|
Proprietary Data Insights Financial Pros’ Top Entertainment Stock Searches in the Last Month
|
||||||||||||||||||||||||||||
Disney Stock Surges 57%: Unlock the Secrets Behind the Magic!
|
|
|
Last year, Walt Disney (DIS) was in serious trouble. Its streaming service hemorrhaged cash while core movies flopped at the box office. CEO Bob Iger faced a hostile board takeover by Nelson Pelz. Today, shares are up 35% from the lows in 2023 and were up as much as 57%. Streaming turns a slight profit while park revenue continues to soar. However, the latest earnings report missed revenue expectations as the entertainment segment struggled. Financial pros began to take a deep dive into the results as search volume spiked following the announcement, according to our TrackStar data. We’ve been big fans of Disney and Bob Iger. But does the soured outlook change our position? Disney’s Business Brothers Walt and Roy Disney founded Disney over a century ago. With a unique value proposition centered around unparalleled storytelling, iconic brands, and innovative technologies, Disney has captured the hearts and imaginations of people worldwide. The company’s operations span various segments, including media networks, theme parks, resorts, studio entertainment, and consumer products. Disney segments its business into three main areas: Entertainment (46% of total revenues) – Encompasses television content, film releases, and direct-to-consumer streaming services Sports (24% of total revenues) – Covers ESPN-branded channels and Star-branded sports channels in India Experiences (30% of total revenues) – Includes theme parks, resorts, cruise lines, and related merchandise The company’s vast array of television content, film releases, and direct-to-consumer streaming services like Disney+, Hulu, and ESPN+ cater to diverse audiences across the globe. Yet, it’s the content side, once the growth engine, that has become a drag.
Source: Disney Earnings Presentation The company’s focus on streaming profitability and the recent success of its theme parks are helping offset the decline in the linear (cable subscription) business.
Source: Disney Earnings Presentation Management expects the decline to continue, which makes profitability in the direct-to-consumer (streaming) business so crucial. Financials
Source: Stock Analysis Disney’s revenue growth isn’t the real story. If you look at the net income line, you’ll see a dramatic decline from 2019 to 2020. That wasn’t just the pandemic; it was the streaming business. Since Iger took over, the streaming business lost less each quarter until it finally became profitable. We still don’t know whether it’s scalable. And it’s just one of the areas needing attention. The good news is free cash flow continues to improve, while total debt declined from $50.7 billion last year to $46.3 billion. However, that’s more than twice what it was in 2018, but far less than the $62.3 billion it held in 2020. The improved performance allowed Disney to reestablish a small semiannual dividend last summer while repurchasing $1.0 billion in stock. Valuation
Source: Seeking Alpha Disney’s P/E ratio has never shown the stock to be particularly cheap. However, its price-to-cash flow ratio at 14.3x is less than half its 5-year average, although that’s expected to increase to 17.3x next year. Comcast (CMCSA) and Warner Brothers (WBD), which both face growth challenges, are very cheap on the price-to-cash flow ratio, while growth companies like Netflix (NFLX) garner a premium. Growth
Source: Seeking Alpha Disney’s revenue growth isn’t particularly high. But it is in line with many of its peers. However, its EBITDA and EBIT growth are the real story. Warner Brothers looks cheap given its growth. However, the company holds over $50 billion in debt against operating cash generation of less than $9 billion annually. Other companies like Live Entertainment (LYV) have seen their fortunes improve as consumers continue to go out more. Profitability
Source: Seeking Alpha Disney’s profitability isn’t the best. But it’s consistent and improving. Plus, the company is growing, unlike Comcast, which is very profitable yet slowly dying. Disney’s returns on equity, assets, and total capital aren’t impressive. However, restructuring charges and impairments, which should disappear by next year, have knocked those down.
Our Opinion 8/10 Disney isn’t the screaming value we once saw. But it’s still a great company to own at these levels. Iger has done a fantastic job turning streaming into a profitable business. While consumer spending may hurt shares in the short run, we believe the transformation currently underway, with a shift in focus to ‘less is more,’ will ultimately strengthen the brand and consumer relationships. |
|
News & Insights |
Just Spilled
|
|
Want to get content like this directly to your inbox? |