Does Disney still have the growth potential?
The Walt Disney Company (NYSE: DIS)
Given the recent success of Disney+, Walts Disney has garnered the attention of investors globally. Despite the closure of the theme parks, Disney has managed to ride the disruption. Their effort and results are reflected through their share price, 69.33% capital appreciation within a 1-year time frame.
And, in this sharing, we will be looking at the background of the company as well as the Global and Entertainment Media market.
1. Company Background
A leader in the media industry, Disney is part of everyone’s dream of an imaginary world for adults and children. They are well known for the films produced and the theme parks which bring dreams into reality. Disney possesses strong branding where it can monetize its intellectual property. The Company operates in four business segments: Media Networks, Parks and Resorts, Studio Entertainment, and Consumer Products & Interactive Media. Founded in 1923 with over 30 years of history of earnings distribution to investors. On top of their recent growth, Disney+ is estimated to continue in acquiring more subscribers. Disney currently has a market capitalization of approximately 338.5 billion.
Disney embraces the legacy business model, the Brand itself. When a new film is released, developing a new intellectual property with the intent of monetization. The theatres and entertainment platform would then pay distribution fees for them. Consumer manufacturers would purchase the rights to stamp Disney characters on the goods. Disney has theme parks where the family can experience what they have watched. Unlike mainstream understanding, Disney business is not about making new films but about creating and sustaining brands in the long term.
2. Economy Moat
Disney has 96 years of history within the media and entertainment industry. These have led them to excel and emerge as a market leader with strong influencing positions. Disney’s ability to innovate and generate unique content, creating sustaining brands, striving ahead of their competition. Such exclusivity allows Disney to leverage their intellectual property, creating recurring revenue streams. The Disney brand is well known throughout households globally reflecting its scalability as one of its greatest assets.
3. Financials
Disney has seen a decline in all their operations except for the Media Network segment due to the pandemic. Disney has also postponed their 2020 dividend payment given that their theme park has not been able to operate at its original capacity back in 2020. Observing for the past five years, Disney has a 3.28% compounded annual growth rate. Their balance sheet has also indicated their strengths to ride through the current pandemic. Despite a reduction in profitability for the year 2020, Disney return on equity (ROE) has been averaging around 20% and we are expecting them to continue with their dividend payout starting from 2021.
4. Industry Outlook
Overall, looking at the industry, Disney has remained the top 10 brands globally based on the Brand Strength Index. Let's shift our focus to the Global Entertainment and Media market value is set to grow from USD2trillion to USD2.5trillion by the year 2025. Aside from re-opening of the theme parks, Disney+ is expected to grow even further, rivalling Netflix.
5. Risk
There are two risks where we have to take into account during decision making. Firstly, the maintenance of intellectual property rights. Secondly, the current technologies space. Technology innovations are ever-changing and fast-paced, and Disney needs to have the ability to adapt and excel to remain competitive.
6. Conclusion
Disney is a great company, despite the existing risk, the team behind Disney respective business segments do have the ability to overcome it. As Disney+ continues to expand, rivalling Netflix, their theme parks are preparing for re-opening at the full operational capacity once officials allow them to do so. These combining factors will set Disney to grow at an exponential rate despite the size of their company.
