar Wiedenfels, today called the state of the traditional TV ad market in the second half “disappointing” and added that it was difficult to predict the timing of a recovery. That’s not a picture likely to instill confidence in investors.
Instacart’s Buybacks
The most interesting part of Instacart’s third-quarter results this evening—its first ever as a public company—really weren’t the results at all. Sure, the company said that revenue grew 14% year-over-year and that it expects gross transaction volume to grow up to 6%, the same rate as in this latest quarter. But Instacart also dropped news that it plans to spend $500 million buying back shares.
That’s ironic because it just sold 14.1 million shares, raising $423 million, when it went public less than eight weeks ago. In other words, Instacart is saying it could buy back more than it sold. What gives? Well, Instacart is likely to do the buyback over time, and before too long, more stock will become available as restrictions on longstanding shareholders and employees selling their shares lapse. That should prevent the buyback from soaking up too much of the existing float.
As for the reasons for the buyback, well, the company has a pile of cash totaling more than $2 billion, which is more than one-fifth Instacart’s entire enterprise value, according to S&P Global Market Intelligence, and is getting bigger thanks to the company’s positive cash flow. There is certainly a case to be made that returning some of that to shareholders is a good idea, as Warren Buffett has famously preached.
And in theory, a buyback should increase a company’s stock price by reducing the number of shares outstanding. That couldn’t hurt, given that Instacart’s IPO price was $30 and the stock closed trading today roughly 10% below that (see our story today breaking down that lackluster stock performance).