Opinions
Greg Dean
Walt Disney Co.
DIS-N
COMMENT
Aug 02, 2016
Stock price when the opinion was issued
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Spike in stock is due to fears of an economic slowdown being put at bay. Theme parks are expanding, but will depend on macro environment. ESPN is more challenged. Disney+ is challenged because NFLX is beating everybody. Paying 20x PE for 12-13% growth. Doesn't dislike the name, but some segments are having a tough go.
Mixed feelings. On the positive side, doing exceptionally well in streaming with a great library and great branding. Cross-sells better than anyone. Worried about the parks in the short term -- consumer slowdown, expecting global backlash against the US. Hard to bet against its 6-decade growth story for the long term. Balance sheet in fine shape, decent cashflow. Yield is 0.8%.
Streaming turned profitable by end of 2024, finally, after a reorganization, and is now a major growth driver. Theme parks have been the largest profit generator and they keep coming out with new parks; people are paying high amounts to enjoy them. He expects healthy earnings to come. They will announce a deal between their ESPN and the NFL--sports drives huge profits. Everything is going right, but they need to appoint a successor to Bob Iger.
The Golden ticket within this company is ESPN. We have seen the peak of franchise values, and a lot of that has to do with cord cutters. The recent franchises are able to be as valuable as they are today, has predominantly been driven by TV money, and TV money has been coming from the $6-$7 a month that ESPN subs are kicking up to Disney. When you share half your revenues with your players, and wage inflation is going to be somewhat sticky, so Disney is on the hook to write these bigger checks to keep the ESPN franchise growing, but their attrition from customers is increasing. People are finding other ways to watch sports. He worries that the engine that has fuelled business growth over the past 10 years, won’t be there over the next 10.