The Walt Disney Company (DIS): Still the Most Magical Investment On Earth

I firmly believe that The Walt Disney Company (NYSE:DIS) is destined to be one of the great growth stocks of this decade. Yet when you ask most people how Disney makes its money, they’ll tell you theme parks, movies or toys. A lot of people also believe that Disney’s a stodgy old stock for conservative investors.

It’s time to dispel these misconceptions about Disney and let you know what makes this stock shine.

Mickey’s Millions

First, let’s examine how much revenue Disney generated from its six business segments over the past four years.

The Walt Disney Company (NYSE:DIS)From this chart, we can see that Disney generates nearly half of its revenue from its Media Networks segment – ABC, ESPN and the Disney Channel – and its subsidiaries. The proportion of this segment to its overall revenue has also steadily increased increasing over the past four years. This makes Disney a content provider on par with or .

What makes Disney’s Media Networks business so important is that while it generates 46% of the company’s revenue, it brings in 57% of its total operating income – more than the rest of the Disney empire combined.

Disney’s vast media empire was the brainchild of former CEO Michael Eisner, who oversaw the takeover of Capital Cities/ABC for $19 billion in 1996. Capital Cities was the parent company of ESPN.

Eisner attempted a two-pronged approach to make ESPN profitable – by offering its ESPN branded products at Disney’s theme parks and retail stores, and by expanding ESPN overseas as an international sports channel.

However, things didn’t quite pan out the way Eisner imagined. ESPN integration in theme parks and retail shops is minimal, and its international affiliate fees only account for 11% of the network’s total revenue. However, its overall revenue is still massive – ESPN generates approximately $10.3 billion in annual revenues, more than half of the rest of the Media Networks segment combined.

A research report from Wunderlich found ESPN to be worth $40 billion. The report values the Disney Channel at $10 billion, while ABC Networks, which has declined dramatically over the past fifteen years, is only worth $1.7 billion.

News Corp (NASDAQ:NWS)oration and Comcast Corporation (NASDAQ:CMCSA) – which respectively own Fox and NBC Universal, have stepped up their game in response to ESPN’s growth.

Fox Sports and NBC Sports have emerged as strong competitors, which caused sports broadcast rights fees to soar. Last year, the MLB doubled its annual fees for broadcast rights, raking in a combined $12.4 billion from ESPN, Fox and TBS. In 2011, ESPN paid $15.2 billion for an eight year deal for the rights to broadcast NFL games. Going forward, these rising fees could crimp the profitability of sports networks.

Although they own rival sports networks, neither News Corporation nor Comcast can match the strength of Disney’s brand name and other business segments. While Disney makes movies, toys, cruise ships and theme parks, News Corporation has an extremely fragmented business model spread across dozens of media assets, many of them unprofitable. Meanwhile, Comcast generates the majority of its revenue from its original business – being a cable provider.

Let’s compare the basic fundamentals of these three companies.

From this comparison, we can see that Disney wins out in the most important growth categories, and more importantly, it has far less debt than its rivals. News Corporation’s future growth can’t even be accurately measured by P/E and PEG since it is not currently profitable. Comcast is in better shape than News Corporation, but its debt levels are nearly the same.

Now let’s check on their revenue and earnings growth over the past five years.

DIS Revenue TTM data by YCharts

Here’s where Comcast has really grown, easily outpacing Disney and News Corp. Both Comcast and Disney are growing profits faster than revenue, an encouraging sign that margins will grow in the future.

In addition to Disney’s booming media business, it’s two other key businesses – theme parks and movies – have been extremely promising.

Disney’s flagship theme parks account for nearly a third of total revenues. This percentage has also slowly risen, despite the global recession. Disney’s upcoming Shanghai Disneyland Park, which opens in 2015, will be the largest in Asia and will capitalize on a rising Chinese middle class. At its existing resorts, Disney has been able to raise ticket and room rates without adversely impacting sales volume.

Disney’s investments and overall revenue from movie franchises at its Studio Entertainment division has steadily declined over the past four years, as the company shifts production over to its subsidiary Marvel (and later on, Lucasfilm).

This is a great strategy, since Disney’s own movie studios have had a notoriously inconsistent track record of blockbusters and bombs.

Mars Needs Moms

and

John Carter

, two of its worst faring films in the past two years, lost a combined $300 million at the box office.

It’s definitely time to let Marvel’s multi-year franchises do the heavy lifting from now on.

The Foolish Bottom Line

In closing, Disney is a stock that has all of these things:

  • Globally recognized and loved brands
  • Owns the largest sports network in the world
  • Stable revenue and earnings growth
  • Diverse all-weather portfolio of products
  • Low debt compared to its industry
  • Proven pricing power at its flagship parks and resorts

While Disney has risen nearly 40% over the past twelve months, its low forward P/E suggests that it still has room to grow. Therefore, the “Happiest Place on Earth” might just be the “Happiest Place” for all your uninvested cash.

The article Still the Most Magical Investment On Earth originally appeared on Fool.com and is written by Leo Sun.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!