Disney: What Is Disney+ Really Worth To Shareholders

seekingalpha2021-03-15

Summary In the past 16 months, Disney+ has gained 100 million subscribers. The market has generally viewed Disney+ as a major needle mover for the company overall. My goal is to find out how much ...

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精彩评论

Klovelord
2021-03-18
Klovelord
Price seems abit high to buy?
AS78
2021-03-15
AS78
Love Disney
etchew
2021-03-15
etchew
new competitor.
kino318
2021-03-15
kino318
I will buy this stock if below 180
真的钻石手
2021-03-15
真的钻石手
I’m a subscriber just for the avengers movies.
- Blackk:
  Good
同是天涯沦落人
2021-03-15
同是天涯沦落人
Thanks for sharing

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The company was clearly making a strong pitch for getting content directly to consumers through the use of streaming services. Ever since the company had acq","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"DIS":"迪士尼"},"translate_title":"迪斯尼:Disney+对股东的真正价值是什么","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"DIS":0.9},"content_text":"Summary\n\nIn the past 16 months, Disney+ has gained 100 million subscribers.\nThe market has generally viewed Disney+ as a major needle mover for the company overall.\nMy goal is to find out how much value can Disney+ add for current shareholders.\n\nIntroduction\nDisney+ has been a major catalyst for The Walt Disney Company (DIS) since it was first announced in April of 2019. The company was clearly making a strong pitch for getting content directly to consumers through the use of streaming services. Ever since the company had acquired Bamtech in 2017, the plan was clearly to leverage this technology to change the way consumers view their content. With a huge library of content already available to the company, the only obstacle was getting the content distributed.\nSource: Company\nI have a been a shareholder since the middle of 2018 and have a cost basis of $100 per share and my question is how much value is Disney+ actually adding? I am at a point of trying to figure out if the excitement around Disney+ and its incredible subscriber growth is worth the premium that the stock is currently trading at. For me, the idea of locking in a 100% return in three years would be great as this is one of the first stocks I invested in. What I want to do is try to look at Disney+ on its own and see what value I can come up for the service to see if I should continue to hold the stock long term or if I should lock in my gains and move on to other opportunities. As a disclaimer, this is purely my valuation and where I see the service going. As such, your valuation will probably differ depending on how you view a few of the assumptions I had to make. Unfortunately, the company does not break out the operating cost of Disney+, but there are some clues as to what the operating margins are, and as such, I will be pulling together what I believe are the operating margins for the service.\nWhat Are The Costs Of Disney+?\nThe first thing I needed to find out was what were the operating expenses for Disney+? In Disney's most recent 10-Q, they do break out what the cost are for their DTC (Direct-to-Consumer) segment, but while this includes Disney+ expenses, it also includes the expenses of ESPN+ and Hulu. So, in going through the line items of the expense side of the income statement and deciphering the footnotes, we can come to a reasonable operating income for Disney+. If you see below, the DTC segment is still operating at a loss, but these losses are starting to deteriorate and may soon become a profitable segment for Disney in the near future.\n(Source: Disney 2021 Q1 10-Q)\nYou can see for the quarter, the overall operating expenses come in at $2,921 million, SG&A at $970 million and Depreciation and amortization at $79 million. From here, we will have to go the footnotes in order to see if we can extrapolate Disney+'s overall operating cost.\n(Source: Disney 2021 Q1 10-Q)\nWe can see that in December of 2019, overall expenses here were $2,343 billion and in January of 2021, expenses were $2,921 million. This can be a good starting point and offer an idea of what it cost per quarter to run Disney+. This of course is an approximation because Disney+ was launched in November of 2019, so our base quarter does have some of those expenses rolled into it, but I believe it is minimal due to the fact that there is only one month of data rolled into these expenses. I should note that some of these expense increases were due to Disney's 67% ownership in Hulu and as such most likely did contribute as well to the overall operating expenses. Since we don't really know for sure what the split is between Hulu and Disney+, we will assume that all of the increase was due to Disney+ (call it a margin of safety if you will). So, given that fact we can assume that per quarter it cost about $578 million or $2,312 million a year for operating expenses. For SG&A, it looks like we can safely assume about a $238 million per quarter increase attributable solely to marketing for Disney+, which works out to be about $952 million for the year. Depreciation and amortization is also tied almost directly to Disney+ at about $19 million per quarter of, $76 million for the year. You can see below that the total expenses for running Disney plus come out to be about $3,186 million per year.\n\nWhat Will Revenues Be?\nThis is where we have to make our biggest assumptions on what revenues will look like for Disney+. The growth in subscribers has even surprised Disney executives, with over 50% of subscribers being households without kids,making the value appeal for subscribers even broader. As of March 9th of 2021, total subscribers for the service topped 100 million, which blew past Disney's initial estimates and they have now revised their estimates to reflect between 230 and 260 million subscribers by 2024. While it will be hard to tell how realistic this goal is, the service certainly has the momentum to justify the overall growth given the potential international reach. What will be interesting to watch for is the average revenue per user (ARPU) and how that will grow as time goes on. You can see that so far for Disney+, ARPU has declined from about $5.56 to $4.03. According to the most recent 10-Q, the decline is attributable to the launch of Disney+ Hotstar service launched in India and Indonesia.\n(Source: Disney 2021 Q1 10-Q)\nAs it stands with 100 million subscribers and an ARPU of $4.03, revenues so far would fall at $403 million per month or $4,836 million per year. If we assume that for this year that subscribers will grow about 6 million per month for the next nine months and an ARPU of $4 for the year we would come to 154 million subscribers and $7,392 million in revenue which we will us for our base case in our valuation of Disney+.\n\nValuing Disney+\nOne of the biggest challenges with valuation is making the assumptions in growth over a long period of time. My usual method for valuing any business is by taking a range of values of using a couple of scenarios that I believe are possible and this is how I will present my valuation. Both scenarios will assume that the high growth phase for Disney+ continues for at least the next five years and then begins to fade for the next five years. Each scenario will also assume that the number of subscribers begins at 154 million with $7,392 million in revenue based on $4 monthly ARPU and margins will begin at 34%. I have calculated Disney's overall cost of capital to be about 9.5% and this will be used in both scenarios.\nScenario 1:\nIn this scenario Disney+ will continue to grow at a high rate even after the first 5 years, although this pace will be slower than the first five years. The competition has a hard time keeping up and as such there is low churn and the platform has great sticking power, ARPU will continue to rise at a moderately high rate until it reaches about $16. As growth begins to slow, Disney will pull back on the growth marketing spend and transition to a more moderate amount of marketing to replace churn which will raise margins.\n\nScenario 2:\nIn this scenario, Disney+ growth in the first five years is slower than expected. The goal of between 230 to 240 takes a couple more years to achieve than expected and due to this lower growth ARPU does not rise nearly as fast in order to reduce churn and keep the value proposition intact. Margins will start to lower as more money is being spent to attract new subscribers and make more content. Disney+ in this instance faces more competition from other services and has to create more content which would result in some of this content being a flop.\n\nFinal Thoughts\nBased on both of my scenarios, the value of Disney+ has quite a large range. The potential for Disney+ landed in between $148 and $36 per share of added value. If you take the midpoint of these two extremes, you would land around $92 a share of added value. I will note the one item I did not include was what taxes will be in the future. I didn't model this just due to the uncertainties around future taxes and the fact that Disney may have incurred net operating losses due to the COVID-19 pandemic. Overall, this has been a helpful exercise in trying to determine what I should do going forward.\nWith the majority of the stock price movement being attributed to Disney+, it looks like there may be justification to today's current price. That being said, the stock may be close to fully priced, especially given the current state of the rest of Disney's operating segments, most notably the Parks and Experiences segments. When I initially invested in Disney, the plan was to hold onto this stock forever, but the current valuation of Disney+ is certainly given me pause and I will need to rethink whether I should sell and move on to other opportunities. I still believe this is a great company with a long runway, but with the words of Warren Buffett in my ear, \"Price is what you pay, value is what you get\".","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":324256948,"gmtCreate":1615997279484,"gmtModify":1703496223128,"author":{"id":"3577096743716335","authorId":"3577096743716335","name":"Klovelord","avatar":"https://static.tigerbbs.com/374e12f85d51caa2c0c9bd988ae2fc6c","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"Price seems abit high to buy?","listText":"Price seems abit high to buy?","text":"Price seems abit high to buy?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/324256948","repostId":1141300773,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":322145766,"gmtCreate":1615787956955,"gmtModify":1703492950638,"author":{"id":"3554958921608603","authorId":"3554958921608603","name":"AS78","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":5,"crmLevelSwitch":0},"htmlText":"Love Disney","listText":"Love Disney","text":"Love Disney","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/322145766","repostId":1141300773,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":322123977,"gmtCreate":1615784785699,"gmtModify":1703492911652,"author":{"id":"3578392724542825","authorId":"3578392724542825","name":"etchew","avatar":"https://static.tigerbbs.com/3699fe24ef3c4c20884faf58e2f3eeef","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"new competitor.","listText":"new competitor.","text":"new competitor.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/322123977","repostId":1141300773,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":322164139,"gmtCreate":1615784379722,"gmtModify":1703492905588,"author":{"id":"3578134255896974","authorId":"3578134255896974","name":"kino318","avatar":"https://static.tigerbbs.com/e983f44b7853b7b8c10f1b3f6e19dc68","vip":1,"crmLevel":6,"crmLevelSwitch":0},"htmlText":"I will buy this stock if below 180","listText":"I will buy this stock if below 180","text":"I will buy this stock if below 180","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/322164139","repostId":1141300773,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":322164338,"gmtCreate":1615784366224,"gmtModify":1703492905069,"author":{"id":"3574980150965538","authorId":"3574980150965538","name":"真的钻石手","avatar":"https://static.tigerbbs.com/394063a289e727c8c5c2734207c9aabd","vip":1,"crmLevel":7,"crmLevelSwitch":0},"htmlText":"I’m a subscriber just for the avengers movies.","listText":"I’m a subscriber just for the avengers movies.","text":"I’m a subscriber just for the avengers movies.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":1,"repostSize":0,"link":"https://laohu8.com/post/322164338","repostId":1141300773,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":3796774,"gmtCreate":1615790339526,"gmtModify":1635754327172,"authorId":3572770726668540,"author":{"id":3572770726668540,"authorId":3572770726668540,"name":"Blackk","avatar":"https://static.tigerbbs.com/93d9bfa23cdea8af3308e34dedf35d9e","vip":1,"crmLevel":5,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":322164338,"type":1,"supId":0,"prevId":0,"content":"Good","text":"Good","html":"Good"}],"langContent":"EN"},{"id":322168534,"gmtCreate":1615783989828,"gmtModify":1703492899722,"author":{"id":"3554323022733956","authorId":"3554323022733956","name":"同是天涯沦落人","avatar":"https://static.tigerbbs.com/218c98f99603705b961006c26525b95e","vip":1,"crmLevel":4,"crmLevelSwitch":0},"htmlText":"Thanks for sharing","listText":"Thanks for sharing","text":"Thanks for sharing","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/322168534","repostId":1141300773,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":50,"commentSize":37,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; 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