disney overvalued at 25x cashflow but a brandname juggernaut!

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The Walt Disney Company

The Walt Disney Company, together with its subsidiaries, is a diversified worldwide entertainment company with operations in five business segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive. The Company’s common stock is listed on the New York Stock Exchange under the ticker symbol “DIS”.


On August 9, 2016 – The Walt Disney Company announced that it is acquiring a 33% stake in BAMTech, a leading technology services and video streaming company previously formed by Major League Baseball (MLB). As part of the transaction, BAMTech was separated from MLB’s broader digital business, MLB Advanced Media (MLBAM). Under the terms of the transaction, Disney will pay $1 billion in two installments, now and in January 2017, and has the option to acquire majority ownership in the coming years.

On May 7, 2014, the Company acquired Maker Studios, Inc. (Maker), a leading network of online video content, for approximately $500 million of cash consideration. The majority of the purchase price has been allocated to goodwill, which is not deductible for tax purposes. Goodwill reflects the synergies expected from enhancing the presence of Disney’s franchises and brands through the use of Maker’s distribution platform, advanced technology and business intelligence capability. The revenue and net income of Maker included in the Company’s Consolidated Statements of Income for fiscal years 2015 and 2014 were not material.

On December 21, 2012, the Company acquired Lucasfilm Ltd. LLC (Lucasfilm), a privately held entertainment company. This acquisition will allow Disney to utilize Lucasfilm’s content across our multiple platforms, businesses and markets, which we believe will generate growth as well as significant long-term value.

On October 5, 2012, Hulu LLC (Hulu) redeemed Providence Equity Partners’ 10% equity interest in Hulu for $200 million, increasing the Walt Disney Company’s ownership interest in Hulu from 29% to 32%. In connection with the transaction, Hulu incurred a charge of approximately $174 million primarily related to employee equity-based compensation and borrowed $338 million under a five-year term loan, which was guaranteed by the Company and the other partners. The Walt Disney Company’s share of the charge totaled $55 million and was recorded in equity in the income of investees in fiscal 2013.

In fiscal 2014, the Company recognized $83 million of gains primarily due to the sale of a property and $29 million for a portion of a settlement of an affiliate contract dispute. In fiscal 2013, the Company recognized $33 million of gains on the sale of businesses.

On November 7, 2012, the Company sold its 50% equity interest in ESPN STAR Sports (ESS) to the joint venture partner of ESS for $335 million resulting in a gain of $219 million ($125 million after tax and allocation to noncontrolling interest) in fiscal 2013.

Summary (from latest annual report 2015)
•    Market Capital: $156,093,056,091 (last share price is 94.42 USD. There were 1,653,177,887 shares of common stock outstanding as of November 18, 2015).
•    Total stockholders’ equity: $44,525,000,000 down by $433,000,000 or 1% from 2014 (2014: $44,958,000,000) as increase thanks to net income was more than offset by $6,095,000,000 of common stock repurchases and $3,087,000,000 paid dividends.
•    Current liabilities $16,334,000,000 or 19% out of total liabilities and equity is up by $3,042,000,000, or 23% from 2014 (2014: $13,292,000,000) primarily due to increase of current portion of borrowings by $2,399,000,000.
•    Non-current liabilities $23,193,000,000 or 26% out of total liabilities and equity is up by $522,000,000, or 2% from 2014 (2014: $22,671,000,000) primarily due to increase of pension and postretirement medical plan liabilities by $459,000,000. An increase of commercial paper borrowings outstanding by $2,380,000,000 was more than offset by higher current portion of borrowings by $2,399,000,000.
•    Net sales $52,465,000,000 up by $3,652,000,000 or 7.5% from 2014 (2014: $48,813,000,000) was primarily due to higher MVPD fees (Affiliate Fees), volume growth and higher average guest spending at domestic parks and resorts, higher SVOD sales of television and film properties, an increase in merchandise licensing and advertising revenue growth. These increases were partially offset by an adverse impact from foreign currency translation due to the strengthening of the U.S. dollar against major currencies.
•    Net income $8,382,000,000 up by $881,000,000 or 12% from 2014 (2014: $7,501,000,000) primarily thanks to operating expenses, which almost remained at the same level $10,877,000,000 is up by $24,000,000 or 0.2%. Selling, general, administrative and other costs decreased by $42,000,000 or 0.5% as higher labor costs driven by the ABC Television Network, ESPN and Corporate and higher information technology costs at domestic parks and resorts were offset by lower marketing costs and the impact from foreign currency translation due to the strengthening of the U.S. dollar against major currencies. The decrease in marketing costs was due to lower spending for theatrical and home entertainment marketing, partially offset by increases at ABC, ESPN and merchandise licensing business.
•    Cash and cash equivalents of $4,269,000,000 up by $848,000,000 or 25% from 2014 (2014: $3,421,000,000).
o    $10,909,000,000 provided by operating activities: increased by 12% or $1,129,000,000 compared to fiscal 2014 driven by higher operating cash flow at Media Networks and Studio Entertainment segments, partially offset by an increase in income taxes paid. Higher operating cash flow at Media Networks was due to increased operating receipts driven by affiliate fee growth, partially offset by higher disbursements for operating expenses and sports programming costs. The increase in payments for sports programming costs was primarily due to college football, partially offset by the impact of a change in payment terms for certain sports rights in fiscal 2014. Studio Entertainment cash flow benefited from lower operating cash disbursements driven by lower theatrical and home entertainment marketing expense.
o    -$4,245,000,000 used in investing activities: increased by 27% or $900,000,000 compared to fiscal 2014 primarily due to more investments in Parks and Resorts segment:  at international parks and resorts was due to higher construction spending for the Shanghai Disney Resort. The increase at domestic parks and resorts was driven by spending on new attractions at Walt Disney World Resort.
o    -$5,514,000,000 provided by (used in) financing activities: decreased by $1,196,000,000 or 18% was due to higher net borrowings and contributions from noncontrolling interest holders, partially offset by increased dividends. The net use of cash in 2015 was due to $6,095,000,000 of common stock repurchases and $3,087,000,000 in dividends, partially offset by cash inflows associated with net borrowings of $2,700,000,000 and contributions from noncontrolling interest holders of $1,012,000,000.

The Walt Disney Company subsidiaries

Name of Subsidiary, Country of Incorporation
1.    ABC Cable Networks Group    United States (On February 9, 1996, the company completed its acquisition of ABC. The aggregate consideration paid to ABC shareholders consisted of $10.1 billion in cash and 155 million shares of company common stock valued at $8.8 billion based on the stock price as of the date the transaction was announced.Total $18.9 billion)
2.    ABC Enterprises, Inc.    United States
3.    ABC Family Worldwide, Inc.    United States
4.    ABC Holding Company, Inc.    United States
5.    ABC Kids SPC1, Inc.    United States
6.    ABC, Inc.    United States
7.    American Broadcasting Companies, Inc.    United States
8.    Buena Vista Home Entertainment, Inc.    United States
9.    Buena Vista International, Inc.    United States
10.    Buena Vista Pay Television, Inc.    United States
11.    Buena Vista Television, LLC    United States
12.    Buena Vista Theatrical Group, Ltd.    United States
13.    Buena Vista Video On Demand    United States
14.    Cable LT Holdings, Inc.    United States
15.    Circle Location Services, Inc.    United States
16.    Disholder 3, Inc.    United States
17.    Disney Enterprises, Inc.    United States
18.    Disney Online    United States
19.    Disney Vacation Club Management Corp.    United States
20.    Disney Vacation Development, Inc.    United States
21.    Disney Worldwide Services, Inc.    United States
22.    Disney/ABC International Television, Inc.    United States
23.    EDL Corporation S.A.S.    France
24.    EDL S.N.C. Corporation    United States
25.    ESPN Classic, Inc.    United States
26.    ESPN Enterprises, Inc.    United States
27.    ESPN, Inc.    United States
28.    ESPN Productions, Inc.    United States
29.    Euro Disney Investments S.A.S.    France
30.    Euro Disney Investments, Inc.    United States
31.    Euro Disney S.A.S.    France
32.    Hong Kong Disneyland Management Limited    Hong Kong
33.    Imprint, Inc.    United States
34.    International Family Entertainment, Inc.    United States
35.    Jetix Europe Properties S.a.r.l.    Luxembourg
36.    Lucasfilm Entertainment Company Ltd. LLC    United States
37.    Lucasfilm Ltd. LLC    United States (On December 21, 2012, the Company acquired Lucasfilm Ltd. LLC (Lucasfilm). Under the terms of the merger agreement, Disney issued 37.1 million shares and made a cash payment of $2.2 billion. Based on the $50.00 per share closing price of Disney shares on December 21, 2012, the transaction had a value of $4.1 billion)
38.    Magical Cruise Company, Limited    United Kingdom
39.    Maker Studios Holding    United States (On May 7, 2014, the Company acquired Maker Studios, Inc. (Maker), a leading network of online video content, for approximately $500 million of cash consideration)    
40.    Marvel Characters B.V.    Netherlands
41.    Marvel Entertainment, LLC    United States (On December 31, 2009, the Company completed a cash and stock acquisition for the outstanding capital stock of Marvel Entertainment, Inc. (Marvel). The acquisition purchase price totaled $4.2 billion. In accordance with the terms of the acquisition, Marvel shareholders received $30 per share in cash and 0.7452 Disney shares for each Marvel share they owned. In total, the Company paid $2.4 billion in cash and distributed shares valued at $1.9 billion (approximately 59 million shares of Disney common stock at a price of $32.25).
42.    Marvel Studios, LLC    United States
43.    MVL Film Finance LLC    United States
44.    MVL International C.V.    Netherlands
45.    Pixar    United States (On May 5, 2006, the Company completed an all stock acquisition of Pixar. To purchase Pixar, Disney exchanged 2.3 shares of its common stock for each share of Pixar common stock, resulting in the issuance of 279 million shares of Disney common stock, and converted previously issued vested and unvested Pixar equity-based awards into approximately 45 million Disney equity-based awards. The Acquisition purchase price was $7.5 billion ($6.4 billion, net of Pixar’s cash and investments of approximately $1.1 billion).
46.    Playdom, Inc.    United States
47.    Shanghai International Theme Park Associated Facilities Limited    China
48.    Shanghai International Theme Park Company Limited    China
49.    Steamboat Ventures Asia, L.P.    United States
50.    The Walt Disney Company (Japan) Ltd.    Japan
51.    The Walt Disney Company (Southeast Asia) Pte Ltd.    Singapore
52.    The Walt Disney Company Limited    United Kingdom
53.    Touchstone Television Productions, LLC    United States
54.    UTV Software Communications Limited    India (ownership interest 93%)
55.    Walt Disney Parks & Resorts U.S., Inc.    United States
56.    Walt Disney Pictures    United States
57.    Walt Disney Pictures Productions, LLC    United States
58.    Walt Disney Travel Co., Inc.    United States
59.    Wedco Global Ventures One LP    United Kingdom
60.    Wedco Global Ventures Two LP    United Kingdom
61.    Wedco Global Ventures Three LP    United Kingdom
62.    Wedco International Holdings, Inc.    United States
63.    Wedco One (Luxembourg) S.a.r.l. Participations S.C.A.    Luxembourg


Opinion about the company
Fundamentally, it is good company. The Company is getting stronger through strategic acquisitions like Pixar, Marvel and Lucasfilm.




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