The Disruption Scorecard

Brian Foran (0:02)

So it's a big disconnect, you know, you talk to a bank management team right now, and they're like, hey, life's good. Loans are growing, deposits are growing, returns are 17%, you know, things are about as good as they can be.

And then you talk to investors, and they're like, well, yeah, that's the problem. They're about as good as they get.

Jack Hough (0:19)

Hello, and welcome to the Barron's Streetwise podcast. I'm Jack Hough, and the voice you just heard is Brian Faran. He's an analyst at Truist Securities, covering banks and credit card companies. In a moment, he'll give us an update on how Capital One is doing since its takeover last year of Discover, and why he thinks the stock has 50% upside. There's a broader focus here on disruption. As we'll hear, Capital One is taking a shot at the payments duopoly of Visa and MasterCard. We'll also look at disruption attempts by SpaceX, and Disney, and Amazon. It's a disruption scorecard special.

Let's get into it.

Listening in is our audio producer, Emily Sumlin. Hi, Emily.

Emily Sumlin (1:07)

Hi, Jack.

Jack Hough (1:09)

Do you know anyone who's had a tooth pulled at Walmart?

Emily Sumlin (1:13)

No, but I did knock my permanent front tooth out in a tubing accident in fifth grade. So it was kind of like getting it removed at Walmart.

SPEAKER_4 (1:22)

Oh, no. What grade was that?

Emily Sumlin (1:25)

Fifth grade. I had just gotten it too. Fresh with the permanent tooth.

Jack Hough (1:29)

I'm so worried about that for my kids. I beg them to wear mouthguards when they play sports because somebody's losing their front tooth at some point. I'm sorry that happened to you. That was a tubing accident?

Emily Sumlin (1:40)

Yes. You could be a wimpy theater kid like me and still lose it. So the athletics is not required for that to happen to you.

Jack Hough (1:49)

You have such lovely teeth, by the way. I think it worked out for the best. You could have these old yellowing chompers like I have.

These are natural, but they don't look as good.

Emily Sumlin (1:58)

Well, I will say, it's an exercise in humility when they're trying to color match your teeth to the right shade and then finally they are deciding between two and then they pick the yellower one. Eventually they will run out. They will stop going whiter, but you want it to look real.

Jack Hough (2:15)

I ask you this Walmart Dental question only because I was surprised to, I guess, remember I hadn't even thought about it. Walmart at one point had more than 50 pretty full service health centers, like standalone health centers. It was part of its effort to disrupt health care. It didn't go well. We're going to get into that. We're going to get into a bunch of other disruption attempts and I'm going to score them. I did this recently for a column I wrote in Barron's Magazine. I used a grading scale of one to five Schump's, which of course is named for Joseph Schumpeter.

And he is an Austrian born economist, and I'm sure many listers know his name is closely associated with the phrase creative destruction. I don't think he coined that phrase, but other economists before him like Karl Marx viewed creative destruction as a fatal flaw of capitalism. And it was Schumpeter's view that it's not a fatal flaw, it's a core engine of capitalism. It's the thing that keeps progress going. Schumpeter moved to America and taught at Harvard, and he was known for, I think, knee-high riding boots and capes. He had a look. From what I understand, it took him more than an hour to dress in the morning. Probably takes me an hour to dress cumulatively for the year.

He took his time.

Anyhow, I'm using the name for my one to five Schump's scorecard. My grading system is, if I'm being honest, both arbitrary and opaque. I thought about each case carefully while wearing riding boots and a cape. Not really I don't own anything that high fashion. The closest I have is probably my 8-inch LL Bean duck boots.

Let's start with the two most recent cases or two things that have been in the news in recent weeks. And the first one is Disney vs. IMAX, and I'm giving this, I'm going with a high score right out of the gate. This one's getting four Schump's. I'm deducting one Schump only because no one has really done much of anything yet, and on paper, this plan looks like gold. IMAX theaters, we all know what those are. They fetch premium prices, and that can boost box office revenue for studios, but there aren't enough IMAX theaters to go around. There are a lot of multiplexes that might have only one. And lately, IMAX has used this shortage to favor films that were shot using its cameras. That's another way it makes money, and effectively here, it's double dipping on fees. And Disney is hot over it. It's got a movie coming out around Christmas time called Avengers Doomsday. And that one is a sure money maker, and it's getting blocked from IMAX screens by another film called Dune Part 3, because Dune was shot on IMAX and Avengers was not. So earlier this year, Disney introduced a new big screen format called Infinity Vision. And this month, it announced that a host of big studios are on board. We're talking Universal, Paramount, Sony and others. And big theater chains are going to like this pitch. A lot of them already have non-IMAX premium screens. They have brand names that no one really recognizes. There's AMC Prime and Cinemark XD.