Are cybersecurity stocks a new safety trade? What the Israel-Iran conflict shows
The Israel-Iran conflict has put geopolitics squarely on the radar of investors. In tense moments like these, the importance of owning cybersecurity stocks within a diversified portfolio is impossible to ignore. The overall market reaction to the attacks between the longtime regional foes has, admittedly, been fairly subdued since the strikes began late Thursday local time in New York. The S & P 500 had lost just 1% over the past three trading days. That hardly fits the description of a dramatic sell-off, as investors continue to bet that the conflict will not spillover into a broader entanglement that weighs on global growth. And yet, Club cybersecurity holdings CrowdStrike and Palo Alto Networks held up even better than the broader market and a basket of software peers in that stretch. CrowdStrike and Palo Alto Networks both entered Wednesday's session up more than 2% over the past three days. The iShares Expanded Tech-Software Sector ETF, meanwhile, dropped about 0.4%. To be sure, in Wednesday's session, the broader market was higher and our cyber names were giving back some of their recent gains. Earlier Wednesday, President Donald Trump said outside the White House that Iran wanted to negotiate — comments that boosted stocks and sent oil prices lower. The trading action in oil is one way to measure how the market is assessing the geopolitical tensions. CRWD PANW YTD mountain CrowdStrike's stock performance versus Palo Alto Networks so far in 2025. This is not the first time that we've seen cybersecurity stocks hold up better than their tech-industry peers during periods of market disruption. The cohort acted defensively and outperformed the aforementioned software ETF earlier this year when Trump's tariff rhetoric began ramping up. In our minds, the relative stability of cybersecurity stocks amid market turbulence is part of a broader, long-term trend rather than a flash in the pan. The reason is that cybersecurity has become indispensable in today's digital landscape, particularly during geopolitical unrest. Consider the findings of the World Economic Forum's 2025 cybersecurity outlook. "Nearly 60% of organizations state that geopolitical tensions have affected their cybersecurity strategy," according to the report, which was published in January. Additionally, one in three CEOs that responded to the survey said "cyber espionage and loss of sensitive information/intellectual property (IP) theft" is a top concern. And finally, 72% of respondents reported heightened cyber risks, driven partly by the rapid adoption of artificial intelligence, which empowers cybercriminals, with ransomware remaining a persistent threat. This environment signals strong demand for advanced cybersecurity solutions, which CrowdStrike and Palo Alto Networks have. Both companies are capitalizing on mounting security concerns across the corporate and government worlds. That leads investors like us to believe that both Palo Alto and CrowdStrike are well-positioned to deliver long-term value while offering stability amid volatility in the near term. (Jim Cramer's Charitable Trust is long PANW, CRWD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
15 minutes ago
- Yahoo
Is Cava a Palate Pleaser?
In this podcast, Motley Fool analysts Tim Beyers and Rick Munarriz discuss: Oracle's AI-fueled earnings. Dave & Busters and Chewy: Which had the better earnings? The Chime Financial IPO. Cava: Is there enough tasty growth to support a spicy valuation? To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center . When you're ready to invest, check out this top 10 list of stocks to buy. A full transcript is below. Before you buy stock in Cava Group, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Cava Group wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $660,821!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $886,880!* Now, it's worth noting Stock Advisor's total average return is 791% — a market-crushing outperformance compared to 174% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 9, 2025 This podcast was recorded on June 12, 2025. Tim Beyers: Is Cava a palate pleaser for today's investors? We duel, you decide. This is Motley Fool Money. I'm Tim Beyers, and with me today is longtime Fool and Rule Breakers colleague Rick Munarriz. Rick, how are you feeling today? Are you caffeinated? Rick Munarriz: I am not caffeinated, but I will be by the time people are listening to this. How's that for a weird promise? Tim Beyers: I like it. Today, we're talking about Oracle's AI-fueled earnings, good reports from Dave & Buster's, Chewy, and the Chime IPO. You may not have heard of that. We'll talk about it in a bit. We'll also duel over CAVA's prospects and take you down into the wayback machine for a big moment in Rule Breakers' history. But first, let's hit some headlines here. President Trump rattling the markets with some mixed messages on tariffs, talking tough while his treasury secretary hints at some delays. The clock's ticking here, so stay tuned. This will get a little bit interesting. NVIDIA, meanwhile, is going to go big in Europe, announcing its first AI Cloud for industries and plans for 20 AI factories, CEO Jensen Wong saying that quantum computing is nearing liftoff. That should be interesting. Nuclear start-up, Oklo, surged 29% on new Air Force microreactor project. Then probably filed to raise $400 million. There's a lot going on here. Then, heartbreakingly, Rick, Boeing's shares fell over 7% after a 787 Dreamliner crashed in India. It killed more than 200 people. It's the first full loss of that model and adds pressure ahead of next week's Paris airshow. Not great there. Our hearts go out to all of the victims and all of their families. We're really sorry for your loss. But let's get into the rundown here. We've got three big stories and then a quickie that we're going to turn around on. Let's start with Oracle. Rick up over 13% on AI demand. I'm going to ask for a reaction here, but let me give you the impetus behind this triple-digit growth in data center infrastructure. CAPX more than tripled year over year. Here's the question. Can AI and Oracle's position as the Switzerland of datacenter infrastructure fuel what really is a hope for a year of outsized demand? Now, for a company of Oracle's size, outsized demand means revenue growth on an all-in basis of about 15%, which they're getting. Basic question for you here, Rick. I know you don't know Oracle super well, but what is your expectation for AI demand? Is this the tailwind that Oracle can surf for a while? Look, Larry Ellison like to compete? He likes regatta. Maybe he's got the tailwinds at his back. Rick Munarriz: Yes. It's good sailing for all these AI stocks. Now Oracle is apparently an AI stock, too, which again, it's great. Obviously, the generative AI demand is just in its infancy right now, and it's in its controversy and its infancy. But you're seeing right now where companies that are benefiting from Oracle, maybe it won't move the needle much as it would for let's say an NVIDIA, of course, or CoreWeave, or something like that. But I do think in this case, it's something to get excited about Oracle with. I think there's enough demand to feed a lot of players in here, the people that are actually building the infrastructure, handling the software, and, of course, putting out the actual product. The users are not complaining outside of copyright restrictions from some of the major studios out there this week, but it is a kind of thing where I think Oracle will stand to benefit. Again, it's not going to pick up growth to NVIDIA levels, but it's definitely something that can pick it up from its current pace. Tim Beyers: Triple-digit growth in that data center infrastructure business is massive. Number 2, here, let's get to two that you know very well here from the Rule Breakers scorecard. Dave & Buster's and Chewy. Two reports, a little bit different. Dave & Buster's actual results were, I think, we can say, meh. But the outlook was fantastic, and Chewy crushed to the auto ship numbers. Here's the question, Rick. Who had the better report? Who are you putting on your watch list? Rick Munarriz: To me, the biggest Chewy's report obviously was the better report. But Dave & Busters, this is a weird thing about the stock market that Chewy's had strong growth. You mentioned the autoship numbers. More than 82% of their orders are now autoship on Chewy, which is pretty much the equivalent of annual recurring revenue run rate, even though these contracts are very easy to cancel, obviously. It's not like it is for the software industry. But it's steady. It's growth. More importantly, their customer base is growing again. It was contracting from 2021-2023. 20.7 million customers, active customers to 20.1 million two years ago at the end of 2024. Then we saw it grow to 20.5 million, and now 20.7 million. It's back to where it was three years ago, right when Pet adoptions were at their post-pandemic peak. That's great for Chewy. But the stock still took a 10% hit. I think mostly, I didn't see a lot of negative in the report, but the stock had almost doubled over the past year. It was just like, OK, we expected better. Whereas, Dave & Buster's, the report was terrible. It wasn't great. It was a bad report. Comps down 8.3%, sales declining. A lot of things, except what excited investors, why the stock was up 17% on Wednesday, was that they said, hey, so far year-to-date, comps are only down 2.2%. Investors are cheering a much smaller, negative growth in the comps level than the great positive report, but that's enough. It's definitely enough to see Dave & Buster's are possibly turning things around. It's remodeled a lot of stores or doing a lot of things. The market obviously thought the Dave & Buster's story was a lot better for investors, because that stock has basically been hit harder over the last couple of years. But I do think the Chewy report was a lot better. But to me as an investor, I think Dave & Buster's presents possibly a better value because it's been hit so hard, but it was definitely not the report that merited a 70% increase until we see the fully turnaround. Tim Beyers: More proof that expectations mean everything. Number 3, quickly, Chime IPO. Tell me about this business, Rick. What excites you about it? Rick Munarriz: This is a business that it's a fintech platform, and it's growing rapidly, especially with young users. There's 8.6 million members. There was $121 billion transactions on the platform over the past year. They do a little bit of everything. It's a digital bank, like a Sophie but also a PayPal, Venmo. It's all that wrapped up a little consumer lending, credit building. It does all these tools. There's a community feature to it. On the prospectus, and again, this is the funny thing, and I don't really take it seriously. In the prospectus, one item there says that 75% of members say they will be with Chime for life, and I assure you they will not be there for life because we know things change dramatically. [laughs] But the fact that they put this in the prospectus was almost comical, but it is sticky. Revenue was up 31% last. Accelerating with 27% the year before, doing a lot of cool things. As we're recording this, the stock is expected to go public at 27, is the price was underwritted. Won't surprise me if it does better than that, but it's not open yet, so we and I do not have a clear view on how we'll close at the end of the day. But this is a company hitting the market 10, 11, $12 billion market cap. Could probably be very different by the time the market closes, and most of you're listening. Tim Beyers: Who knew that Chime, ticker CHYM, who knew your account came with a prenup? I didn't know that, Rick. [laughs] Let's take a quick break. Up next, Dueling Fools. We're back. Tim Beyers, here with Rick Munarriz. We call this segment Dueling Fools. For those of you who have been around for a while, we love this idea where we take both sides of an investing thesis and we debate the merits, and then you decide. We want you to listen to our arguments on CAVA, arts, delicious entrees, and sauces, worth the premium valuation. You can leave us a comment. Let us know whether you're voting bull or voting bear. But, Rick, we always start with the bear argument, so you're up first. Give us the bear thesis for CAVA. Rick Munarriz: Yes. I'm a fan of CAVA. I'm a customer. I'm long-term bullish. However, I don't think that it's just that the fast casual chains crazy feta is the only thing that isn't a little bit loco here right now. Let's start with the valuation. This might not be the right investment for you if you have a fear of heights. CAVA's trading for 128 times this year's earnings and 107 times next year's profit target. This is after the stock has been cut by more than half since peaking seven months ago. Its revenue and free cash flow multiples are also as wide as its corporate moniker is narrow. With the shares down 55% from their November all-time highs, you're going to be tempted to buy on the dip. As a fan of their food, I can assure you CAVA has some pretty good dip. But even after the stock getting sliced by more than half, CAVA has still nearly quadrupled since going public two years ago. It's been a big winner for investors over the long haul. At the time of the IPO, Tim and I were excited about the opportunities. Full disclosure, we still are. But a part of our bullish thesis was that CAVA has been selling its dips, sauces, and dressings through retailers for years. You can go to Whole Foods and pick up some of its spicy hummus or lemon herb tahini. The bullish argument was that as the chain expanded, brand awareness would grow and consumer package goods would explode. Well, CPG sales are less than 1% of the revenue mix right now, so that really hasn't happened. CAVA has some decent tailwinds. Its target audience reaches a young and somewhat affluent audience that will have several decades of wolfing down spicy lamb meatball bowls and crispy falafel pitas. Companies calling employees back to the office is another positive catalyst. This chain thrives during the workplace lunch hour. There are also some headwinds, and the stock, a meal at CAVA isn't cheap compared to most quick service concepts. It's definitely vulnerable to a softening economy. Let's talk about cannibalization, an admittedly unappetizing term when talking about food. But when CAVA opened in Indiana earlier this year, it marked the first time that the concept has more stores in more than half of the states right now. Eventually, expansion will come to the point that opening a new location will come at the expense of CAVA's older nearby locations. The chain's success is inspiring other concepts to cash in on the growing interest in the healthy but flavorful merits of Mediterranean cuisine. Imitation can often be the sincerest form of battery. Now, CAVA, the company, like its menu, is certainly worth a packet premium. Comps rose an impressive 10.8% in its latest fiscal quarter. This was a period when many of the other restaurant operators, including some that are in our Rule Breakers universe, proved mortal. This is a great restaurant chain. I love culinary spelunking as a CAVA dweller, but there are other quality concepts trading at cheaper valuations. In the paraphrase, lyrical genius of The Who: You Feta, You Feta, You Bet. Tim Beyers: I love it. Don't get me wrong, Rick. I'm always here for a little wordplay. You never know what you're going to get, and so I do love that. I love some CAVA. Let's talk about the bull argument here. Here's just a few reasons why you should be bullish on CAVA today. I'm going to give you a number here, Rick. Actually, I'm going to give you two numbers. Net income rose 10X from fiscal 2023-2024. Thirteen million to 130 million. Let me say that again. That's 10X, Rick, 10X. Those are the heights that I love. You said this is a company that has earned its premium valuation, or that it has a premium valuation. I say it's fully earned that premium valuation. This is also a company that does it right when it comes to expanding its menu and maximizing every square foot. Like you said, comps were up 10.8% in the most recent quarter. I think part of that, Rick, has to do with how CAVA thinks about maximizing its square footage in each of the stores. For example, in some stores, they have set aside catering business. They also have it set aside for maximizing delivery. They also do some work, putting their sauces and crazy feta and other things into grocery stores. Every CAVA is doing much more than serving you when you walk through the door. But let's also talk team. Co-founders Ted Xenohristos and Brett Schulman still run this business day to day, and they are dreaming up new concepts. Ted is still the chief concept officer. They dream up new concepts, new expansions, including these purpose-built kitchens that we're talking about, almost ghost kitchens, for improving the delivery and catering business. While it might not seem like much, Rick, the roughly 36 million in free cash flow CAVA generated over the trailing 12 months. Now, that is after everything. You strip out all the stock-based compensation. You also strip out some pretty heavy capital expenditures, and you still get that 36 million in cash left over. Got a good balance sheet. They've got plenty of money to keep reinvesting in this business, and there's less than 400 CAVA restaurants, 400 locations today. I don't think it would be at all surprising, Rick, to see that location total 5X or more over the next 10-15 years. If that's right, the price you see in CAVA today, you're going to long for 10 years from now. There's my bull argument. Please go ahead and leave us a comment here at Motley Fool Money to let us know what you think. We would love to hear whether or not, and if you have a bear argument or you have a bull argument, join us on the discussion boards, leave a comment here to the podcast, and let us know what you think. Our last and final section today, we're going to go back into the wayback machine for a moment in Rule Breakers' history and the origin of the spiffy pop. Who knows what a spiffy pop is? A spiffy pop is when a stock rises, as much or more in a single day than the value of its cost basis. The first spiffy pop in the Rule Breakers universe, the stock that actually gave rise to the term spiffy pop, was aQuantive. Rick, do you remember when we sold this stock? Rick Munarriz: Yes, and I remember it was your recommendation to David, and you got it on the scorecard. Yeah, it was the kind of thing where we found early on that when you're picking these disruptive growth stocks, other companies are going to want them. In this case, Microsoft, which has shown no lack of appetite in buying a potential threat or a potential opportunity. I remember vividly when it happened, and it was disappointing to us because I think aQuantive on its own could have probably still continued to be a market beater today, given the way trends and everything happened with everything. But, yeah, I remember vividly. Tim Beyers: David recommended this in June 20th of 2007, 18 years ago, I can't believe it's been 18 years, Rick. Microsoft made a bid to buy out aQuantive on a spiffy pop, and in six months, we had a 151% return. That's not bad. It doesn't happen often, Fools. But in Rule Breakers, it does happen, and it will happen again. That's it. Thank you for being here on Motley Fool Money. We appreciate you here. As always, people on the program may have interest in the stocks they talk about. Motley Fool may have formal recommendations for or against. Don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisers' sponsored content provided for informational purposes only. See our Fool advertising disclosure. Please check out our show, Fools. For Rick Munarriz, I'm Tim Beyers. We'll see you again tomorrow. Rick, thanks for being here. Rick Munarriz has no position in any of the stocks mentioned. Tim Beyers has positions in Chewy. The Motley Fool has positions in and recommends Chewy, Microsoft, Nvidia, Oracle, and PayPal. The Motley Fool recommends Cava Group and Dave & Buster's Entertainment and recommends the following options: long January 2026 $395 calls on Microsoft, long January 2027 $42.50 calls on PayPal, short January 2026 $405 calls on Microsoft, and short June 2025 $77.50 calls on PayPal. The Motley Fool has a disclosure policy. Is Cava a Palate Pleaser? was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
USA Today
17 minutes ago
- USA Today
Trump's parade didn't make him feel tough. Maybe a war with Iran will?
Trump's parade didn't make him feel tough. Maybe a war with Iran will? | Opinion Trump is proving, as if we needed proof, that insecure men are dangerous. They act impulsively, with no focus beyond soothing their own tender feelings. Show Caption Hide Caption Trump teases possible strike on Iran but says it's not too late for deal "I may do it. I may not do it." President Trump teased a possible strike on Iran but also said it is not too late to negotiate. Having an insecure president during a time of crisis is a problem, largely because he's going to say things like this when asked about possibly bombing Iran: 'I may do it, I may not do it. I mean, nobody knows what I'm going to do.' That was President Donald Trump's wildly problematic comment on June 18. First, President Dodo-head seems to think the decision to draw America into a potentially cataclysmic conflict in the Middle East is his alone ‒ you'll note the use of the first person four times in two sentences. Apparently, Congress and the American public have no voice in such a decision. It all rests in the little hands of the Supreme Leader. Trump says, 'Nobody knows what I'm going to do.' No kidding. Second, the man who oversees the world's largest military probably shouldn't be saying, 'Nobody knows what I'm going to do.' That sounds like something an unhinged dictator would say and … well, never mind, I guess that tracks. Trump was speaking outside the White House, where he was having two enormous flagpoles installed. It was effectively an advertisement for male overcompensation, which makes sense in the wake of Trump's poorly attended and morose military parade, the one he thought would cast him in the all-powerful-ruler light he desires. Opinion: From massive protests to a puny parade, America really let Donald Trump down The weekend and weakened parade was overshadowed by millions of Americans across the country protesting Trump and his king-like behavior. Trump sent the Marines to be bored in LA Before that, the president's previous show of manly-man toughness ‒ sending the U.S. Marines into Los Angeles to address anti-ICE protesters ‒ also failed. Now, soldiers are just standing around in a city that's doing fine. Will the quest to quench this man's insecurity ever end? Trump stumbled disconsolately from his puny parade to the summit of the Group of Seven leading industrialized nations in Canada on June 16, then left early the next day to return to Washington, DC, ostensibly to deal with the worsening crisis between Israel and Iran. After getting home, Trump's 'dealing with the crisis' seemed to largely involve posting unhinged comments on social media, bizarrely advising residents of Tehran to evacuate and, despite claiming the United States isn't involved in Israel's ongoing attacks on Iran, boldly proclaiming: 'We now have complete and total control of the skies over Iran.' Opinion alerts: Get columns from your favorite columnists + expert analysis on top issues, delivered straight to your device through the USA TODAY app. Don't have the app? Download it for free from your app store. Trump raises flagpoles while threatening war So are we in or are we out? It's a reasonable question for any American to ask, and it's one Trump clearly won't answer, as evidenced by his 'nobody knows what I'm going to do' comment during the apparently critical installation of new White House phallic symbols. 'These are the most magnificent poles made,' Trump posted on social media on June 17, the night before the flagpoles went up. 'They are tall, tapered, rust proof, rope inside the pole, and of the highest quality.' Great job, Mr. President. Americans are laser-focused on White House pole quality and are not at all concerned about you starting a war nobody wants ‒ a new Economist/YouGov poll finds "only 16% of Americans think the U.S. military should get involved in the conflict between Israel and Iran" ‒ without congressional approval. Trump's sad-boy feelings will always override what's best for America Trump is proving, as if we needed proof, that insecure men are dangerous. They act impulsively, with no focus beyond soothing their own tender feelings. Dispatching troops against American citizens didn't make Trump feel big. A military parade didn't make him feel big. He didn't feel big around other world leaders at the G7 summit, so he left and did some online hollering and saber-rattling. And now? We wait to see if our capricious president needs to drop a bunker-busting bomb on Iran to feel big. We wait to see if Trump single-handedly marches America into war, leaving us to suffer the blowback of his inextinguishable self-doubt. Follow USA TODAY columnist Rex Huppke on Bluesky at @ and on Facebook at
Yahoo
19 minutes ago
- Yahoo
HBO and CNN to Split
In this podcast, Motley Fool Chief Investment Officer Andy Cross and contributor Jason Hall discuss: Warner Bros. Discovery's plans to split up. Reddit vs. Claude. To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy. A full transcript is below. Before you buy stock in Warner Bros. Discovery, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Warner Bros. Discovery wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $660,821!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $886,880!* Now, it's worth noting Stock Advisor's total average return is 791% — a market-crushing outperformance compared to 174% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 9, 2025 This podcast was recorded on June 09, 2025. Andy Cross: Warner Brothers files for divorce. You're listening to Motley Fool Money. Welcome to Motley Fool Money. I'm Andy Cross, joined here by Jason Hall. Hey, Jason. Jason Hall: Hey, Andy. Andy Cross: Jason, let's jump right into the big news of the day. Warner Brothers Discovery is planning to split itself up into two distinct companies. Warner Brothers Global Networks, that's home to CNN, and Warner Brothers Streaming and Studios, that's home to HBO and other things, too. Jason, since the merger between Warner Media and Discovery that created this $25 billion media company in 2022, shares are down 60%. Now, they're up 7% today, so maybe investors have some hope that WBD is finally creating, maybe it's equivalent of Netflix. Is this good for shareholders? Jason Hall: I think that's the upside here is that we're finally seeing somebody make a true competitor to Netflix a stripped down streaming and content production company that's hyper-focused on that and not this legacy media giant that throws out a streaming brand, but still has all of its legacy businesses that are in transition it's having to navigate through. I think the response we're seeing with the stock price, Andy, is as much wanting to see change, just some positive change as maybe that bullishness Last week, we got an overwhelming rejection of management's pay package by shareholders at the annual meeting. More than 60% of voters voted against management's compensation package. Now, of course, that's a non-binding "advisory vote", but it's pretty clear that shareholders have not been happy about how things have gone. Andy Cross: Jason, it's interesting that legacy business, that's really the global networks. You're talking like CNN and Discovery, TLC, Food Network, that kind of thing. The streaming is the more exciting, by the way, that first part of the business is the bulk of the revenues, the bulk of the cash flows, and the bulk of the profits, also getting a bulk of the debt. The streaming one is much faster growing, profitability turning. That's home of Warner Brothers, DC Studios and television, and of course, HBO. Interesting, the Networks is going to own 20% of the streaming business. Jason Hall: Well, for good reason, it's going to be the larger business. It's taking on more financial risk with the debt that's going to be flowing over to it. I think that investors that are going to be looking at that legacy business, look, it's still in decline. It's going to take time for it needs to be financially managed well to milk that cash cow business as long as possible. There needs to be a little bit of a sweetener there for some growth and I think that's where it's happening. The interesting thing, too, if you look at how they're breaking up the business and who's going to run it, David Zaslav is going to remain the CEO of the growth oriented, really content focused business, which is more in his wheelhouse, and the CFO of the combined business now, where you want those combined skills of allocating capital and making smart financial management decisions to pay down that debt, take excess cash, buy back shares, maybe pay a nice dividend at some point along the lines. I think you can see the strategy of what they're trying to build already. Andy Cross: Jason, I think we've said that Netflix, in a lot of ways, has won the streaming battle. You have YouTube dominance in there as well. I see this as a good positive news, by the way. They had talked about focusing the businesses and separating them. This isn't a huge surprise. I think maybe the fact that it happened now is a little bit probably maybe more surprising. But the fact that they are now making this official taking this conglomerate and splitting it up into this, I think it is a reaction to the Netflix and YouTube success. Of course, we have Apple with its streaming service and Amazon with its streaming services, too, and then we can't forget about Disney. Jason Hall: That's right. I think to me, that's a big part of the story here is that if you look at what's happened across media, really since right before and then the pandemic it seemed a lot of things hit a critical mass, where so many more people were moving to streaming, Disney Plus was launched and had explosive growth. But at the same time, these legacy businesses still had all of their existing cash cows, which are the linear model, cable, all of that kind of thing. Of course, we've seen so much integration. They own the studios, too, and the movie industry is still well below where it was five or six years ago. It's how hard it is to get through that transition. You mentioned Netflix and YouTube. They didn't have any of those legacy things to have to navigate through transition. They were the new model of content directly for the Internet releasing it immediately. It's clear, I think that something had to happen from the structural side of the business, not just what you'd go to market with with your customer, like Peacock Plus and Disney Plus and that sort of thing. Hopefully, maybe that's what investors are going to get here. Andy Cross: Jason, Warner Brothers has now, I think the direct to consumer, streaming part is like 120 million subscribers. Netflix is more than 300 million. Netflix does about $17 in revenue per user here in the US, Warner Brothers does about 12. Netflix International is probably more around $10, and Warner Brothers is probably more around four. I think if investors are looking to this case to increase the profitability of the streaming side, this would help because they have to be more competitive against the likes of Netflix, which is clearly leading the way. Jason Hall: They have to. I think we're starting to get to this point where we've seen these legacy media companies have all shot their shots. They've made the attempt. They've launched the media the streaming products. But again, the combined businesses has been one of the challenge. Let's not even talk about the international market because these companies are going to make their first money in North America. Is the North American market big enough for all of these existing streaming services that they need to get 15 to $20 a month, and they need 80 million plus subscribers just to be sustainable. I don't think the market's big enough. This is a split up, but I think we're going to see some continued consolidation of content, maybe not where the businesses are combining, but licensing of content, maybe the old model that Netflix benefited from before. Jason Hall: I think we're heading back that direction. Andy Cross: I think that's right. I think the licensee side, you see this with Comcast now separating off some of its properties into the Versant company like USA Networks and CNBC, MSNBC, Golf Channel. They're keeping Embassy and Bravo and Peacock, that will stay with the parent company, but they're separating out, as well, trying to figure out the licensing deal, even between these two companies. How do the sports licensing as Netflix and others are going further into sports programming? The bulk of the sports side is going to be on the network side. How do they overlap there? Of course, there's an international distribution to between the two companies. Still a lot to understand how these two companies interact and what they actually look like post-spin off. That's why I'm finding it a little bit hard right now to be tremendously bullish on buying the stock right now and adding more to it, but I am more excited for them to be separate companies. Jason Hall: I think that's right. I'd like to talk a little bit about Disney and the Amazons and Apples of the world, too, because I think there is a little bit of compartmentalization that we're going to see in the industry. Number 1, think about Disney. I think Disney is going to be the one consolidated media company that makes all of it work. We've seen the transition with Disney Plus, where they're at the point now where I think they can make money. They're going to get better operating leverage there. But they've got so much content and the brand recognition is so big. I think that's one that can get to scale, and they can make it all work. But then you look at the Amazons of the world. This is a different business model. Amazon is an ecosystem. Nobody subscribes to Prime for Prime Video. Andy Cross: It's a bonus. Jason Hall: Exactly. It's part of the ecosystem to make it a little bit stickier. I think that's a thing to remember about Amazon. They're playing a little bit different game than really anybody else in this space. Apple, their model is a little more curated with their content. Maybe you could almost say like HBO was 15 or 20 years ago in the cable model, where they wanted to have one or two really big shows a year, and then run those shows for multiple years. I think maybe that's more Apple's model because they're focused upstream. Andy Cross: HBO has some of those great properties. This is one reason I think investors were somewhat encouraged by them coming together because of those properties with HBO shows like Secession and the Gilded Age, movies, the Upcoming Superman, Sinners, the Voice show. They have these great brands to be able to leverage and turn more into hopefully profits on both the streaming side and then the focus on the network side. Jason Hall: Andy, but this is the same company that also took HBO out of the name of their streaming product. Andy Cross: I just find that really head scratching. I don't know why. I'm glad that they brought it back, to some degree, because that mean HBO is the brand. Hopefully, I don't know the ultimate name of this company, but maybe it is something with HBO because it is the most well known brand. Although the studios business continues and Warner Brothers is a huge name, too. It's just that HBO is really the driver of the streaming. Jason Hall: No. That's exactly right. Having the max in there, even though you and I are old enough to remember Cinemax, which eventually got renamed Max. But HBO Max makes sense because it's HBO and then a bunch of other stuff. That makes sense. The corporate name, we'll see what they decide to do because they are still making all the studio content. A lot of value there. We got more stuff to talk about, though. Andy Cross: They got $38 billion of gross debt. Most of that's going to go to the network side, but they're going to have the cash flow to be able to pay that down. Again, like you said, the CFO going over there to manage that business. Joel Greenblatt, the great author investor who wrote, You Can Be a Stock Market Genius, talked about spin offs. Sometimes it's the ugly debt Level 1 that does actually better. My question before we get to our next story is, which one of these businesses are you most interested in and what are you thinking about the stock today? Jason Hall: It's funny because we were in our pre-planning, we were joking around about that. This is exactly the situation where depending on what happens with the split, the story of HBO unleashed almost, the idea of fully leveraging all of those resources without the legacy history, the story could cause that stock to do great things initially that hurts the long term performance. Everybody forgets about this legacy declining sleepy business. They could end up outperforming two or 300 percentage points over the next decade. I think we have to give this time to play out, see what the structures look like, give them a few quarters to stand-alone businesses, and then weigh in. Andy Cross: I'm going to wait and see mode, too, as it is right now, but information's changing every time, every day. Jason Hall: That's right. Andy Cross: After this, we're moving on to Reddit. Jason, moving on to another media story that actually is related, and we'll get to that in a second. Last week, the user community of hundreds of millions, Reddit, sued the owner of the Claude chatbot Anthropic for illegally scraping post. Reddit has licensing deals with Google and OpenAI already. It's very naturally protective of its IP, but it is not the only one who is trying to leverage AI based on the IP it has accrued over the years. Jason Hall: You remember Curiosity Stream, right, Andy? Andy Cross: I painfully remember Curiosity Stream, yes. Jason Hall: [laughs] For those that don't know, this is it's a media streaming business with fact-based content. Went public via SPAC, back in the SPAC craze 2020, 2021 area. You and I both owned some shares, Andy. You walked away sooner than I did. Andy Cross: Well, I walked away at a very large tax loss on it. I took a tax loss on it to offset some gains. I had hoped for better to be able to leverage the documentary assets curiosity has, and that did not work out in the time frame that I had owned this. Jason Hall: Well, you had good reason. The business was really struggling with weak growth, high expenses. It did look like it was going to get to scale and survive on its own balance sheet. The only reason I didn't sell Andy is because I owned it in a retirement account, so there was no tax loss harvesting. I wanted to see how John Hendricks new business was going to play out. John Hendricks, of course, the founder of Discovery Channel, taking us back to our first story. The stock bottomed at $0.45 a share February last year. It's a 13 bagger since then. It's now part of the Russell 2000, and, Andy, it pays a dividend. Andy Cross: How much of that is on the licensing deal? Jason Hall: That's the thing that ties us back together. If you look, they have these five pillars of growth. The first pillar of growth is licensing content to tech companies to use the audio and video to train AI models. Andy Cross: It's crazy. Jason, just today, we saw the British Film Institute put out a report that claimed that 130,000 titles had now been scraped for their AI purposes. Now they were worried and complaining about it for the institute, but that is going to be somewhat of a model, somehow of a business model for some of these content creators like perhaps, WBD. Jason Hall: I think that's exactly right. It's a reminder that this technology is pervasive and the smart companies and the law of unintended consequences, right, Andy? Winners from technological disruption can come out of surprising places. Andy Cross: Well, we'll see how it all unfolds. Thanks so much for joining me today, Jason. Jason Hall: This was great. Good to be on. See you next time, Andy. Andy Cross: That does it here for us at The Motley Fool. As always, people on the program may have interest in the stocks they talk about and the Motley Fool may have formal recommendations for or against, so don't buy stocks or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our Fool advertising disclosure, please check out our show notes. For Jason Hall, our producer Dan Boyd, and the Motley Fool team, I'm Andy Cross. Thanks for listening and Fool-on. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Andy Cross has positions in Amazon, Apple, Comcast, Netflix, Walt Disney, and Warner Bros. Discovery. Jason Hall has positions in Walt Disney. The Motley Fool has positions in and recommends Amazon, Apple, Netflix, Walt Disney, and Warner Bros. Discovery. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy. HBO and CNN to Split was originally published by The Motley Fool
