- Walt Disney has a growth strategy which has stood the test of time.
- They recognize the need to pivot in the new age of a-la-carte media consumption.
- With ownership of Pixar, Marvel, and LucasFilm, they have tremendous leverage for long term profitability.
Walt Disney (NYSE:DIS) is a gargantuan media brand, which uses the stars it 'creates' as leverage to generate revenue. The company has a market cap of $190.3 billion, and operates across television, theme parks, the web, music, and radio. However, the rise of the internet and the piracy issues this creates, has hit them hard. For instance, the stock recently took a dip due to the fact that ESPN- a brand it owns- reported a loss in subscriber numbers. This set of alarm bells with regard to the future of the company.
The fact is people are beginning to consume content differently. In the past one would have to watch a whole sporting event because there was no other way of accessing it. These days the best moments can be watched on Vine.
As a result, Walt Disney Co is having to pivot and find new ways to satisfy their current customer base while finding new ways to acquire more.
One of Walt Disney's best strengths is the sheer number of media platforms it has a big presence on. Plus, due to the fact that they are in complete control of each one, they are able to turn normal entertainers into global superstars at an unmatched rate. This allows them to use them as leverage to feed into other parts of the business. Unsurprisingly, their media network brings in a significant chunk of revenue (43% in 2014). Disney have taken the wise move to establish themselves in the lucrative streaming industry. As a result, they are launching an a-la-carte streaming service in the UK. Interestingly, they have a keen interest in bringing this service to the UK and including content from the Star Wars franchise.
In order to exemplify the success that Disney has when it comes to creating and promoting world-leading content, Frozen had a budget of $130 million, and managed to gross $1.3 billion at the box office. Additional revenue was generated from DVD, merchandise, and licensing.
Another strength of Walt Disney Co is their insatiable appetite for increasing the value of their brand. For instance, they purchased Pixar, Marvel, and Lucasfilm for a combined $16 billion. However, in doing so they 'ate up' some of the competition, and acquired brands which will provide them with longevity.
Walt Disney's strategy of controlling their subsidiary companies, and making them interact with each other for greater profit is working to great effect.
Walt Disney's revenue growth outperforms the diversified entertainment industry by 7.3%. When we consider the fact that they are in a highly competitive industry, and the rise of piracy, this figure is commendable. Additionally, they also outperform the S&P 500 with regard to net income. To quantify this, the difference in net income from Q3 of 2014 as compared to Q3 of 2015 is $110 million, or 7.3%.
Investors have also enjoyed their success because earnings per share has improved by 10.5% in Q3 as compared to the same quarter just 12 months ago. When we consider the fact that they have plans to roll out a global streaming service in a similar vein to Netflix, one can expect their metrics to improve.
In conclusion, Walt Disney continues to expand its media empire and evolve in a world of 'free content'. Arguably, the high level of content, and integration across their subsidiaries is unmatched. Over the past 5 years, the stock has shown a general trend of growth, and with plans to release a trilogy of Star Wars films over the next few years, there is no reason why their success can't continue.