Apple, Warner Bros. Discovery, Disney: What's next for the stocks?

Yahoo Finance Executive Editor Brian Sozzi and Catalysts Host Madison Mills sit down with Goldman Sachs senior equity research analyst Michael Ng at the Goldman Sachs Communacopia and Tech Conference to discuss the state of media and tech companies, from Apple (AAPL) to Disney (DIS).

On Monday, Apple (AAPL) unveiled its newest product offerings at its highly anticipated "It's Glowtime" event in Cupertino, California. Ng explains that the event "delivered in line with investor expectations," noting that historically, the company has underperformed the S&P 500 by 70 basis points on announcement days, and following the event, it underperformed by about 100 basis points. "We think that was in line with historical events. And when you look at the individual product announcements, it came in mostly as expected," he adds.

Ng reiterates his Buy rating on Apple, arguing that "there's an underappreciated uplift in their normalized earnings power as more people start to upgrade their iPhones." He continues, "We think that investors have historically thought about Apple iPhones at a normalized sell-through rate at about 225 to 230 million units. And we think that AI and some of the new product features that are going to get rolled out over the next few years is going to bring that normalized run rate closer to 250 to 260 million."

While there is debate among investors as to whether AI will be the demand driver for Apple, Ng is bullish on the technology. He also highlights that hardware changes will also drive an upgrade cycle as screen sizes increase, devices become thinner, and rumors that the iPhone 18 may potentially be foldable.

Turning to Warner Bros. Discovery (WBD), Ng believes that the company is managing its video business holistically. "The linear TV network business is certainly having challenges. Cord cutting is unrelenting, and paid TV subscriber declines will continue to occur. That being said, it's an incredibly cash-generative business and it helps to fund growth investments elsewhere in the Warner Brothers portfolio," he explains. He points to momentum in its streaming platform Max, and argues that "there's a crown jewel in the Warner Brothers film and television studio."

Meanwhile, Ng believes that one of Disney's (DIS) biggest challenges will be its succession planning. Investors have praised the company's growth under CEO Bob Iger, and Ng notes that before Iger's return to the company, Disney faced "a few missteps," especially in its film and TV divisions. "I think there's a tremendous amount of focus on what that succession planning looks like. One observation that I'll make is that they have an incredibly deep bench of talented executives across each of their business lines, theme parks, film and TV studios, and obviously at ESPN," Ng tells Yahoo Finance.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.

This post was written by Melanie Riehl

Video transcript

Welcome to the Goldman Sachs 2024.

Community, CIA and Technology Conference I, ma mi alongside our executive editor, Brian.

So we are joined by Michael, and he is a senior equity research analyst over Goldman.

Michael, thanks so much for making time with us.

Thank you for having me.

So I know you cover Apple.

So we got to start there.

The big event yesterday, the unveiling of the iPhone 16, powered by a I seems like it was a little bit of a disappointment.

Do you think it was disappointing?

I think it was an event that delivered in line with investor expectations.

We looked at Apple's stock performance over the last five years on the day of iPhone announcements, and historically, the stock has underperformed the S and P 500 by about 70 basis points.

And, uh, on on Monday it underperformed just over 100 basis points.

So for the most part, we think that was in line with, uh, historical, uh uh, events.

And when you look at the individual product announcements, it came in mostly as expected.

You know, Apple unveiled its iPhone 16.

The four models came in, uh, priced similarly to a year ago, and they reaffirmed that Apple intelligence would be coming out in beta next month with more features rolled out over the subsequent years.

So no huge surprises.

I think it was straight down the fairway.

So, uh, coming in at expectations, Not always enough for Wall Street these days, especially with the A I rally.

Given that, should investors still be buying Apple?

We're constructive on Apple, we we're by RD and we think that there's an underappreciated uplift in their normalised earnings power as more people start to upgrade their their iPhones.

Uh, specifically, you know, we think that investors have historically thought about Apple iPhones at a normalised sell through rate at about 225 to 230 million units.

And we think that a I and some of the new product features that are that are gonna get rolled out over the next few years is gonna bring that normalise run rate closer to 250 to 260 million.

And, you know, I think there's a tremendous amount of debate about whether or not a I is gonna actually be that demand driver and I certainly believe that it is.

But one thing that I will also highlight is that we're gonna see several different form factor changes over the next several years.

The iPhone 16 pro and pro Max have larger screen sizes than the iPhone 15, and the rumours for the next couple of years are that the iPhone 17 will be a thinner device.

The iPhone 18 has the potential to be affordable.

So in addition to a I, there are some form factor changes that I think will drive an upgrade cycle.

Another company that you follow, I would say, is going through some form factor changes is I don't know.

This is a great transition.

I mean, what do you want me to do?

I Warner Brothers.

I mean, Warner Media Big impairment charge they're presenting here at the conference CEO David Zaslav will be here.

What's the end game for a company like that?

Will they grow again?

Yeah, I. I think the way to think about Warner Brothers Discovery is that they're managing their video business holistically.

Um, the linear TV network business is certainly having challenges.

Uh, cord cutting is unrelenting.

Uh, and pay TV subscriber to clients will continue to occur.

That being said, it's an incredibly cash generative business, and it helps to fund growth investments elsewhere in the Warner Brothers portfolio.

Um, they are getting some momentum with their direct to consumer product with Max.

Uh, in addition, I think that there's a crown jewel in the Warner Brothers film and television studio.

Uh, you know, there's a lot of marquee IP that sits within, uh, the film library and you know, has a long history of producing several of the most successful television series that we've seen to date one and one copy that you also cover.

That's not here, that's that's Disney.

Now we're all still waiting on who that successor to Bob Iger will be.

When you talk to investors, do they really care?

Uh, how important is that CEO position at Disney?

And then, uh, because it is so important, you know, how would any CEO, when any new CE that comes in here, how would they set the path for future growth when I talk to investors?

Succession planning is incredibly important because it dictates the strategy of the company, and I think over the last few years prior to Mr Iger coming back into his his current role, we've seen a few missteps, perhaps on the the film and TV studio side in particular, where there has been some market share of loss.

Um, you know, as we think about the go forward, I'm not going to speculate on who necessarily is gonna replace Mr Eger.

But I think there's a tremendous amount of focus on what that succession planning looks like.

One observation that I'll make is that they have an incredibly deep de deep bench of talented executives across each of their business lines, theme parks, film and TV studios, and obviously at ESPN.

Do you still rate?

You know, given the pressures we're seeing at Warner, do you still rate Disney a buy?

And then what's the case or thesis by?

Yeah, you know, I. I think that there's going to be a short list of media companies that can have large scale streaming video businesses.

I think Disney probably sits there among a few other companies prob, namely Netflix and Amazon Prime and, you know, for streaming video.

It's really about operating leverage, scale and you know it.

It's if you don't have that scale.

You can't really get the leverage out of the content investments that you have to make, which are semi fixed somewhat, somewhat fixed.

Right?

So, uh, you know, I think Disney is certainly at the at the top of the list in terms of, uh, direct consumer products that could be successful.

And one other thing that I think puts Disney in a very good position over the long term is its marquee sports rights portfolio, many of which are locked up through the end of the decade.

So I think that sports continues to be one of the genres that continue to perform well in the, uh, in the in the volatile pay TV environment that we're currently seeing.

And I think Disney is in a really good position to to benefit from that.

Michael A Thank you so much for making time with us.

Really appreciate it.