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2021-05-18

Disney vs Discovery (merging with AT&T'S WarnerMedia)

Disney: The Plot Thickens For Investors

Summary Disney+ missed subscriber expectation, but there's a lot more to the story than meets the e

Disney: The Plot Thickens For Investors

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However, I declare that this is far from the full story.\nAs I go through the positives and negatives of Disney's thesis, I proclaim that its stock is still cheaply valued, even now.\nUltimately, Disney is priced at 34x next year's earnings, which is not expensive for what's at play here.\nWhat's the Bull Thesis Right Now?\nDisney's stock has been a solid performer during the past twelve months, driven by the consistently positive news flow that Disney+ could be perceived by many households as a necessary streaming package - either alongside Netflix (NFLX) or in some households instead of Netflix.\nFurthermore, investors had been willing to put aside the fact that Disney's Parks and Experiences have been operating as a shell of its former self during the past twelve months with the expectation that Disney+ would be the future driver of the stock's performance.\nIndeed, investors have been fed a consistent diet of Disney+'s progress to the point that anything less than a positive surprise there, together with its earnings results, should be viewed as less inspiring that they showed apathy towards the stock last week.\nAs a reminder, even though Disney+ had&nbsp;104 million subscribers, a substantial number of its latest increase was driven by India's Disney Plus Hotstar, lending itself towards Disney+'s APRU being down 29% y/y to $3.99.\nHowever, I believe that there are more moving parts to this story.\n<img src=\"https://static.tigerbbs.com/da684fea62f5c9ef33c5c223f56890e2\" tg-width=\"640\" tg-height=\"290\">Source: author's calculations, press statements\nThe story is now about to unfold in an interesting way. There are two paths to this story that are worth bearing in mind.\nThe first path, as we can see above, is as Disney starts lapping its challenging 2020 period so that its performance into 2021 will start to look very strong.\nFurthermore, even though Disney's Parks are operating with limited capacity a present, investors understand that the end of restrictions in the US and China is nearing. This will be a very positive driver of the story for new shareholders to the stock.\nConsider that, if we look back two years ago to&nbsp;Q2 2019, Disney's Parks, Experiences, and Products segment was reporting 25% operating margins. Moreover, this segment alone was responsible for 40% of Disney's operating income.\nIn other words, approximately 40% of Disney's bottom line has been hugely impacted over the past twelve months, but as investors start to reprice this stock over the next two to three years, investors will be casting their eyes towards Disney's Parks, Experiences, and Products segment has a substantial driver of cash flows.\nThis segment is very important because it will be the foundation that will allow Disney to reinvest back into its Disney+ segment and to chip away at its meaningfully overleveraged balance sheet. Remember, Disney still carries a net debt position of $40 billion as of Q2 2021.\nNow, let's discuss the second path to the story.\nFunding Disney+ Will be Challenging\nHouseholds have a love-hate affection towards Netflix. On the one hand, its library is huge. On the other hand, after years of multi-billion dollar investment, many of its titles are mediocre at best. Yet, when it boils down to it, households still tune in and remain&nbsp;highly engaged&nbsp;with Netflix.\nBut where Disney will find it difficult to compete with Netflix is that it will struggle to invest as aggressively into its content. Yes, Disney has a very strong library of high-quality shows, but that will only keep households engaged for a limited period of time.\nFurthermore, given that Disney's balance sheet is already stretched (as discussed above), and that Disney is evidently far behind when it comes to Netflix's pricing power, Disney finds itself in a challenging position.\nAlso, whereas Disney+ decreased its pricing, down 29% y/y, as it added a large number of subscribers in India, Netflix in the same period increased its&nbsp;pricing globally&nbsp;(including LATAM, if we take it at F/X neutral).\nValuation - Reasons to be Bullish on This Stock\nConsidering all the nuanced interpretations of Disney's near-term potential, I find that the stock remains cheaply valued.\nYes, Disney still has a lot of work to accomplish over the coming twelve months, but as its Parks and Resorts start to return to fuller capacity, this will drive its bottom-line profitability.\nIf we use analysts' estimates for fiscal 2021 of $5.05 of EPS, this puts the stock trading for 34x forward earnings. In the present market, where many unprofitable stocks were considered a bargain at 30x forward sales, Disney remains very valued when all is considered.\nMoreover, compared with Netflix, that stock is priced at closer to 38x its 2022 earnings. Having said that, keep in mind the very challenging comparisons Netflix will have with 2020 over the coming two years. Even though I'm bullish on Netflix, this doesn't stop me from recognizing that Disney's valuation is even more enticing than Netflix's.\nThe Bottom Line\nEven if Disney+ slightly missed subscriber targets, there's no need to throw out the bull investment thesis here, particularly as its parks and resorts are about to return to full capacity over the coming several months.\nDisney's stock has a substantial pent-up potential with Disney+ driving forward the narrative, while its parks and resorts are likely to bring in a substantial amount of cash flows that will help to chip away at its debt profile, as well as fund new impressive titles, that will drive Disney's&nbsp;flywheel.","source":"seekingalpha","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: The Plot Thickens For Investors</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; 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}\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: The Plot Thickens For Investors\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-05-17 22:54 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4429282-disney-the-plot-thickens-for-investors>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nDisney+ missed subscriber expectation, but there's a lot more to the story than meets the eye.\nWhy investors should cast their eyes towards Disney's Parks and Resort segment.\nDisney's balance...\n\n<a href=\"https://seekingalpha.com/article/4429282-disney-the-plot-thickens-for-investors\">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/4429282-disney-the-plot-thickens-for-investors","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1105414087","content_text":"Summary\n\nDisney+ missed subscriber expectation, but there's a lot more to the story than meets the eye.\nWhy investors should cast their eyes towards Disney's Parks and Resort segment.\nDisney's balance sheet is stretched and is a limiting factor that investors should bear in mind.\nWhy at this price point the stock is still attractively priced.\n\nPhoto by Marvin Samuel Tolentino Pineda/iStock Editorial via Getty Images\nInvestment Thesis\nDisney+ (DIS) missed subscriber targets that the headline financial outlets have focused on. However, I declare that this is far from the full story.\nAs I go through the positives and negatives of Disney's thesis, I proclaim that its stock is still cheaply valued, even now.\nUltimately, Disney is priced at 34x next year's earnings, which is not expensive for what's at play here.\nWhat's the Bull Thesis Right Now?\nDisney's stock has been a solid performer during the past twelve months, driven by the consistently positive news flow that Disney+ could be perceived by many households as a necessary streaming package - either alongside Netflix (NFLX) or in some households instead of Netflix.\nFurthermore, investors had been willing to put aside the fact that Disney's Parks and Experiences have been operating as a shell of its former self during the past twelve months with the expectation that Disney+ would be the future driver of the stock's performance.\nIndeed, investors have been fed a consistent diet of Disney+'s progress to the point that anything less than a positive surprise there, together with its earnings results, should be viewed as less inspiring that they showed apathy towards the stock last week.\nAs a reminder, even though Disney+ had 104 million subscribers, a substantial number of its latest increase was driven by India's Disney Plus Hotstar, lending itself towards Disney+'s APRU being down 29% y/y to $3.99.\nHowever, I believe that there are more moving parts to this story.\nSource: author's calculations, press statements\nThe story is now about to unfold in an interesting way. There are two paths to this story that are worth bearing in mind.\nThe first path, as we can see above, is as Disney starts lapping its challenging 2020 period so that its performance into 2021 will start to look very strong.\nFurthermore, even though Disney's Parks are operating with limited capacity a present, investors understand that the end of restrictions in the US and China is nearing. This will be a very positive driver of the story for new shareholders to the stock.\nConsider that, if we look back two years ago to Q2 2019, Disney's Parks, Experiences, and Products segment was reporting 25% operating margins. Moreover, this segment alone was responsible for 40% of Disney's operating income.\nIn other words, approximately 40% of Disney's bottom line has been hugely impacted over the past twelve months, but as investors start to reprice this stock over the next two to three years, investors will be casting their eyes towards Disney's Parks, Experiences, and Products segment has a substantial driver of cash flows.\nThis segment is very important because it will be the foundation that will allow Disney to reinvest back into its Disney+ segment and to chip away at its meaningfully overleveraged balance sheet. Remember, Disney still carries a net debt position of $40 billion as of Q2 2021.\nNow, let's discuss the second path to the story.\nFunding Disney+ Will be Challenging\nHouseholds have a love-hate affection towards Netflix. On the one hand, its library is huge. On the other hand, after years of multi-billion dollar investment, many of its titles are mediocre at best. Yet, when it boils down to it, households still tune in and remain highly engaged with Netflix.\nBut where Disney will find it difficult to compete with Netflix is that it will struggle to invest as aggressively into its content. Yes, Disney has a very strong library of high-quality shows, but that will only keep households engaged for a limited period of time.\nFurthermore, given that Disney's balance sheet is already stretched (as discussed above), and that Disney is evidently far behind when it comes to Netflix's pricing power, Disney finds itself in a challenging position.\nAlso, whereas Disney+ decreased its pricing, down 29% y/y, as it added a large number of subscribers in India, Netflix in the same period increased its pricing globally (including LATAM, if we take it at F/X neutral).\nValuation - Reasons to be Bullish on This Stock\nConsidering all the nuanced interpretations of Disney's near-term potential, I find that the stock remains cheaply valued.\nYes, Disney still has a lot of work to accomplish over the coming twelve months, but as its Parks and Resorts start to return to fuller capacity, this will drive its bottom-line profitability.\nIf we use analysts' estimates for fiscal 2021 of $5.05 of EPS, this puts the stock trading for 34x forward earnings. In the present market, where many unprofitable stocks were considered a bargain at 30x forward sales, Disney remains very valued when all is considered.\nMoreover, compared with Netflix, that stock is priced at closer to 38x its 2022 earnings. Having said that, keep in mind the very challenging comparisons Netflix will have with 2020 over the coming two years. Even though I'm bullish on Netflix, this doesn't stop me from recognizing that Disney's valuation is even more enticing than Netflix's.\nThe Bottom Line\nEven if Disney+ slightly missed subscriber targets, there's no need to throw out the bull investment thesis here, particularly as its parks and resorts are about to return to full capacity over the coming several months.\nDisney's stock has a substantial pent-up potential with Disney+ driving forward the narrative, while its parks and resorts are likely to bring in a substantial amount of cash flows that will help to chip away at its debt profile, as well as fund new impressive titles, that will drive Disney's flywheel.","news_type":1},"isVote":1,"tweetType":1,"viewCount":494,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":["DISCK","DISCA","DISCB","DIS"],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":47,"xxTargetLangEnum":"ORIG"},"commentList":[],"hasMoreComment":false,"orderType":2}

Disney: The Plot Thickens For Investors

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