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Disney (DIS)

Disney (DIS)
Sean Tepper Sean Tepper
Stock reviews
March 2, 2022

Is Disney stock a good buy?

In this article, we review Disney stock to determine if it’s a good buy, sell, or hold.

The Walt Disney Company is a multinational entertainment and media conglomerate founded in 1923 and headquartered in Burbank, CA. 

They have 11 offices around the world including locations in the US, UK, Germany, France, Netherlands, India, Japan, and Thailand. 

They also have 12 separate parks located in 6 different resorts.

  • Walt Disney World Resort, Florida. That includes Disney’s Magic Kingdom, Epcot, Hollywood Studios, and Animal Kingdom Parks. There’s also Disney Springs Shopping and Entertainment Complex, Wide World of Sports, Fantasia Gardens & Winter Summerland Miniature Golf and 2 Water Parks, Typhoon Lagoon and Blizzard Beach. As well there are 4 world championship golf courses and several Hotels.
  • Disneyland Resort, California. With Disneyland Park and Disney’s California Adventure.
  • Disneyland Paris Resort where you will find Disneyland Paris Park and Walt Disney Studios Park
  • Tokyo Disney Resort including Tokyo Disneyland Park and Tokyo Disney Sea
  • Hong Kong Disneyland Park and Resort
  • Shanghai Disneyland Park and Resort

Table of Contents

Tykr Rating

  • Summary:  Overpriced
  • Score:  8/20
  • MOS:  1%
  • Share Price:  $148
  • Sticker Price:  $150

Disney Company History

This company’s history is fairly long. If you love movies and you grew up in the 60s, 70s, 80s, or 90s, you may find a lot of nostalgia within. Otherwise, skip past this section to learn about the business model.

  • In 1923, Walt Disney was living in Kansas City, MO. He created a short film titled Alice’s Wonderland. He then moved to Hollywood to work with his brother Roy Disney along with film distributor Margaret J Winkler of M.J. Winkler Productions to distribute a series of Alice Comedies at a price of $1,500 per reel. That’s equal to $24,000 in today’s dollars.
  • In 1923 the company was officially founded by brothers Walt and Roy Disney and originally named “Disney Brothers Cartoon Studio.” The company also went by the names “The Walt Disney Studio” and “Walt Disney Productions.” They were originally a leader in the animation industry before diversifying into live-action film, TV, and theme parks.
  • In 1926 they changed the company name to Walt Disney Studio.
  • After the Alice comedies, they worked on a relatively unknown series called Oswald the Lucky Rabbit. The series was produced by Winkler Pictures and distributed by Universal Pictures. Universal owned Oswald so Disney made a few hundred dollars in total even after completing 27 shorts and losing the contract.
  • In 1928, to recover from the losses generated by Oswald the Lucky Rabbit, Disney came up with the idea of a mouse character named Mortimer while on a train headed to California. The mouse was later named Mickey Mouse. The first animation starring Mickey Mouse was Steamboat Willie. This ended up being a major success due to Mickey’s appealing personality and the synchronization of sound to the film.
  • In 1929 they began the Silly Symphony series with Columbia Pictures signed on as the distributor. 
  • In 1929 the company was reorganized with the name Walt Disney Productions, Limited. Walt and his wife owned 60% and Roy owned 40% of the company. That same year they published their first Mickey Mouse comic strip in the New York Mirror, newspaper.
  • In 1932 they signed an exclusive contract with technicolor to produce cartoons in color, starting with the animation Flowers and Trees.
  • In 1934, Disney began production of its first feature-length film, Snow White and the Seven Dwarfs which premiered in December of 1937, and by 1939 it was the highest-grossing film of that time.
  • Due to the success of its first feature film, they decided to produce other features including Pinocchio (1940), Fantasia (1940), Dumbo (1941), Bambi (1942).
  • In 1939, after the start of WWII, box office profits started to decline. In fact, after the Pearl Harbor attacks on December 7th, 1941, many of Disney’s animators were drafted into the armed forces. The US and Canadian governments drafted the studio to produce training and propaganda films. By 1942, 90% of its 550 employees were working on war-related films. Some of these films included Victory Through Air Power and Education for Death which was meant to increase public support of the war effort. With limited staff and little operating capital during and after the war, Disney’s feature films were “package films” or in other words a collection of short films.
  • In 1950 the studio released Cinderella which was also a major success and put Disney back on the production fast track. Other films that soon followed included Alice in Wonderland (1951), Peter Pan (1953), Disney’s first all-live action feature, Treasure Island (1950). Other early all-live-action Disney films included The Story of Robin Hood and His Merrie Men (1952), The Sword and the Rose (1953), and 20,000 Leagues Under the Sea (1954).
  • In 1950, Disney and Coco-Cola teamed up for Disney’s first venture into television for the NBC network special One Hour in Wonderland.
  • In 1955, Disney opened Disneyland in California which attracted people from all over the world. In 1959 Disneyland introduced America’s first monorail system to increase the speed of transportation around the theme park.
  • Disney continued to focus its talents on TV through the 1950s. Weekday afternoon children’s products such as Mouseketeers, Davy Crockett, and Zoro proved to be highly successful. Disney’s film studios increased production by releasing 5 – 6 movies per year. Some of those features included Lady and the Tramp (1955), Sleeping Beauty (1959), and One Hundred and One Dalmations (1961).
  • In 1965, the company began construction of Disney World in Bay Lake, FL.
  • On December 15th, 1966 Walt Disney passed away due to complications caused by lung cancer. Following Walt’s passing, his brother Roy took over as chairman, CEO, and President. One of his first acts was to rename “Disney World” to “Walt Disney World” in honor of his brother.
  • In 1967 The Jungle Book and the musical The Happiest Millionaire were released. These were the last two films that Walt supervised.
  • In 1969, two live-action films were released including The Love Bug and The Computer Wore Tennis Shoes.
  • On October 1st, 1971, Disney World officially opened with Magic Kingdom.
  • On December 20th, 1971, Roy passed away due to a stroke. The company was then under the control of Donn Tatum, Card Walker, and Walt’s son-in-law Ron Miller. Each was trained by Walt and Roy.
  • Throughout the 1970’s they released Escape to Witch Mountain (1975), Freaky Friday (1976), Robin Hood (1973), The Rescuers (1977), The Fox and the Hound (1981).
  • As head of the studio, Miller attempted to make films to drive more attention from the teenage market. In 1979 they created the science-fiction film The Black Hole. It cost $20M to make but was overshadowed by the success of Star Wars (1977) which was a George Locus production and not part of Disney at the time. The Black Hole was the first Disney film to carry a PG rating in the US. Disney then dabbled with the horror genre with The Watcher in the Woods (1980) and more sci-fi with Tron (1982). Both generated marginal success.
  • In 1979 Disney entered a joint venture with Paramount Pictures on films including Popeye and Dragonslayer.
  • In 1982, EPCOT Center opened at Walt Disney World.
  • In 1983, Mickey’s Christmas Carol was released which was a major hit.
  • In 1984, Touchstone Films was created to help produce more live-action movies. The first release was Splash (1984).
  • By the early 1980s, the parks were generating 70% of Disney’s revenue.
  • In 1984, financier Saul Steinberg’s firm Reliance Group Holdings launched a hostile takeover bid for Walt Disney Productions, with the intent to sell off this part of the company. Disney bought out Reliance’s 11.1% stake in the company. However, another shareholder filed a suit claiming the deal devalued Disney’s stock. The shareholder lawsuit was settled in 1989 for a total of $45M. In 1984, MCA (at the time, the parent company of Universal Studios) actually struck a deal with Disney to purchase the company on the condition that Disney CEO Ron Miller be MCA President, but disagreements between MCA chairman Lew Wasserman and Disney over this caused the agreement to fall through completely.
  • In 1987, Michael Eisner was brought over to Disney from Paramount to lead Disney as CEO. Eisner’s vision was for Disney to keep making movies. Some of the successes included Good Morning, Vietnam (1987), Dead Poets Society (1989), and Pretty Woman (1990). Eisner helped expand distribution deals with long-term deals with networks including Showtime. 
  • Under new leadership, Disney hit another wave of success with animations including Who Framed Roger Rabbit (1988), The Little Mermaid (1989), Beauty and the Beast (1991), Aladdin (1992), The Lion King (1994). The company also entered the TV market with shows including DuckTales, Chip ‘n Dale: Rescue Rangers, Darkwing Duck, TaleSpin, Bonkers, and Gargoyle’s.
  • In 1989 Walt Disney World opened Hollywood Studios.
  • In 1991, hotels, home video, and merchandise became 28% of Disney’s revenue.
  • In 1993, Disney Acquired Miramax Films to help broaden its adult-focused content. The same year Disney created the NHL team the Mighty Ducks of Anaheim, named after the 1992 hit film. Disney also purchased a minority stake in the Anaheim Angels baseball team.
  • In 1994, Eisner attempted to purchase NBC from GE but the deal failed due to GE wanted to keep 51% of ownership in the network.
  • In 1995 Disney announced a $19B merger of equals with Capital Cities/ABC Inc.
  • In 1998, Walt Disney World opened Animal Kingdom.
  • In 1999 Disney launched its cruise line.
  • In 2005, Bob Iger replaced Eisner as CEO.
  • In 2006, Disney acquired Pixar for $7.4B.
  • In 2009, Disney acquired Marvel Entertainment for $4.24B.
  • In 2011, Disney began construction of Shanghai’s Disney Resort, costing $4.4B and opening in 2016.
  • In 2012, Disney acquired Lucasfilm for $4.05B.
  • In 2020, Bob Chapek replaced Iger as CEO. Iger assumed the role of Executive Chairman, under which he would oversee the creative side of the company.
  • In April of 2020, Iger resumed operational duties to help the company through Covid-19. At that same time, the company announced it stopped paying for 100,000 employees which lead to an estimated monthly savings of $500M. Although the pay was halted, healthcare benefits remained in place.
  • Although Covid-19 has made a negative impact on this stock, the tide may be turning. We’ll touch on that in the news.

Disney Business Model

How does Disney make money?

Disney generates revenue through the following channels.

  • Parks, Experiences, and Products – This includes theme parks, cruise lines, merchandise, resorts, and royalties from licensing intellectual properties.
  • Linear Networks – This includes domestic and international cable networking and eight domestic TV stations.
  • Direct-to-Consumer – This includes streaming services such as Disney+, Hotstar, ESPN+, Hulu, and Star+.
  • Content Sales/Licensing and Other – Film, TV, DVDs, Blu-Ray, music, and live entertainment.

Disney News

This article from cnbc.com states EPS reported $1.06 over expectations of $.63. The report also states revenue reported $21.82B vs $20.91B expected. Total Disney+ total subscriptions reported 129 million over the expected 125 million. These are great signs for shareholders.

This article from investopedia.com states that Q1 revenues of 2022 from Parks, Experiences, and Products were up $7.2B from $3.6B in Q1 of 2021. This is another great sign.

This article from fool.com says that Disney just opened a new theme park in Hollywood Studios in Florida called Star Wars: Galactic Starcruiser. The two-night Star Wars-themed adventure costs almost $5,000 for two people. Although this is a high barrier to entry, Star Wars fans around the world with some expendable cash are eager to see this resort. Disney is expected to generate about $80M per year on lodging from this resort on its own.

This article from axios.com states that Disney is partnering with Samba TV to improve its data tracking with advertising. This will allow Disney to better track the content people are watching and turn around and sell more focused advertising. This will result in Disney offering higher-quality advertising placement which allows Disney to charge more for advertising.

This article is unrelated to Disney as it talks more about Covid-19. This is important because we’ll talk about this within the 4 M section below. Gavi.org states that Covid-19 may become less dangerous over time. This has been true with viruses including H1N1 influenza (Spanish Flu) in 1918 and the Swine Flue of 2009. As quoted, “If we’re lucky, SARS-CoV-2 (Covid-19) may go the same way.” Although this is positive information, there is no guarantee this hypothesis is true. We still need to observe this virus closely and take precautions.

Disney Competition

Below is a list of streaming services and their number of subscribers. We’ll address this within the 4 M section.

  • Netflix: 221M
  • Amazon Prime: 148M
  • Disney+: 129M
  • HBO: 73M
  • Hulu (Owned by Disney): 43M
  • Paramount+: 32M
  • ESPN+ (Owned by Disney): 17M
  • Peacock: 9M

Disney 4Ms

MOS (Margin of Safety): When looking at the numbers, Disney does look quite scary at the moment. The Score of 8/20 and MOS of 1% tells us to keep looking for other stocks. In this case, let’s move onto the other 3 Ms to understand where Disney is heading.

Meaning: Disney has 4 major revenue channels and 3 of those channels (Linear Networks, Direct-to-Consumer, and Content Sales/Licensing) are doing very well. If Covid-19 continues to be less dangerous, this means Parks, Experiences, and Product revenue will increase.

Moat: Regarding parks, Disney offers a nostalgic experience for people of all ages. There is nothing like it. Yes, there are theme parks all around the world but Disney is one of a kind. There is a strong moat with this side of the business. As for the other revenue channels, we know Disney+, Hulu, and ESPN+ have strong competitors including Netflix, HBO, and Amazon. At this point, the price for each platform is relatively low so consumers will own more than one platform. The problem is when more networks release such as the recent additions of Paramount+ and Peacock. More choices may cause consumers to pick and choose what platforms they pay for and what platforms they let go. In the case of Disney+, the key is to continuously generate new content, both movies and TV series. It looks like they are doing a great job of that as we speak with the continuously increasing subscriber counts.

Management: Bob Chapek has served as CEO since 2020. Chapek has worked at Disney for about 30 years. Some of his previous roles include Chairman of Disney Parks, Experiences, and Products. He’s known to have a strong focus on consumer service and experience. He wants people to not only visit but return to the parks over and over. Chapek has also served as President of Distribution for Walt Disney Studios, where he managed the company’s film distribution strategy. Overall, Chapek has a lot of great experience leading various divisions of the company. His experience with the Parks, Experience and Products are highly important at this point in time. As covid-19 (hopefully) fizzles out, he needs to find ways to bring more people back to the parks.

Disney Financials

Now let’s take a look at the financials to get us closer to determining if Disney stock is a good buy. A good value investor should be able to read the income statement, cash flow statement, and balance sheet and within 60 seconds have a pretty good idea of how the business is performing.

Revenue (Found on the Income Statement)

  • 2018:  $59B
  • 2019:  $69B
  • 2020:  $65B
  • 2021:  $67B
  • Revenue did not take a substantial hit in 2020 and 2021. This is a good sign.

Net Income (Found on the Income Statement)

  • 2018:  $12.5B
  • 2019:  $11B
  • 2020:  -$2.8B
  • 2021:  $1.9B
  • Net Income has increased in 2021. It’s not near the highs in 2018 and 2019 but the company is moving in the right direction.

EPS (Found on the Income Statement)

  • 2018:  8.4
  • 2019:  6.64
  • 2020:  -1.58
  • 2021:  1.38
  • EPS has also increased in 2021 which is a great sign.

Free Cash Flow (Found on the Cash Flow Statement)

  • 2018:  $9.8B
  • 2019:  $1.7B
  • 2020:  $3.5B
  • 2021:  $1.9B
  • Free Cash Flow has slightly declined in 2021. We want to see this number increase. This may be related to the expenses on the construction of the new theme park, Star Wars: Galactic Starcruiser.

Total Assets (Found on the Balance Sheet)

  • 2018:  $98B
  • 2019:  $193B
  • 2020:  $201B
  • 2021:  $203B
  • Total Assets have still increased. This is a great sign.

Total Liabilities (Found on the Balance Sheet)

  • 2018:  $45B
  • 2019:  $105B
  • 2020:  $113B
  • 2021:  $110B
  • The Total Liabilities have slightly decreased since 2020 which is a great sign.

Total Debt (Found on the Balance Sheet)

  • 2018:  $20B
  • 2019:  $46B
  • 2020:  $58B
  • 2021:  $57B
  • The debt has slightly declined which is a great sign.

Total Equity (Found on the Balance Sheet)

  • 2018:  $48B
  • 2019:  $88B
  • 2020:  $83B
  • 2021:  $88B
  • The Total Equity has remained relatively flat which is okay.

Is Disney stock a good buy?

If you’re a shareholder in Disney, it looks like good news is coming your way. Although the financials are not great at this exact moment, their Parks, Experiences, and Products revenue channel is starting to see signs of improvement. It’s also impressive to see the continuous growth of Disney+, Hulu, and ESPN+. This may be a great time to put Disney on your watchlist. If that score jumps to 10/20, this stock could change to Watch. And if the MOS changes to 50%, this stock could change to On Sale. If I were you, if the score and MOS improve on the next quarterly reports, this may be a time to add it to your portfolio.

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The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.

If you found this stock review interesting, you may also like this review on Apple.

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