Disney: A Golden Opportunity
- By Harsh Jain
Escalating concerns over ESPN's declining subscriptions and revenue have weighed down Disney (DIS) stock. The stock is down almost 3% year to date. For Disney, ESPN plays a very significant role and enduring concerns over the channel and the extensive media networks division poses a threat moving onward. But the challenges could also present an opportunity.
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The intrinsic value of DIS
In the fourth quarter, Disney shared earnings per share of $1.10, 6 cents less than the estimates, whereas revenue came in at $13.14 billion, missing the consensus estimates by $380 million. That figure also represents a drop of 2.7%. The company's disappointing performance was mainly due to the ongoing concerns regarding its ESPN platform.
Although ESPN lost more than 1.2 million subscribers over the past few months, the company's full-year results for 2016 reveal some incredible figures. The company's free cash flow surged 27%, whereas its net income escalated 12%. Moreover, the company also increased its dividend by 10%.
This throws light on Disney's healthy performance, even though the company lost a large number of ESPN subscribers this year. Furthermore, to overcome this issue, the company has partnered with AT&T (NYSE:T) to embrace ESPN as part of its new DirecTV Now bundle.
Apart from this, the company is also planning to introduce ESPN-branded content on BAMtech. The main purpose of this is to allow customers access to all the sports coverage they desire via streaming, working around cable providers completely.
On the other hand, Disney's other segments are performing much better than expected. The other segments now account for approximately 51% of the company's operating income, a surge of 15% compared to that in fiscal 2013.
Moving onward, the company has built a hit factory with major acquisitions like Marvel, Pixar and Lucasfilm. All of these acquisitions together have provided Disney admittance to franchises that produce near-guaranteed hits.
On the back of these acquisitions, the company can produce numerous films every year under its own brand, generating profits in the range of $500 million to $1 billion. That gives the company a competitive advantage over opponents like Comcast (CMCSA).
Summing up
Disney is well aware of the gradual decline in the subscription base of ESPN. Therefore, the company is taking various steps to overcome the problem. If successful, the bleeding in the company's media networks segment could be stopped. Moreover, the company's other segments are moving upward with each passing year. As a result, investors should continue to hold the stock regardless of the ESPN concerns.
Disclosure: No position in the stock in this article.
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This article first appeared on GuruFocus.
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The intrinsic value of DIS
