Disney: The Moat Has Long Dried Up In The New World Of Media Free For All

seekingalpha07-26

The Walt Disney Company is a solid company, but its long held moat no longer exists.It needs a refreshed outlook by the market at a more realistic price range closer to some peers.Holders who expect a...

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Disneyland Paris aureliefrance Above: The “magic” is global and should be able to show its stuff as a separate company trading on its valuation as a sector leader. Premise: Below are some gaga raves over time which have accompanied the general thrust of the majority reviews of The Walt Disney Company (NYSE:DIS) shares over time. So, loyal holders have to ask themselves this question: Is it still true? Or has DIS fallen back to just another entry in the chaotic media/entertainment sector, which is no longer protected by its moat? And by extension, the stock no longer deserves the premium price its shares enjoy relative to peers? What has been the DIS earnings growth for the past 10 years? In bull reports on the stock way back in the day, I found these takes:  “Disney still has its magic as when Walt was around. It's just collaborative now, not the divine inspiration of a single genius…” “DIS is still the single dominant entertainment factory above all its peers, tapping into the psyches of children like no other.” “DIS media and Parks are so rooted in global childhood for so long that it is absurd to challenge its leadership that is expressed in the long-established premium its shares have earned from investors.”  The above have been extracted from financial reports going back 30 to 35 years. I sifted through them ten years ago. But after its stock hit a high and then began to tank, it was clear evidence that Mr. Market in general is no longer buying the piper's tune. I realize there is some gray hair around these quotes, so I'll take the L on timeliness. And still strong bullish sentiment. BUT, these type of aged descriptives still leak in now and then from some analyst reports these days in the post-apocalyptic age of entertainment. It's a world that now includes “entertainment” like two million views of a YouTube video of a clumsy fool getting entwined in a garden hose as he winds up spraying his face. All as his kids ridicule him from the sidelines. One million views? Two million? DIS and peers had no such entertainment to compete with back then. What was the production cost of the video? What is the cost to the consumer of watching an hour of idiotic YouTube videos a day? Zero mostly. What is the cost of a monthly subscription to a streaming service? Maybe $9.99. What does the streaming member get for his or her money today?   google Above: DIS shares could be on the way toward settling in a more realistic trading range that no longer expresses confidence in its moat. A handful of good programming using up perhaps four hours a month. But also ten tons of filmed genre visual garbage teeming with murders, fantasy journeys, Hitlerian Third Reich movies about miraculous escapes from the Nazis, career girls who only seem to work for magazines, fashion websites, TV shows or other media. You can see essentially the same career woman shows on at least 7 streaming channels. And the same genres telling the same fundamental stories, so in the end, multiple subs are a waste of money. And of course, the documentaries shoveled out from 80s storage coal cellars narrating the life and times of luminaries like Lizzie Borden who took an axe and gave her mother forty whacks and when she was done, gave her father forty-one. Now to sum up, the sector has become one factory town with everyone producing the same products, trying to convince a bored stiff audience that differences between services do exist. It's become a souk, with streaming merchants spending all kinds of production money and promotional dollars to keep new subs up and churn numbers down. When subs rise during a quarter, stocks trickle up, when they fall -- well you guessed it. DIS is now just one factory among many whose media business has lost value, and whose Parks business looks good enough to spin off and continue to prosper for holders. Briefly, DIS needs to restructure a business model reborn in the '80s under the revivalist management of Eisner and Katzenberg. If DIS no longer occupies a special place, it no longer deserves a price even in the $90s so far distant from its competitors. DIS has thrown a massive debt behind much wasted effort over the past five years and promised a shower of the next $60b to come. What about the $46b in debt still on the books? Financially, no problem, except… are they that certain the new FCF generated will cover the cost of that money -- no matter the economy and the impressive projections of an army of DIS eye shaded nerds.   google Above: At writing DIS is $88, this chart shows less since 2021, but the five-year trend (interrupted by COVID-19, of course) shows recovery hasn't neared highs coming anywhere near the all-time high of $203. Does this make sense? DIS as low as $88 and sector peers tell the story: WBD: $7.50 Para $15 CMCSA: $38 Take away the Parks & Experiences and give DIS a media ONLY push to $50 a share, and you are still paying for plenty of sentimental journeys, not real-world breakthroughs on earnings above $5. It's a valid question for investors: Is DIS still worth its premium trading range? DIS net income We bypass 2020, of course, and begin with 2021, a good recovery year for the sector in general: 2021: 16% down from 2021. 2022: 57% down from 2021 2023: To FY3/31/24: 25.15% decline from 2022. 20024: To FY 3/31/24: (-0.20) a 101% decline YOY. Clearly, these results can reflect a passel of conditions impacting a single quarter, or an extended one which has bedeviled an entire fiscal year. But we cite this as it shows that for all the prescriptive actions taken by Bob Iger since, the result remains unimpressive to justify it investor support so far above peers. Even in the months after the release of its blockbuster Pixar hit (In and Out), Mr. Market is voting mildly bearish sentiment as the stock drifted to ~$88. By any set of metrics you may wish to apply to DIS vis-à-vis their sector, it still comes out this way: DIS has long blown its moat and people who remain true believers may be looking at the start of a longer-term trend where we will see DIS shares settle into a far more sensible range in the $70s or so. The Earnings picture shows the moat as floated away from DIS since the robust performance in pre-covid 2019 2024 FY EPS: $0.01 45% down YOY. 2019: FY EPS: $6.29 pre-covid, We can cite the COVID-19 disaster in 2020 and its aftermath going well into 2021 on every vertical DIS media and live business operate as well as their peers. We can add to that the bungled succession of the Bob Chapek/Iger business, the sleepy headed board that continues to shrug at woke and DEI policies that go beyond the c-suite into many layers of management. And what is worse, buying the fantasy that woke has little or no impact on revenues. DIS invites disgruntled holders to prove how DEI hits revenue, when it is the company itself that must undertake the poling themselves and act. It is DIS business to conclude whether the facts bear out the claims or not, and share those results with holders. Investors are not interested in DIS political views. They don't buy the stock for its virtue signaling skills. They buy DIS to make money, period. And there was a time when DIS made tons, linked to real moat characteristics of many of its verticals. Disney theme parks stood alone as first mover in the evolution of the honky-tonk theme park's transformation to great family resorts by DIS. That market has long been chopped up by the arrival of theme parks big and small in the US and globally. DIS leads the sector undoubtedly, but it is clearly a business on its own and could make a tremendous spin-off, benefitting holders much more than hanging in as a part of DIS. Yet, as the results over the past decade show, the moat factor still built into the trading range of DIS shares over ten years. DI reached an all-time high of $203 on March 7th, 2021. That valuation fundamentally embraced the existence of the long-standing DIS moat, box office champion, Parks operator, cruises both distinctively winners against the entire parks sector. Linear threats to the performance from the ABC Network and sports eyeball leadership for ESPN linger. And still figure in propping up the trading range. This is not to demean DIS business. It merely suggests that the moat is gone post-covid, buried in the media/ entertainment apocalypse. It is challenged in every vertical it operates. Technology has thrown down barriers to entry to anyone in building any kind of business competing with DIS. Add Universal's (two) Studios, (expanding) Hershey's Park. Add the smaller, regional parks, and you have a sector, still dominated by DIS unquestionably, but head-to-head competitor for a dollar shrunken by inflationary pull on families. And worse yet, facing a possible recession ahead. DIS Pixar's new animated blockbuster (Inside Out) has already met the $1.4b in grosses set by Warner's Barbie and add Paramount's Top Gun re-boot for another $1.4b. Our point here is that box office magic can be conceived, produced, distributed and marketed with the same budget, star names by any of the major studios. Movie making skill occupies no moat any more anywhere in the sector. DIS box office leadership can come and go as any peer, depending on what winds up on the screen.   DIS archives Above: Inside Out 2 is the best Pixar entry in years. It is the best of DIS but in pure dollars, equal to Warner's Barbie and PARA's Top Gun sequel. ESPN has lost 25m regular viewers (near one million this year) and has tried many ways to stop the drain against a rising tide, if not a hurricane, of disruption that keeps its subscriber levels falling due to the ills of linear TV. It has even embarked on a $1.5b media/marketing deal with Penn Entertainment (PENN) for sports betting. Thus far, it has proved no built-in upside for the ESPN brand to bettors. Sports programming costs have reached the level of insanity, including the new NBA $76b contract. That kind of desperate rights money paid by its group of networks for a game that is in the process of losing viewership steadily because, frankly, no one has a better idea to fill the time is a symptom of failure. AS one of the “successful” BIDDERS, ESPN cries out Sell me! It, too, is no longer inside the moat--sports programming is expensive, barreling along rising NBA risks as ratings go down. So what we have is a DIS, strong, diversified entry in its sector that over time might produce marginally decent earnings, but nowhere near an undeserved premium price for its stock. Does anyone confidently see DIS at $203 again? The strengths of the stock for those still on the DIS bandwagon foresee: presumably end of losses and profit growth in streaming subs, greater grosses out of better films made for less money, holding on to the FCF still pouring out of Linear TV, and pumping what will be the majority of a massive capex budget of $60b going to Parks and Experiences. What is not certain yet is how these plans could be impacted by a recession over the coming years. So if you take the view as we do, that DIS is a good performer in a tough cyclical mess with its peers but will come out fine, where do you place its relative value? In my humble opinion, it is far closer to a range of $68 to $73 and perhaps even $82 during a good year for the Parks, TV ads and strong grosses from a schedule of new movies. Furthermore, it might be a good idea to ask Iger how long he really expects to hang in, vs. what the corporate speak is.  Investors are well guided to think of their DIS positions as no longer carrying a very special, magic moat that can carry the stock back to $145 to $153.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.0","shortVersion":"4.29.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2454327719"}