Walt Disney Co. (NYSE:DIS), which is better, known as
an entertainment powerhouse has been in the news for its acquisition of
LucasFilm and the box office successes of films like Iron Man 3. Though it is
true that these along with its other acquisitions and investments in the box
office space will help increase revenue growth in the coming year, box office
revenue is by no means the only, or even the major, contributor to the rise in
Disney's revenues. As we shall see below the company has been making
significant profits from its theme parks, as well, these, along with a decent
balance sheet may well give DIS a fairytale run in 2014.
LucasFilm and other box office developments
Following the December 2012 acquisition of LucasFilm (the producer of
Star Wars series), many had wondered whether Disney would take home its point
regarding critical business elements, especially costs, at LucasFilms. When
word went around at the beginning of Q2 2013 that the company was preparing for
layoffs at some of its - and LucasFilm's studios, the markets got the evidence
they needed.
Further, we heard recently that the company had signed an agreement with
Paramount Pictures. The terms remain undisclosed, but it is clear that the
agreement will provide Disney with the distribution rights for the Indiana
Jones franchise and the ability to make subsequent movies of this franchise on
its own terms.
The company's greatest box office releases for 2013, Iron Man 3 and The
Lone Ranger, have performed decently (though the latter was regarded a flop by
some), raking in $1.3 billion and $900 billion worldwide respectively.
Disney's other business segments
Although the above developments are certainly positive indicators for the future the
company's revenue growth in its studio entertainment division, has grown by
only 3% YoY. On the other hand, Disney's latest 10-K report estimates about 99
million subscribers each for the ESPN network and domestic Disney Channel. Add
to these the subscriber base of 172 million for its international Disney Channel and one can understand why the company's revenue in this
segment has grown by a healthy 5% YoY. The company has also signed a deal with
Netflix (NYSE:NFLX) for 2015 which will see the company develop four series of TV programs
featuring Marvel characters for Netflix. It has also acquired a 50% stake for
$500 million in Indian TV company UTV, which will allow it to reap the benefits
of an expanding Indian media space.
Further, the company has released a full version of the Club Penguin MMO for iOS.
Considering that Apple (NYSE:AAPL) usually does not allow the
app developers to market apps with a subscription model, this app will probably
go a long way in increasing Club Penguin's popularity and as a result, DIS's
revenues.
Finally, the company has been focusing on its theme parks, with a theme
park in China currently being constructed. The existing parks in Tokyo and Hong
Kong have seen record footfalls this year, thereby improving Disney's income
from this segment.
The vital figures
DIS's revenue growth for the fourth quarter was 7% over the year,
beating analysts' estimates of $11.45 billion to reach $11.57 billion. Among
the various segments, growth was strongest in consumer products (14%) and from
parks and resorts (8%). The EPS growth for the fourth quarter was 13%, again
beating market predictions. These statistics allowed DIS to end the year with
EPS growing 8% to $3.38 and revenues 7% to $45.04 billion.
The investor's decision
Disney seems to be making all the right moves, be it in acquisitions or
expansion of existing franchises. Considering the fact that the entertainment
industry is set to grow rapidly in Asia, Disney's moves in China and India appear
significant. Further, the acquisitions and agreements in the US market will
likely bring the company a sizeable harvest in the coming year and after. Put
together with the great balance sheet figures, Disney appears to be a strong
"buy" for investors seeking a stock with strong growth potential
while those who already have the company's stock in their portfolio would be
clearly advised to "hold" for now.
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