Walt Disney Co (NYSE:DIS) is in a really interesting place, which makes Disney stock even more interesting to watch than usual.
Kind of like what happened to the music industry 15 years ago, the cable and TV industries are facing disruptive forces. The main driver, of course, is Netflix, Inc. (NASDAQ:NFLX).
The company’s widely popular streaming service has lead to the secular trend of cord cutting. And mega tech operators like Apple Inc. (NASDAQ:AAPL), Facebook, Inc. (NASDAQ:FB) and Alphabet Inc Class A (NASDAQ:GOOGL) are jumping into the fray.
In light of all this, it is no surprise that most of the traditional media companies have gotten hit hard.
OK then, so is this just the beginning of the bear move? Or could there actually be an opportunity for investors?
Well, I think there are some interesting values emerging, especially at Disney. Keep in mind that the latest earnings report provided quite a bit of good news for investors to chew on. Although, for the most part, Disney stock didn’t move much.
Now, as for the second quarter report, there was continued momentum with the Parks and Studio businesses. These segments remain strong sources of cash flows, which allow Disney to invest in new platforms and technologies.
But even more encouraging for Disney stock was the performance of the Media business, which posted 3% growth for the quarter. This may not seem like a lot but it does show that cord cutting may be decelerating to some degree.
Streaming and Disney
When it comes to Disney stock, the key is the company’s aggressive streaming efforts. One part of this strategy is the recently launched ESPN+ platform. While CEO Bob Iger did not disclose any data points during his earnings call, he was certainly upbeat on the progress. Note that he struck a deal to provide programming for UFC fighting matches.
Yet the big driver for Disney’s streaming efforts is likely to be the entertainment offering, which is expected to launch late next year. Let’s face it, the service will have plenty of top-quality content from Marvel Studios, Pixar and Lucasfilm. And yes, as seen with the latest box office results, with huge hits like Black Panther and Avengers: InfinityWar Disney hasn’t lost its Midas Touch .
Another part of the entertainment service will come from Disney’s proposed $52 billion acquisition of Twenty-First Century Fox Inc Class A (NASDAQ:FOXA).
The deal will mean getting control of marquee film franchises, such as Avatar and Marvel’s X-Men, as well as hit TV shows like such as Empire and Modern Family. Oh, and Disney will become the majority owner of Hulu.
Granted, it looks like rival Comcast Corporation (NASDAQ:CMCSA) will likely make a bid FOXA. But then again, Disney has a stronger balance sheet. It also helps that the board has already agreed to the deal with Disney and the Murdochs would not want to pay taxes on a cash payout from CMCSA.
Bottom Line On Disney Stock
All in all, Disney is nicely positioned to capitalize on the streaming revolution, given its treasure trove of content. But there is also the advantages of a diverse set of businesses. If anything, the Parks and Studio businesses are likely to realize synergies from the streaming business, which will provide extensive data on customers.
And finally, Disney stock remains at a fairly reasonable valuation, with the forward price-to-earnings ratio at 14X. This is pretty good for a company that is putting together a compelling strategy to win in the streaming revolution.
Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
