The Fundamentals Say Walt Disney Co Stock Will Rise in Time

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Walt Disney - The Fundamentals Say Walt Disney Co Stock Will Rise in Time

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The math on Walt Disney Co (NYSE:DIS) is pretty simple.

Right now, ESPN gets $9.06 each month from every cable and satellite subscriber, whether those people watch ESPN or not. The new “ESPN+” streaming package is priced at $4.99 per month, and not everyone is a sports fan.

We know that price is a loss-leader. In time, Walt Disney plans to break ESPN apart into a variety of packages extracting as much as $20 per month or more from dedicated sports fans.

But unless half of all cable subscribers are dedicated sports fans, that won’t work. And this doesn’t even count ABC or its other networks, which are also being abandoned. Making networks profitable in a cord-cutting world is going to be an uphill climb.

Not the Charts

That is why Disney stock remains under pressure. It has nothing to do with charts.  It’s the fundamentals of the business.

This is sad, because outside media networks, Walt Disney is doing great. Its second quarter report, delivered on May 8, showed year-over-year growth of 13% in parks and 21% in movies. In terms of profits, parks were up 27% and movies were up 29% over the previous year.

It’s the media networks — up 3% on revenue, but down 6% on profit — that continue to drag the stock down. Media networks still represent 42% of the business, down from 43% a year ago.

To its credit, Disney management is transparent about this. Broadcasting numbers are static and cable, which represented 83% of the division’s revenue, is losing altitude. The company admitted that operating income for ESPN and Freeform, the former ABC Family channel, are continuing to decline, and it put start-up losses from BAMTech, the streaming technology company acquired last year, into the cable numbers.

Generally, the company’s media business is staying afloat by raising ad rates, even while subscriber counts decline and programming costs go up. The networks’ income from re-sale of shows to syndication is also down.

Timing the Turn

If you’re buying Disney stock today, expect to hold it for at least five years, and you should be convinced that Walt Disney can make up in streaming what it’s losing in cable.

There is hope for that. Disney’s movies all stream in time, and the company has proven expert, over many decades, in extracting repeated hits of income from them. My family has both VHS tapes and DVDs of Disney classics rotting away in the attic, and yours probably does too.

If Disney charges the same price as Netflix for a streaming service, and you have kids, you’re going to buy it. And with Netflix Inc. (NASDAQ:NFLX) opening eyes globally to the benefits of a streaming service, a lot of international customers are going to add the global Disney brand when they can.

There’s another possible profit engine in gaming.

Walt Disney gets almost nothing from consumer products — just $354 million in the last quarter. What if it could license Marvel or Star Wars characters into an immersive, massive multi-player, online gaming experience? Disney is trying to do just that with Electronic Arts Inc. (NASDAQ:EA).

Star Wars Battlefront, which didn’t do much last year could, with a little imagination, still achieve escape velocity. Now imagine if the game went into eSports tournaments?

Bottom Line on Walt Disney Stock

We know that Walt Disney has great content, and we know its management has figured out changing technology in the past.

It will take time for Disney to get streaming and gaming right, but there’s no reason to think it won’t, given time.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.

If you’re buying Disney, give it time. Don’t trade it. Don’t look at the charts. Buy, hold, and see me in five years.

I suspect you’ll be smiling.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.

 


Article printed from InvestorPlace Media, https://investorplace.com/2018/05/fundamentals-say-walt-disney-dis-stock-rise-time/.

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