A Look At Walt Disney Co (NYSE:DIS)’s Future


With everything from cord-cutting to competition threatening the bottom-line of media/content/entertainment behemoths, there has been no shortage of questions about whether the future of Walt Disney Co (NYSE:DIS) is better or bitter.

Does Disney need introduction?

Disney needs no introduction. But reminding oneself of this international entertainment giant is certainly not a bad thing, especially given the on going disruptions in its industry.

Disney operates five business segments namely: parks and resorts, media networks, interactive media, studio entertainment and consumer products. All these segments/businesses are important to Disney’s bottom-line, although some are more important or more threatened than others.

Studio segment

Walt Disney Co (NYSE:DIS)’s studio business continues to show signs of abundant life despite widespread industry competition. Its upcoming major movie release, Star Wars: Force Awakens is promising or threatening to set a record domestic opening weekend ticket sale.

Force Awakens, set for December 18 domestic release, registered a whopping $50 million in advance ticket sales a month out from the official release date. With that, there are strong indications that Force Awakens could smash Jurassic World’s $209 million opening weekend ticket sales record set in June this year.

Part of the reason the Force Awakens could be a major movie release this year or beat major past releases is that several favors favor the timing of the film. One, there is already widespread consumer interest in the movie going by the record advance ticket sales. Two, the holiday release means that most people have time off from work and school for cinema attendance. The two factors among many other explain why Force Awakens could easily surprise on its opening weekend and perhaps outshine Avatar’s $760 million total ticket sales in the U.S. and Canada.

However, Disney will have to work harder to put Avatar’s global box office sales of $2.79 billion at risk.

Another title in the pipeline – Rogue One

Smashing records aside, there is so much for Walt Disney Co (NYSE:DIS) to extract from its Star Wars franchise. The Star Wars: Rogue One sequel, set for domestic release in mid-December 2016, is also promising to be a serious cash cow, thus giving a serious boost to studio revenues and overall bottom-line.

Successful rollout of both Force Awakens and Rogue One in the international markets could lead to more significant boost to Disney’s topline numbers and almost more than double studio segment profits in fiscal 2017. Typically, overseas box office releases have tended to generate 2.5 times domestic sales. Studio segment profits were $1.5 billion in fiscal 2014.

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Theme park business

Walt Disney Co (NYSE:DIS) is targeting more than 300 million tourists (domestic and international) at its joint venture Shanghai Disneyland park and resort. The Shanghai Disneyland is slated for opening in 1H2016 and as it turns out, the park/resort is strategically situated.

First, the park is located less than half an hour’s drive from Shanghai. Second, Disney is targeting visitors with higher disposable incomes to fill the modern park, which is achievable given its strategic location in one of China’s busiest, wealthiest and most populous financial districts.

With the massive investment that has gone into building Shanghai Disneyland, it will take time before the business starts generating profits. But it will almost certainly not take long given the strategic location of the park that has already been discussed. As such, it is possible that Shanghai Disneyland could become breakeven in two years starting generating about $200 million profits by 2019.

Opening of the Shanghai Disneyland has been delayed on a number of occasions, but the spring opening target hasn’t removed.

Cable networks business

The most common question asked about Walt Disney Co (NYSE:DIS)’s cable business is whether it can escape the disruption of cord-cutting movement or, at least, remain relevant for long.

Disney makes money in its cable business through affiliate fee and advertising. The company has majorly invested in sports content to give it a competitive edge in the media business. Although sports rights acquisition is a big deal for Disney in terms of costs, there are no major sports renewals in view at least until after fiscal 2017. Moreover, major renewals will be out of view for long in the next decade, thus allowing Disney to limit its sports content costs. With major cost drivers out, Disney is able to drive significant lift in its cable profits even with little growth in the segment.

Cord-cutting threat: Cord-cutting is one of the major concerns in Walt Disney Co (NYSE:DIS)’s cable business. People are finding ways to sidestep bundled packages as they consume more digital content from providers such as Netflix, Inc. (NASDAQ:NFLX). There are at least two reasons relevance of Disney’s cable business could be far more durable than many think it will.

One, Disney’s exposure to premium live sports through ESPN enables the company to limit subscriber loss. Two, cord-cutting could be much slower and less hurting to Disney’s cable business, thus allowing the company to enjoy benefits of its premium content/rights investments.

Still in the cable business, cord-cutting has not seemed to narrow Disney’s advertising opportunities. In the last three years, Disney has seen its cable advertising spike 7%, 5% and 4% in 2012, 2013 and 2014, respectively. In the first three quarters of 2015, cable advertising has already improved 3%. Although the growth metrics appear to be on a decline, they still indicate a business model that is showing great resilience in the face of severe disruption.

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Bottom-line

As much as cord-cutting is a threat to legacy media businesses, Walt Disney Co (NYSE:DIS) can actually plug into it to generate incremental revenues as it works to realign its cable business with the new industry realities. Strong studio and park/resort performance should also provide insulation to disruption in Disney’s other businesses.

Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

Neha Gupta

Neha Gupta has been in the financial space for over six years now. Gupta earned her MBA degree from Symbiosis Centre of Distance Learning in 2009 and her passion for finance led her to pursue Chartered Financial Analyst (CFA) course. She has successfully completed Level II of her CFA. She is a veteran in article writing, which is depicted in her numerous pieces published on SeekingAlpha, Nextiphonenews, InsiderMonkey, MarketWatch, and Techinsider. Her crisp and eloquent writing finds its best place in Researchcows, where emphasis is given on developing rich content for various websites, products, business plans, trainings, and book writing.

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