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2021-11-06

Really impressive article and research. [强]

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{"i18n":{"language":"zh_CN"},"detailType":1,"isChannel":false,"data":{"magic":2,"id":842438056,"tweetId":"842438056","gmtCreate":1636213899149,"gmtModify":1636213899236,"author":{"id":4093999439023700,"idStr":"4093999439023700","authorId":4093999439023700,"authorIdStr":"4093999439023700","name":"DOLLARCAT","avatar":"https://static.tigerbbs.com/0fd437f238e3a34c28a35895e5129210","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":0,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body>Really impressive article and research.&nbsp;[强]&nbsp;</body></html>","htmlText":"<html><head></head><body>Really impressive article and research.&nbsp;[强]&nbsp;</body></html>","text":"Really impressive article and research. [强]","highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://laohu8.com/post/842438056","repostId":1171459652,"repostType":2,"repost":{"id":"1171459652","kind":"news","pubTimestamp":1636016608,"share":"https://www.laohu8.com/m/news/1171459652?lang=&edition=full","pubTime":"2021-11-04 17:03","market":"us","language":"en","title":"Disney Is A Conviction Buy","url":"https://stock-news.laohu8.com/highlight/detail?id=1171459652","media":"Seeking Alpha","summary":"Summary\n\nDisney today offers the opportunity to invest in a transition story at the relatively early","content":"Summary\n<ul>\n <li>Disney today offers the opportunity to invest in a transition story at the relatively early stages. Investors today will likely be handsomely rewarded over time.</li>\n <li>Looking at Disney’s valuation with a SOTP method shows significant undervaluation with attractive risk-reward.</li>\n <li>Disney is a conviction buy for me despite the execution risk.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/4f931c901deb3918d74590c419b386ca\" tg-width=\"1536\" tg-height=\"1024\" width=\"100%\" height=\"auto\">EnchantedFairy/iStock Editorial via Getty Images\nInvestment Thesis\nDisney’s (DIS) valuation is often misinterpreted, in my opinion. The company is at the early stages of a favorable transformation and will likely deliver results mirroring those of some great companies. Breaking the company into parts and valuing the segments individually is more appropriate than looking at the company as a whole as neither its history nor any other public company is an appropriate comparison. In doing so, I calculate 32% undervaluation with conservative estimates. I also calculate a very unlikely grey sky scenario of a 44% loss and a not-that-unlikely blue sky scenario of 72% gains. I love the risk-reward and am a buyer of the company with conviction despite the relatively high execution risk.\nMost Misjudge Disney’s Valuation\nA lot of investors overlook the underlying parts of Disney when looking at the company’s valuation. I’ve noticed this reading many SA articles that have neutral and bearish views on the stock. Most authors analyze comparing current multiples to Disney’s history. This method is significantly misleading as Disney is a different company today than it was a few years ago. It makes sense to use historical multiples in finding discounts arising from diversion from the mean with stable businesses. Comparing a changing business to its history is like comparing the multiples of companies with different operations.\nAnother thing I thought was wrong was the sales multiple used. Sales multiple only makes sense when comparing very similar companies as the profitability structure and accounting of revenues can change significantly. Even when comparing similar companies, intuition in adjusting premia is common to account for said differences. Comparing Disney’s current P/S to what it was years ago is a futile endeavor in assessing the company’s valuation.\nFurthermore, a certain amount of valuation premium compared to its history is warranted for Disney. Parks and studios make up a significant chunk of Disney earnings and thus valuation and they’ve been negatively affected by the pandemic. Studios had to delay launches due to production cuts and parks had to close down and consumers were afraid to travel to them. Now, with the pent-up demand and with the string of new launches, we should see this trend mean-revert. Revenues and earnings of the coming quarters will be higher than what they were in the pandemic times. Valuation adjusts to this fact which inflates trailing multiples.\nChanges in the Business Changes Multiples Permanently\nWhen a company pivots into a new model its multiple will adjust. A favorable pivot will bring a larger multiple and vice versa. I want to provide concrete examples to support my thesis with charts of sales multiples with accompanying price moves. First is the greatest of pivots, Netflix’s (NFLX) ramping of streaming from mailing DVDs. The pioneering trailblazer of streaming’s success is evident in its growing multiples. Next up, Adobe (ADBE) and Autodesk’s (ADSK) cloud transition. Autodesk followed Adobe’s lead in changing its business model from a license-based one to a favorable SaaS model, multiple expansions followed. And I have to mention perhaps the greatest of corporate pivots, the big daddy Microsoft’s switch to cloud and launch of Azure. The big and slow giant achieved an amazing feat and adapted to the age of cloud computing and earned a massive multiple expansion after years of contraction. And last but definitely not least let’s not forget about the store of everything Amazon’s (AMZN) launch of AWS. The company earned a new multiple with its new fast-growing, highly profitable business. The multiples went on to expand for years and years accompanied by a rocketing stock price.\n<img src=\"https://static.tigerbbs.com/775122c6392f1e03e128f86a291c3d92\" tg-width=\"640\" tg-height=\"252\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/239be2347bdb8e8dd8bdcbd50565c612\" tg-width=\"640\" tg-height=\"246\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/5cb3922bc8f82958e9e2fb52243c8158\" tg-width=\"640\" tg-height=\"248\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/a282e0a6266ddc51f4586a4df7fc586a\" tg-width=\"640\" tg-height=\"249\" width=\"100%\" height=\"auto\">\n<img src=\"https://static.tigerbbs.com/5a30863ae43df3e40bfdf9568e36f969\" tg-width=\"640\" tg-height=\"254\" width=\"100%\" height=\"auto\">Source: Capital IQ\nOne judging these companies' values by comparing them to their history at the early stages of these transformative new launches would’ve missed the opportunity without fault. New ventures tend to be in a sector that is more favorable and/or faster-growing than the company's current operations as these are the areas where managements tend to invest in. And these new ventures tend to have higher multiples increasing the overall multiple of the consolidated company. Looking at history and saying that the current multiple is expensive is essentially assuming the same multiple for the new venture as the company and is wrong.\nDisney is transforming itself from an old-world business into a new world one and provides the opportunity to invest today at the relatively early stages of the charts listed above. Legacy operations vary from deeply unfavorable, chord-cutting ailed linear networks to boring studios, consumer products, and parks while the new DTC venture is a highly scalable, fast-growing, cloud-based SaaS operation in a secular growth area. The multiple difference is stark. It’s normal that Disney’s multiple today is significantly higher than before, especially considering the coming surge in demand from the consumer reopening. I think that the multiple will continue to grow as DTC makes up a growing part of the business mix.\nA Sum of the Parts Approach Shows that Disney Offers Excellent Risk-Reward\nI will conduct a sum of the parts (SOTP) valuation to make sense of the situation and to avoid the fallacy of missing different parts of the business while looking at the big picture. I will divide the company into five main sub-segments: 1) linear networks: the legacy broadcasting operations, 2) DTC: the new streaming services, 3) content sales/licensing: the studio segment and related distribution, 4) parks and experiences: theme parks and related revenue such as F&amp;B, hospitality, and park merchandise, and 5) consumer products: Disney’s retail stores, merchandise, and licensed products. I believe that calculating an individual value for each segment reveals the fundamental value of the company much better than looking at historical multiples or comparing company level multiples to peers.\nI will analyze company valuation by breaking the financials apart and then multiplying them by appropriate multiples compared to appropriate peers. I will work on three scenarios using assumptions of various aggression: grey sky, base case, and blue sky. Take my work with a big grain of salt as it's more art than science. I will use my judgment in finding the correct multiple and peer group and my results will likely be biased by my view of the world. However, I’m very open to updating my work based on constructive criticism so please let me know if you have suggestions. I’m an owner of Disney stock and the true value of the company is important to me.\nAdditionally, I’m happy to share my work with anyone who wants it. Let me know if you do. Even breaking the financials apart is hours of work due to the uniquely terrible and inconsistent way that Disney reports segment results. Below are the inputs I’ll be using.\n<img src=\"https://static.tigerbbs.com/d23c348d7f6e07429699111643d63bd1\" tg-width=\"640\" tg-height=\"465\" width=\"100%\" height=\"auto\">\nLinear Networks Valuation\nI’m basing my linear networks work on EV/EBITDA and EV/Revenue multiples of the last twelve month values. I’m using broadcasting companies as my peer group. My grey and blue sky scenarios are the lowest and highest multiples in the peer group and my base case is the peer median. I’ve taken the initiative to award a higher-than-peer multiple in the base cases of many segments as I think that Disney’s incredible IP and power of its network and brand deserve it. But I didn’t on the networks segment as a) I don’t see a huge advantage over peers, and b) I wanted to be extra cautious on this segment as its future is in doubt. I’m calculating a $49 bn bear, $70 bn base, and $88 bn bull case valuations.\n<img src=\"https://static.tigerbbs.com/ad837bf79cb399b59ce1b52a92b14030\" tg-width=\"640\" tg-height=\"162\" width=\"100%\" height=\"auto\">\nDirect To Consumer Valuation\nThe DTC segment is the main one that will bring multiple expansion. It’s the AWS of Amazon and Azure of Microsoft. I’m using a peer group of streamers as well as B2C software subscription service vendors as I think that their dynamics are similar. I’m basing my work solely on the sales multiple as revenue is what’s most important for this group. My base case is a 3-turn premium to Netflix to adjust for Disney’s fast growth from nascent operations. Disney’s DTC revenues grew almost 60% YoY in its last quarter while Netflix grew less than 20%. I would say that this 3x premium to Netflix is even conservative and doesn’t sufficiently reflect the difference in growth. Moreover, Disney deserves a premium due to its greater IP. Disney’s content is best-in-class and can be watched and rewatched many times over. This moat will strengthen further as more of 21stCentury Fox content becomes available on the platform. In my opinion, the quality IP will translate into lower churn and higher customer lifetime value over time, and thus Disney’s current revenue is worth more than Netflix’s.\nMy bull and bear cases are the top and bottom multiples in the group. The calculation yields a bear case $60bn, base case $211 bn, and bull case $267 bn value.\n<img src=\"https://static.tigerbbs.com/6ea3cc58658886e6176743280daba654\" tg-width=\"640\" tg-height=\"161\" width=\"100%\" height=\"auto\">\nWhat is worth highlighting here is that even if Disney’s DTC offering fails as Sirius’ (SIRI) services did, they’re still worth &gt;$60bn. And I want to state the obvious and say that this is an extremely unlikely scenario. First, the viability of Disney’s streaming offers has been proven by the recent demand, and it's almost certain that there’s a large room for it in the streaming market. And second, movie streaming is more profitable than music, especially for content owners. Disney doesn’t have to pay royalties to content producers as it produces the content itself. Its DTC operations are much more scalable than those of Spotify (SPOT) and Sirius and deserve much higher multiples.\nConsumer Products Valuation\nConsumer products division is often forgotten and bundled with parks. However, it’s a completely different business and should be looked at in isolation. Disney both operates its stores and licenses its merchandise globally. Merchandise sold in parks isn’t in this segment and is included in Parks &amp; Experiences segment’s financials. My peer group here is of retailers or retail suppliers with strong brands and my chosen multiples are revenue and EBITDA.\nMy chosen multiple for my base case is that of RH (RH) as I think that the companies prime valuation suits that of Disney. RH has premium products and strong pricing power. Disney’s retail merchandise may not be premium the same way but it definitely has pricing power. Consumers will pay more for products with Disney characters’ logos on them. Disney also has growth potential in this segment leveraging the new content produced from studios. My low multiples are those of Build-A-Bear’s (BBW) peer group low and my peak multiples are once again RH for revenue but Callaway (ELY) for EBITDA. The results are $8 bn bear, and $33 bn, and $38 bn base and bull case valuations.\nThe chosen multiple yields\n<img src=\"https://static.tigerbbs.com/b384a22812e613cae82c5aa2aacbd86a\" tg-width=\"640\" tg-height=\"188\" width=\"100%\" height=\"auto\">\nContent Sales/Licensing Valuation\nThe content sales/licensing segment is the studios and related distribution. I’ve included Warner Music (WMG) due to the similarity in operations (producing content then distributing it) albeit in a different vertical. I will say that the peer group here isn’t perfect. Most large studios are consolidated into larger entities. I had to use the consolidated companies as peers which I don’t think is correct as the multiples for studios get diluted in the whole company. I’ve tried to adjust for this in my chosen multiples and give Disney a premium to peer average in my base case multiples. I went with peer low and high multiples for other cases.\nI chose to alter the valuation denominator for the entire group and use multiples over pre-pandemic values. I did this to cancel out the one-off effect of the pandemic and measure companies on their normal performance. Considering the backlog of releases that were delayed by the pandemic, I believe that a higher multiple is warranted. I choose Disney’s fiscal 2019 as the period which ends in September 2019 and adjusted peer multiples accordingly.\nThe valuation for the segment came out to be $18 bn, $41 bn, $65 bn for the three scenarios.\n<img src=\"https://static.tigerbbs.com/a87ff24e94fa379bb559742892fc1863\" tg-width=\"640\" tg-height=\"137\" width=\"100%\" height=\"auto\">\nParks and Experiences Valuation\nI’ve followed a similar method here to what I did in studios and used multiples over pre-pandemic values. Parks were also harmed by the pandemic, perhaps even more than movies. And the reopening will see even greater demand. People locked inside distancing for more than a year and a half will want to indulge themselves in travel. Many families will choose Disney parks. Even those that thought of it as expensive will likely indulge themselves. The reopening warrants a premium multiple.\nDisney deserves a premium on top of that. The company has amazing pricing power. They’ve raised prices by&nbsp;ridiculous amounts&nbsp;far outstripping inflation. Consumers still flock to the parks. The best-in-class IP combined give Disney’s parks unmatched appeal. The new content from studios has the power to fuel new growth. The parks of Disney deserve a significant premium to what other park operators trade at.\nI’ve used SeaWorld’s (SEAS) numbers as my bear case and built varying amounts of premia on top of that for the other scenarios. I believe that even higher multiples are more than fair given Disney’s advantages but I’ll stick with these as I want to remain on the conservative side of things. I get $116 bn, $132 bn, and $150 bn for the three scenarios.\n<img src=\"https://static.tigerbbs.com/f1d427c62e5982a7a68ca517c1e37ed9\" tg-width=\"640\" tg-height=\"144\" width=\"100%\" height=\"auto\">\nPutting it All Together Shows Significant Undervaluation\nCombining the values of 5 segments under the three scenarios yields $251 bn, $487 bn, and $609 bn in total EV. I want to account for the unallocated and shared OPEX which wasn’t reported in any of the segments. I multiply these costs by Disney’s current overall multiple and reduce them from the total EV. After reducing net debt as well I get implied market caps of $174 bn, $410 bn, and $531 bn for the three scenarios providing a 32% upside on the base case and a 44% loss and 72% gain on tail outcomes.\n<img src=\"https://static.tigerbbs.com/153bca8cab0e1c08fe4f69485c1d08ef\" tg-width=\"408\" tg-height=\"360\" width=\"100%\" height=\"auto\">\nI want to make a particular note here of the conservativeness of the analysis. The two most important segments’, DTCs and P&amp;Es, bear cases are extremely bearish. I would think it improbable that Disney’s respective segments would trade at those multiples given today’s world. I think that the base case is highly achievable and that the blue sky scenario isn’t nearly as farfetched as the grey sky one and that it’s achievable as well.\nGiven the risk-reward to the upside, particularly considering the probabilities of the three scenarios, I’m a buyer of Disney with high conviction.\nThe Investment Comes with Large Execution Risk\nDisney may have huge potential but it has large execution risk as well. The largest portion of the valuation is tied to the nascent DTC operation. There is a lot that Disney needs to achieve to deliver on that front. I’m highly confident that it will. My belief is backed by the obvious demand for the content. I think that the company will be able to transfer at least some of its pricing power to the streaming business to make it a true software giant. However, if you don’t think that Disney will be able to deliver or that the future of the streaming industry is not as bright as valued for whatever reason, you may want to hold back.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Disney Is A Conviction Buy</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nDisney Is A Conviction Buy\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-11-04 17:03 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4465298-disney-is-conviction-buy>Seeking Alpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nDisney today offers the opportunity to invest in a transition story at the relatively early stages. Investors today will likely be handsomely rewarded over time.\nLooking at Disney’s valuation...\n\n<a href=\"https://seekingalpha.com/article/4465298-disney-is-conviction-buy\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"DIS":"迪士尼"},"source_url":"https://seekingalpha.com/article/4465298-disney-is-conviction-buy","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1171459652","content_text":"Summary\n\nDisney today offers the opportunity to invest in a transition story at the relatively early stages. Investors today will likely be handsomely rewarded over time.\nLooking at Disney’s valuation with a SOTP method shows significant undervaluation with attractive risk-reward.\nDisney is a conviction buy for me despite the execution risk.\n\nEnchantedFairy/iStock Editorial via Getty Images\nInvestment Thesis\nDisney’s (DIS) valuation is often misinterpreted, in my opinion. The company is at the early stages of a favorable transformation and will likely deliver results mirroring those of some great companies. Breaking the company into parts and valuing the segments individually is more appropriate than looking at the company as a whole as neither its history nor any other public company is an appropriate comparison. In doing so, I calculate 32% undervaluation with conservative estimates. I also calculate a very unlikely grey sky scenario of a 44% loss and a not-that-unlikely blue sky scenario of 72% gains. I love the risk-reward and am a buyer of the company with conviction despite the relatively high execution risk.\nMost Misjudge Disney’s Valuation\nA lot of investors overlook the underlying parts of Disney when looking at the company’s valuation. I’ve noticed this reading many SA articles that have neutral and bearish views on the stock. Most authors analyze comparing current multiples to Disney’s history. This method is significantly misleading as Disney is a different company today than it was a few years ago. It makes sense to use historical multiples in finding discounts arising from diversion from the mean with stable businesses. Comparing a changing business to its history is like comparing the multiples of companies with different operations.\nAnother thing I thought was wrong was the sales multiple used. Sales multiple only makes sense when comparing very similar companies as the profitability structure and accounting of revenues can change significantly. Even when comparing similar companies, intuition in adjusting premia is common to account for said differences. Comparing Disney’s current P/S to what it was years ago is a futile endeavor in assessing the company’s valuation.\nFurthermore, a certain amount of valuation premium compared to its history is warranted for Disney. Parks and studios make up a significant chunk of Disney earnings and thus valuation and they’ve been negatively affected by the pandemic. Studios had to delay launches due to production cuts and parks had to close down and consumers were afraid to travel to them. Now, with the pent-up demand and with the string of new launches, we should see this trend mean-revert. Revenues and earnings of the coming quarters will be higher than what they were in the pandemic times. Valuation adjusts to this fact which inflates trailing multiples.\nChanges in the Business Changes Multiples Permanently\nWhen a company pivots into a new model its multiple will adjust. A favorable pivot will bring a larger multiple and vice versa. I want to provide concrete examples to support my thesis with charts of sales multiples with accompanying price moves. First is the greatest of pivots, Netflix’s (NFLX) ramping of streaming from mailing DVDs. The pioneering trailblazer of streaming’s success is evident in its growing multiples. Next up, Adobe (ADBE) and Autodesk’s (ADSK) cloud transition. Autodesk followed Adobe’s lead in changing its business model from a license-based one to a favorable SaaS model, multiple expansions followed. And I have to mention perhaps the greatest of corporate pivots, the big daddy Microsoft’s switch to cloud and launch of Azure. The big and slow giant achieved an amazing feat and adapted to the age of cloud computing and earned a massive multiple expansion after years of contraction. And last but definitely not least let’s not forget about the store of everything Amazon’s (AMZN) launch of AWS. The company earned a new multiple with its new fast-growing, highly profitable business. The multiples went on to expand for years and years accompanied by a rocketing stock price.\n\nSource: Capital IQ\nOne judging these companies' values by comparing them to their history at the early stages of these transformative new launches would’ve missed the opportunity without fault. New ventures tend to be in a sector that is more favorable and/or faster-growing than the company's current operations as these are the areas where managements tend to invest in. And these new ventures tend to have higher multiples increasing the overall multiple of the consolidated company. Looking at history and saying that the current multiple is expensive is essentially assuming the same multiple for the new venture as the company and is wrong.\nDisney is transforming itself from an old-world business into a new world one and provides the opportunity to invest today at the relatively early stages of the charts listed above. Legacy operations vary from deeply unfavorable, chord-cutting ailed linear networks to boring studios, consumer products, and parks while the new DTC venture is a highly scalable, fast-growing, cloud-based SaaS operation in a secular growth area. The multiple difference is stark. It’s normal that Disney’s multiple today is significantly higher than before, especially considering the coming surge in demand from the consumer reopening. I think that the multiple will continue to grow as DTC makes up a growing part of the business mix.\nA Sum of the Parts Approach Shows that Disney Offers Excellent Risk-Reward\nI will conduct a sum of the parts (SOTP) valuation to make sense of the situation and to avoid the fallacy of missing different parts of the business while looking at the big picture. I will divide the company into five main sub-segments: 1) linear networks: the legacy broadcasting operations, 2) DTC: the new streaming services, 3) content sales/licensing: the studio segment and related distribution, 4) parks and experiences: theme parks and related revenue such as F&B, hospitality, and park merchandise, and 5) consumer products: Disney’s retail stores, merchandise, and licensed products. I believe that calculating an individual value for each segment reveals the fundamental value of the company much better than looking at historical multiples or comparing company level multiples to peers.\nI will analyze company valuation by breaking the financials apart and then multiplying them by appropriate multiples compared to appropriate peers. I will work on three scenarios using assumptions of various aggression: grey sky, base case, and blue sky. Take my work with a big grain of salt as it's more art than science. I will use my judgment in finding the correct multiple and peer group and my results will likely be biased by my view of the world. However, I’m very open to updating my work based on constructive criticism so please let me know if you have suggestions. I’m an owner of Disney stock and the true value of the company is important to me.\nAdditionally, I’m happy to share my work with anyone who wants it. Let me know if you do. Even breaking the financials apart is hours of work due to the uniquely terrible and inconsistent way that Disney reports segment results. Below are the inputs I’ll be using.\n\nLinear Networks Valuation\nI’m basing my linear networks work on EV/EBITDA and EV/Revenue multiples of the last twelve month values. I’m using broadcasting companies as my peer group. My grey and blue sky scenarios are the lowest and highest multiples in the peer group and my base case is the peer median. I’ve taken the initiative to award a higher-than-peer multiple in the base cases of many segments as I think that Disney’s incredible IP and power of its network and brand deserve it. But I didn’t on the networks segment as a) I don’t see a huge advantage over peers, and b) I wanted to be extra cautious on this segment as its future is in doubt. I’m calculating a $49 bn bear, $70 bn base, and $88 bn bull case valuations.\n\nDirect To Consumer Valuation\nThe DTC segment is the main one that will bring multiple expansion. It’s the AWS of Amazon and Azure of Microsoft. I’m using a peer group of streamers as well as B2C software subscription service vendors as I think that their dynamics are similar. I’m basing my work solely on the sales multiple as revenue is what’s most important for this group. My base case is a 3-turn premium to Netflix to adjust for Disney’s fast growth from nascent operations. Disney’s DTC revenues grew almost 60% YoY in its last quarter while Netflix grew less than 20%. I would say that this 3x premium to Netflix is even conservative and doesn’t sufficiently reflect the difference in growth. Moreover, Disney deserves a premium due to its greater IP. Disney’s content is best-in-class and can be watched and rewatched many times over. This moat will strengthen further as more of 21stCentury Fox content becomes available on the platform. In my opinion, the quality IP will translate into lower churn and higher customer lifetime value over time, and thus Disney’s current revenue is worth more than Netflix’s.\nMy bull and bear cases are the top and bottom multiples in the group. The calculation yields a bear case $60bn, base case $211 bn, and bull case $267 bn value.\n\nWhat is worth highlighting here is that even if Disney’s DTC offering fails as Sirius’ (SIRI) services did, they’re still worth >$60bn. And I want to state the obvious and say that this is an extremely unlikely scenario. First, the viability of Disney’s streaming offers has been proven by the recent demand, and it's almost certain that there’s a large room for it in the streaming market. And second, movie streaming is more profitable than music, especially for content owners. Disney doesn’t have to pay royalties to content producers as it produces the content itself. Its DTC operations are much more scalable than those of Spotify (SPOT) and Sirius and deserve much higher multiples.\nConsumer Products Valuation\nConsumer products division is often forgotten and bundled with parks. However, it’s a completely different business and should be looked at in isolation. Disney both operates its stores and licenses its merchandise globally. Merchandise sold in parks isn’t in this segment and is included in Parks & Experiences segment’s financials. My peer group here is of retailers or retail suppliers with strong brands and my chosen multiples are revenue and EBITDA.\nMy chosen multiple for my base case is that of RH (RH) as I think that the companies prime valuation suits that of Disney. RH has premium products and strong pricing power. Disney’s retail merchandise may not be premium the same way but it definitely has pricing power. Consumers will pay more for products with Disney characters’ logos on them. Disney also has growth potential in this segment leveraging the new content produced from studios. My low multiples are those of Build-A-Bear’s (BBW) peer group low and my peak multiples are once again RH for revenue but Callaway (ELY) for EBITDA. The results are $8 bn bear, and $33 bn, and $38 bn base and bull case valuations.\nThe chosen multiple yields\n\nContent Sales/Licensing Valuation\nThe content sales/licensing segment is the studios and related distribution. I’ve included Warner Music (WMG) due to the similarity in operations (producing content then distributing it) albeit in a different vertical. I will say that the peer group here isn’t perfect. Most large studios are consolidated into larger entities. I had to use the consolidated companies as peers which I don’t think is correct as the multiples for studios get diluted in the whole company. I’ve tried to adjust for this in my chosen multiples and give Disney a premium to peer average in my base case multiples. I went with peer low and high multiples for other cases.\nI chose to alter the valuation denominator for the entire group and use multiples over pre-pandemic values. I did this to cancel out the one-off effect of the pandemic and measure companies on their normal performance. Considering the backlog of releases that were delayed by the pandemic, I believe that a higher multiple is warranted. I choose Disney’s fiscal 2019 as the period which ends in September 2019 and adjusted peer multiples accordingly.\nThe valuation for the segment came out to be $18 bn, $41 bn, $65 bn for the three scenarios.\n\nParks and Experiences Valuation\nI’ve followed a similar method here to what I did in studios and used multiples over pre-pandemic values. Parks were also harmed by the pandemic, perhaps even more than movies. And the reopening will see even greater demand. People locked inside distancing for more than a year and a half will want to indulge themselves in travel. Many families will choose Disney parks. Even those that thought of it as expensive will likely indulge themselves. The reopening warrants a premium multiple.\nDisney deserves a premium on top of that. The company has amazing pricing power. They’ve raised prices by ridiculous amounts far outstripping inflation. Consumers still flock to the parks. The best-in-class IP combined give Disney’s parks unmatched appeal. The new content from studios has the power to fuel new growth. The parks of Disney deserve a significant premium to what other park operators trade at.\nI’ve used SeaWorld’s (SEAS) numbers as my bear case and built varying amounts of premia on top of that for the other scenarios. I believe that even higher multiples are more than fair given Disney’s advantages but I’ll stick with these as I want to remain on the conservative side of things. I get $116 bn, $132 bn, and $150 bn for the three scenarios.\n\nPutting it All Together Shows Significant Undervaluation\nCombining the values of 5 segments under the three scenarios yields $251 bn, $487 bn, and $609 bn in total EV. I want to account for the unallocated and shared OPEX which wasn’t reported in any of the segments. I multiply these costs by Disney’s current overall multiple and reduce them from the total EV. After reducing net debt as well I get implied market caps of $174 bn, $410 bn, and $531 bn for the three scenarios providing a 32% upside on the base case and a 44% loss and 72% gain on tail outcomes.\n\nI want to make a particular note here of the conservativeness of the analysis. The two most important segments’, DTCs and P&Es, bear cases are extremely bearish. I would think it improbable that Disney’s respective segments would trade at those multiples given today’s world. I think that the base case is highly achievable and that the blue sky scenario isn’t nearly as farfetched as the grey sky one and that it’s achievable as well.\nGiven the risk-reward to the upside, particularly considering the probabilities of the three scenarios, I’m a buyer of Disney with high conviction.\nThe Investment Comes with Large Execution Risk\nDisney may have huge potential but it has large execution risk as well. The largest portion of the valuation is tied to the nascent DTC operation. There is a lot that Disney needs to achieve to deliver on that front. I’m highly confident that it will. My belief is backed by the obvious demand for the content. I think that the company will be able to transfer at least some of its pricing power to the streaming business to make it a true software giant. However, if you don’t think that Disney will be able to deliver or that the future of the streaming industry is not as bright as valued for whatever reason, you may want to hold back.","news_type":1},"isVote":1,"tweetType":1,"viewCount":929,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"CN","currentLanguage":"CN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":39,"xxTargetLangEnum":"ZH_CN"},"commentList":[],"isCommentEnd":true,"isTiger":false,"isWeiXinMini":false,"url":"/m/post/842438056"}