COMPANY PROFILE

The Walt Disney Company, together with its subsidiaries and affiliates, is a leading diversified international family entertainment and media enterprise with the following business segments: Media Networks; Parks, Experiences and Products; Studio Entertainment; and Direct-to-Consumer and International.

Recent Earnings

The quarter was one of the noisiest I’ve seen in a long time but what would anyone expect given this iconic brand is in full growth mode now. They fell asleep and let Netflix create a business they should have created and dominated. But big companies often like to let others create new markets and then they jump in with their size and scale and take back market share. Disney theme parks are likely running up against peak theme park pricing power and attendance has been lumpy. The movie business is thriving and will continue to do so and the DTC business that launches in November should surprise on the upside. Disney+ will be a home run IMO and the massive spending they have done to launch this service here and abroad will pay huge dividends down the road. The collection of assets under the Disney brand is second to none so I don’t worry a bit about their growth trajectory going forward. I won’t post earnings info because frankly, the quarter was so noisy it’s just not that important. Bob Iger and team have the plan and have a history of strong execution.

Opinion

From a factor scoring perspective versus the other 199 brands in the brands index, here’s where Disney scores well as of 9/17/19:

• 81% strong price momentum

• 70% high 3YR sales growth

What can anyone say about the mouse-house. Disney is one of the most recognized and beloved brands that has ever existed. The company has dominated theatres and theme parks for decades and has continued to build their house of brands through smart, strategic acquisitions. Disney owns ABC, Lucas Films, Marvel Studios, A&E Network, ESPN, Disney Networks, Pixar Animation, Touchstone Pictures, National Geographic, FX, Fox Networks, Disney Theme Parks, Disney Vacations, part owner of HULUBAMTech, etc.

With all these marquee brands, the opportunity set is enormous. I do believe they over-payed for the Fox assets but I have full faith in management and the stock is a buy on any further dips. The Disney allocation is not about today it’s about the future. Yes, they waited too long and let Netflix create a market they should have owned but they also have the ability to let others spend aggressively and create markets and then use their brand clout to build a me-too product that gets quick mass adoption given their loyal installed base. I am confident Disney stock will hold up better than most brands in a slowdown as well as offering better than average returns in sideways to up markets. The stability of their earnings and high relevancy of their brand make this a great stock to own for this part of the cycle.

I think the Disney+ streaming service launch in November will be a very big deal given this unbelievably large library. The below chart from consulting firm Morning Consult highlights the category and purchase intent predictions. Netflix has likely reached saturation point in the U.S. but Disney & Hulu appear to have the best growth profile going forward. Apple is still a wildcard in my opinion although they are clearly willing to throw a lot of money at the category. Disney already has the content so their content spend will be a fraction of what Amazon and Netflix likely spend but their library will be significantly more relevant making a nice 1-2 punch.