Daniel Loeb adds Disney shares, bets streaming is company's 'biggest market opportunity ever'

Published Thu, Aug 6 202012:22 PM EDTUpdated Thu, Aug 6 20201:04 PM EDT

(This story is only for CNBC Pro subscribers ) Longtime activist investor Daniel Loeb told clients on Thursday that he opened a new position in the Walt Disney Company during the second quarter based in part on the media giant's decision to enter the streaming market. Loeb, manager of Third Point LLC, said he initiated a long position in Disney when shares sank on fears that theme park and movie theater closures would cripple the company. But those concerns, he said, masked a far more compelling opportunity. In a separate phone call with CNBC's Scott Wapner , Loeb said there isn't a close No. 2 rival for Disney in terms of quality of content and its vast intellectual property trove. The manager likened Disney now to software giant Microsoft seven to eight years ago, saying entry into the direct-to-consumer business could allow what some may have considered an aged film and franchise business to reinvent itself. "Streaming is Disney's biggest market opportunity ever with potentially $500 billion of revenue spread across over a growing market of 750 million current broadband homes globally ex-China, dwarfing the size of Disney's current addressable markets," Loeb wrote in a letter viewed by CNBC. The stock gained 1% in midday trading following news of Loeb's letter. Disney's "dominant" position in the globe media landscape, Loeb wrote, sets it up to capture a significant portion of the ever-larger direct-to-consumer streaming market. The manager said that it took less than nine months for Disney+ to attain 60 million global subscribers, a milestone that took Netflix more than seven years. Disney's stock has been strong since it announced earlier this week better-than-expected second-quarter profits and more than 100 million global paid streaming subscribers . The equity is up more than 10% over the last week. But 2020 hasn't been completely smooth for Disney, which in March saw its shares fall more than 35% as investors punished equity of companies they believed would lag under the Covid-19 pandemic. But that's when Loeb said he found the stock most attractive. "A slew of sell-side analysts had recently downgraded the stock but we believed they failed to grasp that the pandemic also provided Disney with an important opportunity – to accelerate a plan to bring its blockbuster content directly to the consumer via streaming, which will further elevate Disney's position as the world's preeminent media company," Loeb wrote in his letter. Loeb's comments on Disney came in a letter to the fund's investors, in which the activist said Third Point took a handful of new long positions in the second quarter including the aforementioned Disney, Alibaba and JD.com. Third Point's equity book returned about 9% in the second quarter, with a 15% return in long positions offset by losses from short sales. The manager said he took advantage of jitters about China's relationship with Hong Kong and the U.S. to establish new stakes in the Asian e-commerce giants. But independent of those fears, Loeb said he believes changing macroeconomics in China should boost e-commerce sales for years to come. "As the e-commerce market matures, we believe Alibaba & JD will leverage scale and growing repositories of transaction data to increase monetization of their platforms through targeted advertising to improve revenue yields," Loeb wrote. "Brick-and-mortar retail store rent expenses in China are greater than 10% of sales on average," he continued, "which provides a significant umbrella for online marketplaces to take a greater share of [gross merchandise value] through a combination of commission and advertising spending as online retailer cost structures converge with brick-and-mortar retail."

Daniel Loeb

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(This story is only for CNBC Pro subscribers)

Longtime activist investor Daniel Loeb told clients on Thursday that he opened a new position in the Walt Disney Company during the second quarter based in part on the media giant's decision to enter the streaming market.

Loeb, manager of Third Point LLC, said he initiated a long position in Disney when shares sank on fears that theme park and movie theater closures would cripple the company. But those concerns, he said, masked a far more compelling opportunity.

In a separate phone call with CNBC's Scott Wapner, Loeb said there isn't a close No. 2 rival for Disney in terms of quality of content and its vast intellectual property trove.