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.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

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!