Disney’s Growth and Future Initiatives:
Disney (DIS) delivered solid Q3 FY2018 quarterly results as the company continues to be focused on future initiatives such as acquiring Twenty-First Century Fox assets and a major push into streaming with a majority stake in Hulu (60% ownership), ESPN Plus launch earlier this year and direct to consumer Disney branded streaming service coming in 2019. Disney’s Q3 revenue and EPS grew by 7.3% and 18%, respectively year-over-year. Disney continues to deliver at the box office and theme parks and its stock has finally broken out above the $110 level and appears to be consolidating above this level. Disney’s brands are ubiquitous and providing long lasting durable revenue streams that transcend theme parks, toys, merchandise, movie franchises, streaming initiatives, Fox properties and international reach. Disney is closing the gap in streaming as Hulu grows rapidly and in the backdrop ESPN+ and direct to consumer Disney branded streaming service matures and comes to fruition. Disney currently trades at a P/E of 14.1 while the average stock in the S&P 500 trades at 24.9 representing a 40% discount to the average stock. Disney has been growing its dividend over the years and currently yields 1.5% to further bolster Disney’s investment thesis. Disney offers a compelling long-term investment opportunity considering the growth, Fox acquisition, pipeline, Media Networks remediation plan, diversity of its portfolio, tax reform, share repurchase program (on suspension) and dividend growth.
Disney’s Q3 FY2018 Quarterly Results
Disney reported Q3 FY2018 EPS of $1.87 (18% year-over-year) and revenue of $15.23B (7.3% year-over-year). Revenue by segment came in via Media Networks, $6.16B (up 5%); Parks and Resorts, $5.19B (up 6%); Studio Entertainment, $2.88B (up 20%); Consumer Products & Interactive Media, $1B (down 8%). CEO Bob Iger directed his remarks mainly to the $71 billion Fox acquisition and Disney’s streaming plans on the conference call. Disney’s branded direct-to-consumer service is on track for a late-2019 launch, Iger said, adding he’s encouraged by data showing many consumers are members of three different subscription video on demand products. Consumers are making “their own personalized mix of content,” Iger stated. Regarding the Fox deal, “we’re obviously thrilled with the results of the shareholder vote,” Iger said. Roughly 10 minutes of voting secured approval from both companies’ shareholders and he looks forward to boosting Disney’s international growth with Fox’s portfolio (notably mentioning Sky, currently sitting on a higher bid from Comcast).
Regarding Disney’s streaming competition with Netflix, Iger said Disney’s product “does not have to have anything close to the volume that Netflix has, because of the value of the brand.” The price of the service will reflect the lower volume of content vs. a Netflix as well, he says. “We don’t see a rush” because of the market’s development, Iger says. “The only place to get original Disney, Star Wars product is this app, so whenever we launch, it will be attractive.” Disney continues to deliver robust growth despite the overblown fears of its stalling Media Networks segment that has plagued the stock over the past two years. Given the backdrop of its growth initiatives and bringing in Fox’s assets into the fold will provide durable and growing revenue streams for years to come.
