Disney+ is an ‘extremely compelling compliment to Netflix’: Gerber Kawasaki CEO

Disney reports a surprise profit in the first quarter as Disney+ subscribers surge. Gerber Kawasaki CEO Ross Gerber joins Yahoo Finance Live to discuss.

Video Transcript

AKIKO FUJITA: Let's bring in our first guest for the hour. We've got Ross Gerber, Gerber Kawasaki Wealth and Investment Management CEO. And Ross, we were expecting big numbers from Disney+. But 96 million, 95 million subscribers, well ahead of the 90 million the Street was expecting. Were you surprised?

ROSS GERBER: I wasn't surprised about the Disney+ numbers because the content's so good. I mean, if you think about what we were watching at Christmas, between "The Mandalorian" and "Soul," which was just a great, beautiful movie, it's an extremely compelling compliment to Netflix, which is basically filled with a lot of sort of violent films and TV shows and murder shows. So it's great to have the Disney+ content for our children and also for myself because I just can't watch a murder show every night. So that part wasn't that surprising.

ZACK GUZMAN: What about the other names in that portfolio? We were talking about ESPN+ and Hulu. Those also showing relative strength there, coming in above expectations in terms of paying users. How important are those going to be as we move forward?

ROSS GERBER: Super-important because, first of all, Hulu has done really well from the ad-supported side. So they have subscribers. But they're really growing from an ad-supported. Not everybody wants to pay $5 a month. And people are fine with that. So they've got a solution with Hulu and live TV solution there as well.

And ESPN+ has really done well, actually, a lot of that driven by UFC. I'm not a huge UFC fan because of the violence. But I get it. And it drives a lot of very engaged viewers. And it's really helped double the size of ESPN+.

But when you look at a recurring revenue model that these apps have created it's a much, much better system for the entertainment companies longer-term. And so Disney successfully adapted this new model. And it's really exciting for the company.

AKIKO FUJITA: So Ross, when you look at the whole streaming portfolio, we're talking about 146 million, roughly 150 million subscribers. You look at Netflix's numbers, it's at 204 million right now. What do you think is the catalyst for Disney to get to that next level?

ROSS GERBER: Well, I think it's just about opening up new markets. I mean, every family in the world with children watches Disney content pretty much. So as you open more markets and there's more awareness, I think that drives sales.

But I think the next step, really, is actually opening the theme parks again because all their products are synergistic. And so the more people in the theme parks leads to more people buying Disney+. And then more people watching Disney+ drives more people to the theme park. So the fact that the real profit driver of their business is actually closed, and they're profitable or breakeven is really a testament to the great management of Disney. Bob Chapek doing a great job and, of course, Iger above that, looking down, doing a wonderful job.

ZACK GUZMAN: Ross, let's talk about valuation here too though, because we saw Bank of America raising their price target to 223 from 192. We've talked about the parks and what kind of boost that will have once they reopen and allow people back in more fully. But how do you put their 32% year over year gain, I guess, in the context of what we saw in the broader market?

ROSS GERBER: Well, I was kind of happy about that because Disney was the worst stock I had last year. So I had a lot of things working last year except for Disney. And at the end of the year, obviously, we got a great pop. We value Disney where it's at today.

Quite frankly, it's surprising the stock has done so well with so much of their profit drivers really shut. And honestly, it's going to be some time before these assets really get back to full speed. So I think what the market is saying is, when Disney's back, it's actually a way better company than before the pandemic.

And I think we're seeing this with valuations with a lot of different businesses, like MGM Resorts as well, where the bricks and mortar business has been altered with an online component now. The hybrid end of these businesses, when this is all over, will be much better than before the pandemic. So sometimes these huge shocks in our society create better adaptable businesses. And Disney is going to be one of them, I think.

AKIKO FUJITA: I mean, having said that, when you look at the quarter for parks and experiences, we're talking about a $119 million operating loss. And yes, we've been talking about this for several quarters now because of the pandemic. But when in fact things do open back up, especially where you are in California, how significant a lift does that provide to the stock, especially when you consider that a lot of this trades right now on the momentum from Disney+?

ROSS GERBER: Yeah. And I think that's priced in. I think the stock is priced in. That stuff will open the summer. And we'll have much better results from Disney throughout this year. So look at it this way. The worst is behind Disney. So there's no doubt in my mind the worst is behind.

Now, currently in LA, we have no vaccine. So we're making no progress. 200 people died today in LA. No vaccines to give out. And it's really distressing. And this is the legacy of the Trump administration's failure. But Biden is on it. And I expect that by summer, we'll have a lot of society vaccinated. And they'll be back in these parks, like, as many people as they'll be allowed to have.

So I think that's already priced in the stock. But I think as we move forward, boy, profits could really soar in 2022. And we'll have to wait and see what happens.

ZACK GUZMAN: Ross, I also wanted to ask you about cannabis stocks because it's been a crazy week for those names, especially when you look at the Canadian names here today. Tilray bouncing back from that near 50% loss yesterday. But year over year or just even year to date, the Canadian ETF's still at 75%. What do you make of the moves?

ROSS GERBER: Well unfortunately, you know this industry well. I mean, the Canadian players are not the game. It's the US. I mean, legalization is coming in the United States. And the impact of this is enormous.

If you go back to 1933 and you could invest in alcohol companies, how do you think you did over the last 80 years or 90 years? You've done amazing. So here you can get into this great business that's much less harmful than tobacco or alcohol, which already has tens if not 100 million users in the United States. And it's just the biggest opportunity I've seen in a traditional business in my career.

So we are heavily invested here in the US MSO operators, not Canadian players. So please, if you're just looking at chat boards and you don't know what you're doing, please, pay attention to what you own because you want to be in US cannabis companies, for sure.

ZACK GUZMAN: That was the surprising thing for me too is just kind of watching Wall Street Bets, the Reddit forum there, talking so much about Sundial, Tilray, the Canadian names. And I think it's just because these ones trade over the counter. So people don't know the names.

ROSS GERBER: They just can't buy them. They can't buy them.

ZACK GUZMAN: Yeah, so I mean, when we look at that and the opportunity in the space, what is the timeline for you? Because still a lot of question marks. We hear from Democrats saying they want to push legalization, fix these issues. But they've been saying that for a while now. I know they just got control in the Senate. But how do you see it playing out? Because David Klein at Canopy says this is the year they'll see federal laws change.

ROSS GERBER: I absolutely agree 100%. So here's the order. We've got to deal with, obviously, the treason that we've seen in our nation. That's happening right now. And then we've got to get money to people in need. That's happening right now. And then the next issue is social equity in this country.

When we look at what's happened in the last year with the Black Lives Matter movement, which is really a bigger thing, which is about the lingering racism and institutional racism in our country that's purported by Jim Crow laws like cannabis. There's no doubt in my mind, if you look at the history of cannabis laws, it's simply to oppress African-American communities, minority communities. It's been used since the Civil War for this.

And it is time it ends. And I will not stop until it ends. And we must expunge records. Kamala Harris gets it. Joe Biden gets it. The Senate gets it. The House gets it. We need to create fair banking laws. Cannabis is not heroin. It's absurd. So this Jim Crow law is going to end. And the sooner, the better.

AKIKO FUJITA: Ross Gerber, CEO of Gerber Kawasaki Wealth and Investment Management, it's good to talk to you. Have a good weekend.