The Dow Jones Industrial Average (DJINDICES:^DJI) had entered positive territory soon before the market closed on Friday, up about 0.05% at 3:50 p.m. EST. This follows a dramatic rally spurred by the U.S. presidential election on Tuesday. There is still no winner in that contest as votes continue to be counted.
Shares of Visa (NYSE:V) and Walt Disney (NYSE:DIS) edged up Friday to end the week with gains. Visa stock rose despite the U.S. government suing to block its acquisition of fintech company Plaid, and Disney stock was up despite the company pulling more movies from theaters.
Visa’s Plaid acquisition faces antitrust headwinds
Credit card giant Visa announced earlier this year that it would pay $5.3 billion for Plaid, a company that allows developers to connect their apps directly to users’ financial accounts. The price was more than steep — Visa was paying around 50 times Plaid’s revenue.
On Thursday, the U.S. Department of Justice sued to block Visa’s mega-acquisition. The DOJ accused Visa of trying to eliminate an emerging threat to its online debit business by buying the company. “By acquiring Plaid, Visa would eliminate a nascent competitive threat that would likely result in substantial savings and more innovative online debit services for merchants and consumers,” argued the government.
Visa is dominant when it comes to debit transactions in the United States. Plaid doesn’t compete directly with Visa right now, but the Justice Department said that Plaid had been planning an online debit service that would threaten Visa’s dominance. The Justice Department found that such a service would undercut Visa’s fees by as much as 50%. Visa generated around $4 billion from its debit business last year, according to the complaint.
With so much innovation coming out of financial technology companies, it seems inevitable that Visa will eventually face an existential threat to its business model. Plaid may have been that threat had Visa not acted. The government appears to have a reasonably strong case, especially given that a viable Visa competitor would likely push down fees and ultimately benefit consumers.
Shares of Visa were holding up on Friday, up about 0.6% by late afternoon. The financial stock is up about 6% so far this year.
Disney postpones movies
The recovery of the movie theater industry, which has been ravaged by the COVID-19 pandemic, hit a snag this week when Disney pulled two of its movies from the schedule. The action comedy Free Guy was supposed to debut on Dec. 11, and Death on the Nile was scheduled for a Dec. 18 release. Neither movie now has a release date as Disney hardens its shift toward streaming.
Movies are big business for Disney: The entertainment conglomerate released seven films in 2019 that brought in more than $1 billion worldwide. Those kinds of numbers justify the massive budgets required to make blockbuster films.
With movie theaters unlikely to draw in significant numbers of guests this winter as the pandemic rapidly escalates in the U.S. and Europe, Disney may end up releasing some of its films to its Disney+ streaming subscribers. The company tested out charging a premium on top of its monthly subscription fee for the live-action Mulan earlier this year. Mulan will become available to all Disney+ subscribers without an additional fee in December.
That model could work for highly anticipated and family movies, but it will be tough for Disney to fully replace the revenue generated from movie theaters. It’s unclear whether the movie theater business will survive the pandemic in its current form, so at the very least Disney has a backup plan.
Shares of Disney were up about 0.6% by late Friday afternoon. The stock is still down around 12% in 2020.