Most of the time, I use Yahoo Finance to look at stock prices. Partly, it’s that I’m used to it. But I also like their charts, even though there are days where the site’s more detailed charts don’t work at all. It’s fast and easy to get summary financials, as well. And, although I rarely look at trading volumes, the numbers are available if I need them.
The other day I noticed a report from one of the many stock advisory services that advertise on Yahoo. It was about Disney (DIS), so I glanced through it. Three things struck me:
–the report was a cut-and-paste summary of recent newspaper articles and company announcements, put together in clunky enough way to suggest it had to have been AI generated
–it talked about “linear networks” in a way that blurred the distinction between ABC and ESPN, and
–there was no evidence that either a human or computer had made an effort to read the DIS financials, or even the company website, much less tried to project the possibilities for earnings over the next few years.
Another thing that jumped out. The report asserted the supposed key importance of the Media segment for DIS. As I see it, that’s was clearly right twenty years ago, but not today.
One more, related thing. I owned DIS for about eight years, starting from the Marvel acquisition in 2006. I’d started looking at the company again a short while ago, mostly out of curiosity–and because my grandchildren have gotten to the age where DIS meant something to them. In the intervening time, DIS has made its financial reporting much more opaque. The best example, I think, is that it has condensed its business into two units, Parks and Media. One sub-category of Media is Linear Networks, which is basically ABC + ESPN. No information on either individual business, though.
In my day, there were five segments, each with its own abbreviated P&L statement. The Media segment breakout showed that close to 90% of its operating income back then came from ESPN, with ABC generating a tiny (for overall DIS) amount relatively steadily. ESPN, though still highly profitable, hit maturity more than a decade (?) ago, when News Corp thwarted its bid to expand its reach into UK soccer. Heavily dependent on its ubiquity in cable TV packages, ESPN’s profitability has been gradually eroding as the cost of programming rises and as people switch to streaming.
Again, to my mind, the #1 problem DIS faces is how to deal with Ron DeSantis’s attack on Disney World. It isn’t just DeSantis, I think, but how quickly the entire legislature has turned on the company. Despite being one of the state’s largest employers and taxpayers, and in the state for fifty years, there seems to be no love for DIS in Tallahassee. We’re also beginning to hear about conventions and other gatherings being moved away from Florida, in protest of DeSantis’s policies and from safety fears.
So far, DIS seems to be doing the obvious–shift investment elsewhere.
#2 is how to get the $9 billion to pay for Hulu. As I wrote a short while ago, I don’t think this is the big deal the financial media re making of it. Still, I think this is an occasion to rethink the overall structure of DIS. As I see the company as now constituted, it consists of three parts:
–the movie business, whose home run-or-strikeout nature is somewhat cushioned by the catalog of past hits,
–the theme parks, with an unparalleled brand name, in the US at least, but subject to the ups and downs of the economic cycle, and
–ABC + ESPN. Both are mature and both look a lot like bonds.
Arguably, both ABC and ESPN would be worth more to fixed income investors than to DIS. The downside of a full or partial sale would be the loss of a stabilizing force for earnings. To pluck a number out of the air, if ABC makes $400 million a year in operating income and a private equity buyer were content with an 8% yield, its sale would bring in close to $5 billion. If it makes $600 million, which would be 10% of what Linear Networks is currently taking in, the corresponding figure would be $7.5 billion. Broken up into individual TV stations, it might bring more.
DIS is apparently thinking both of selling a minority interest in ESPN and of divesting ABC completely.
back to the report
A much more interesting thing would be a sum of the parts analysis, that would value the theme parks, movie-making and ABC + ESPN, and determine thereby what the market is now paying for the DIS streaming business.