Walt Disney is a very special company and an exciting investment opportunity. In this article, I explain what kind of business Walt Disney does, what its priorities are, and analyze it in the context of Corona, sustainability, and future trends.
Who or What is Walt Disney?
Walt Disney was founded in 1923, just between the two world wars. It has an exciting founding history, which you can read about in this article by investopedia. Since 1940, Walt Disney shares are available on the stockmarket.
Nowadays, Walt Disney has a whole empire in the Entertainment industry. Its core components include Media, Streaming, Parks and resorts, Cruise ships, and consumer products.
Across all divisions, there are more than 200,000 employees. Due to Corona, however, the number declined by about 10% in the course of last year.
The size of the company becomes clear when we look at the key figures. Its market capitalization is about 320 billion USD and its revenues are about 65 billion USD! Quite an empire if you ask me!
Naturally, the earnings per share (EPS) were heavily impacted by Corona. Before Corona, Walt Disney earned about 6-9$ per share. During Corona, the earnings turned into a loss of -1.58$ per share in 2020. Since 2021, the earnings per share, year-over-year, are again slightly positive, at about 0.5$ to 0.62$ per share.
What exactly Does Walt Disney Do? What Business Would you Buy?
Walt Disney has two major divisions, which are:
1) Disney media and Entertainment Distribution. It includes most of the intellectual property, retailer products, movies and productions, streaming services, and television assets. Especially the streaming segment of Walt Disney recently gained a lot of attention. Walt Disney owns Disney+, ESPN+, and 30% of Hulu.
2) Disney Parks, Experiences, and Products. This division holds the theme parks and ressorts, four cruise ships, and travel-related assets. From this division, especially the 6 Disneylands around the world are important.
What Makes an Investment in Walt Disney Special?
1) Walt Disney has a distinctive and omni-present intellectual property
2) It is market leader in an asset-heavy industry (parks & ressorts)
3) It has strong synergies between its historic focus (animations and movies) and its new focus (online streaming platform)
What Risks are Associated with the Walt Disney Shares?
- Revenues depend to some extend on the continuous success of new content, movies, and ist characters. Releasing some less successful movies would surely impact revenues negatively.
- Also, the streaming market has a strong competition, including Amazon and Netflix. If a customer had the choice, he or she would prefer to have all content in one place. Therefore, the streaming industry might consolidate in the future. And nobody knows who would win that competition.
- The long-term impact of Corona is not yet clear. It might be that parks and ressorts will never be as profitable as they were in the past. For instance, because less visitors might be allowed, or additional and more expensive hygienic measures need to be in place at all times.
Taking an objective approach to the risk of a share, we consider the share´s beta. It is an indicator that measures the relative movements (up and down) of a share compared to the overall market. If the indicator is over 1.0, the share is generally more risky than the average market. If the indicator is below 1.0, the share is less risky. This is also called, a “defensive” share.
The Three-years Beta of Walt Disney is 0.95. This indicates that the shares perform quite similar to the overall market.
What are the Characteristics of the Walt Disney Shares?
In principal, Walt Disney can be a good investment if you are looking for a company paying and increasing its dividends. Before Corona, Walt Disney regularly increased its dividends.
Based on the respective share price, the dividends return was between roughly 1% and 1.5%. In 2020, Walt Disney cut the dividend by half. For 2021, no dividends are expected. However, it is very likely that they will return to paying dividends in the future.
Looking at the return on invest in the past, we get the following results:
- Last 3 months: +7%
- Last 12 months: +38%
- Last 3 years: +54%
This shows that, even though the shares crashed by about 40% during the first global lockdown, the long-term growth is in place.
How do the numbers compare to the average market growth? (here: The MSCI World) Over the past 3 months, the MSCI World increased by +10%. Taking into account the last 12 months, its +33%, and considering the last 3 years, its +49%.
In that context, we can say the following: Generally, Walt Disney grows slightly stronger than the average market. However, a bit weaker in the last three months. If you are looking for companies that performed clearly better than the MSCI World in the past, take a look at the analysis of MongoDB.
What trends are important for the success of Walt Disney?
- The global streaming market is expected to grown by 21% per year until 2028.
- The cruise ship industry has grown by 7.2% year-over-year between 2010 and 2020. With Corona coming to an end, the industry is expected to come back to a similar growth path in the future.
- Also, the amusements and theme parks industry is growing. Pre-corona, it was expected to hit a 9% yearly growth rate until 2022.
What´s the Corona impact on Walt Disney?
Corona put a hold to the most important industries of Walt Disney. Especially the theme parks and cruise ships were severly impacted. As consequence, Walt Disney had to let go more than 10% of its global workforce.
However, the division around streaming offers gained through Corona and became a big success. It launched in November 2019 with more than 10 million new users on the first day. In 2021, it reported more than 116 million subscribers. Including subscribers for the other two streaming offers, Hulu and ESPN+, Walt Disney has more than 174 million regular viewers. Walt Disney´s goal is to reach more than 230 million subscribers by 2024. This is especially interesting, taking into account Netflix´s user base of about 210 million users nowadays. However, keep in mind that an average Netflix user pays way more per month than a Disney+ user.
Will the numbers be negatively impacted by the end of Corona?
Probably not. However, they wont show the same growth rate as they did during the past months (as reflected in Disney´s forecasts as well).
Also, keep in mind that Disney+ currently reflects about 6 billion dollars of revenues of Disney. In contrast, the division of parks and resorts contributed more than 16.5 billion revenues in 2020. That´s a clear sign that Disney will overall benefit from a Corona-free world.
Is Walt Disney a sustainable company?
Sustainability is an important topic for Walt Disney. On a specific website to that topic, Disney summarizes their actions, including how they save water, use renewable energies, reduce waste, and even reuse their cooking oil.
Their target is to achieve overall net zero emissions for their direct operations by 2030. Besides, they have particular targets around water and oceans, reducing waste, lower impact products, and building sustainably.
What about the Sustainability of Disney´s cruise line?
In general, cruise ships are a very dirty business, producing a lot of emissions and waste. None of today´s cruise ships has the technology to be really environmentally friendly. With the increasing number of passengers worldwide, this is definitely one of the priorities for the industry going forward.
Walt Disney in particular, however, has also established sustainability standards in that division. Among other measures, there is an Environmental Officer on every ship. As a result of those measures, Disney´s cruise line is rated the most environmentally friendly one of all cruise lines by guidemeaway.
Am I investing in Walt Disney?
Yes, Walt Disney is one of my favourite shares in my portfolio. Although most of their operations are not targeting the future trends with the biggest growth rates (except streaming), most of them address trends with quite a reliable growth.
This is also reflected in the past growth numbers, which are very close, but slightly above the growth rates of the MSCI World. With a growing streaming share, they are also becoming more diversified (as mentioned, their Beta is slightly below 1). Lastly, their operations will experience a boost as soon as Corona is gone.