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Disney Investment Case
Exploring the prospects & risks of my newest holding.
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While investors seem ready to pronounce Walt Disney a decaying organization… to that I say “not so fast.” I still see plenty of magic left in the Mouse House. The company’s roster of brands and intellectual property (IP) is elite, its parks are cash printing machines, and its new (old/new) team is now running things in a more rational manner. Any turnaround will take several quarters if not a couple of years to play out… but the recipe is there.
While there is plenty of risk associated with this investment case, the potential reward is compelling if Disney can simply get out of its own way and execute. Here, I’ll dissect the company, its prospects and risks. Let’s begin.
1. A Review to Disney’s Assets:
There’s a popular graphic that is passed around social media on the vast quantity of brands that consumer packaged goods giants own. The takeaway is relevant to Disney: Own companies that own great brands. The coinciding notoriety means organic word-of-mouth growth, higher consideration and purchasing intent, loyal customers and pricing power vs. substitutes. Well? Disney is the content firm that owns an enviable group of iconic brands.
Its digital entertainment assets perfectly complement Disney’s thriving cruise line and parks businesses spanning North America, Asia and Europe. These physical experiences enable the delivery of memorable and uniquely omni-channel customer engagement. Disney is far from the only enterprise with high quality entertainment brands. Where it stands out is in its global pairing of these brands with brick and mortar activities to deepen a fan’s company affinity and drive revenue. This means a higher lifetime value ceiling from a customer than for companies like Netflix. In my mind, media and parks go together like bread and butter, salt and pepper or Mickey and Minnie.
With this serving as the baseline, let’s turn to how Disney has mishandled its invaluable IP and why that opens the door for such a compelling potential investment.
2. (Re) Enter Iger
Bob Iger’s 2020 retirement was not as seamless as it could have been to say the least. Bob Chapek, his successor, struggled as the leader of this gigantic enterprise. Rather than remaining politically agnostic, he somehow managed to upset both sides of a heated, polarizing LGBTQ+ debate in Florida. Not only that, but he turned the Florida state government from an ally into an adversary through a lawsuit in connection with this same development. The relationship here doesn’t seem to be deteriorating further, but I’d love for Disney to drop the litigation and play nice. It’s not a matter of right wing or left wing but shareholder value optimization.
This may sound insensitive to some, but I don’t want the companies I own shares in poking their heads into highly controversial political issues. The best-case scenario is that you only upset 50% of your fans. I want them keeping their mouths shut, leaving the debate to societal dialogue, maintaining politicians on BOTH sides of the aisle as allies and focusing on running the business. Fundamental execution alone is hard enough.
The Chapek mistakes continued. He hiked park pricing in the middle of 2022 as inflation was severely cutting into discretionary spending even while service levels were deteriorating. He vastly over hired and built out significant fixed cost bloat as he thought pandemic trends were more durable than they proved to be. In fairness to him, Iger was a small part of that mistake and many companies fell for this trap as well. But it’s still worth noting. Chapek also fell victim to the secular decline Disney’s linear television business is facing as we evolve to a world of streaming. That wasn’t his fault, the but merely added to the negative sentiment surrounding the stock during his tenure.
All of these theatrics resulted in Disney’s board re-appointing Iger as the CEO in 2022. Rumors swirled that a main factor leading to Chapek’s early departure, in addition to those mentioned, was his focus leaning too heavily towards influencing culture vs. delivering for shareholders. The board seeing this as a weakness is another sign that Disney is ready to be a focused business once more. Iger seems fixated on running Disney like a lean, mean, financially thriving machine… and to that I say “thank you”.
So what has he done early on that gets me excited? From a 30,000 foot view, he has expeditiously set and raised a $5.5 billion cost-cut target, embraced new revenue streams and repaired Disney’s approach to streaming, group interoperability and more.
Cost cuts will consist of $2.5 billion from selling, general and administrative (SG&A) reductions and $3 billion in non-sports content savings. The SG&A cuts, including layoffs and team reorganization, are already beginning to feed its non-GAAP EBIT recovery (not GAAP yet as changes have led to large restructuring charges). The content savings won’t begin meaningfully kicking in until next year. The longer-term nature of multi-year film contracts make immediate benefit realization less feasible. That also means the cost-cutting initiatives should bolster profits for the next few years rather than just the next couple quarters.
Most importantly, he set out to “place creativity back at the center of Disney” and to empower creators to make what they want with no pre-set agenda. Vitally, this change coincided with him reconnecting these artists to Disney’s distribution and marketing teams for greater cost-to-value matching. More on this later.
A Little History & The Team:
Iger first joined ABC about 50 years ago and proceeded to climb all the way up to head that broadcast network 15 years later. When Disney bought ABC in 1995, Iger remained on as segment chairman for another 5 years. From there he was promoted to Disney’s COO and eventually CEO in 2005 as the culmination of a “save Disney” board campaign. That movement was based on the old CEO’s egregious compensation practices, organizational mismanagement and his disconnect from the firm’s creatives. These issues should sound somewhat familiar… and if Iger fixed them once, Iger can fix them again. The mending, however, will be a long process which is likely why he just extended his contract with the board for another 5 years.
Iger’s history with Disney consists of a culture of internally grooming future leaders. For example, its current CFO Kevin Lansberry has been with the company for 2 decades. Lansberry recently replaced Christine McCarthy in an interim role with McCarthy stepping down to attend to a “family medical” issue. I wish her the best.
McCarthy isn’t the only recent c-suite departure. Chief Information Officer Diane Jurgens recently announced plans to leave the company after just 3 years. For needed context, she was a Chapek hire (enough said). While c-suite churn is never ideal, it’s understandable when companies are being shaken up as aggressively as Disney is. Rebecca Campbell also retired this year after 26 years with the company. She led Disney’s international content branch and is 51 years old.
3. Disney Media -- Linear
Disney Media is one of three newly formed Disney segments along with ESPN and Disney Parks and Experiences (DPEP). The branch encompasses all streaming, linear and broadcasting assets aside from ESPN’s live sports. Let’s start with the black eye of the portfolio which is linear television including ESPN.
3a. Linear’s Struggles:
It’s no secret that cord cutting is in full swing. Linear TV is the business being displaced as this unfolds which hurts Disney assets such as FX and ABC. With ABC being the top news broadcast provider for the last 4 years, this matters dearly to the business. Specifically, linear EBIT has consistently fallen throughout 2023 when eliminating the effect of timing-related cost savings in Q1. Eyeballs are slowly moving away from cable partners and channel affiliates while advertising dollars follow suit. A poor macro backdrop further adds to that headache.
This past quarter saw linear revenue fall 7% Y/Y. EBIT declines were even sharper due to sports content rights timing. These negative patterns have been consistent with no end in sight.
Encouragingly, leadership talked up “signs of improvement” (ie reduced decline rate) in August. Still, that improvement is being driven by live sports. For context, ratings remained healthy at ESPN last quarter which saw 10% Y/Y growth in linear and addressable advertising revenue. ESPN is a standout as passionate fans flock to the channel to watch their favorite leagues and as Disney successfully passes on rate hikes to distribution partners.
Linear advertising demand for scripted entertainment remains challenged and cord cutting/diminishing viewership should make that weakness structural. Streaming will have to pick up the slack, but it’s not scaled or mature enough to do so just yet. That’s what I view as the main Disney predicament driving negative investor sentiment today. This is temporary and solvable… but not in the very near term.
3b. A Subtle Silver Lining:
While this backdrop is far from ideal, it’s not all bad news. Not only is Disney well positioned to benefit from the linear transition to streaming, but it’s also still enjoying unique value from the legacy distribution method as well. Abbott Elementary, for example, is a popular ABC show with an average audience age of 60 years old. Abbott delivered compelling traffic and advertising revenue via the linear outlet, but the value creation was far from finished. Disney added Abbott Elementary to Hulu (streaming) where it has become one of the service’s top sources of watch hours. To make this added traffic even more attractive, the average watch age on Hulu has been 30 years old, illustrating how incremental these avenues can be. Simpsons and Family Guy, two highly popular Fox shows, are also two of the best performers on Disney’s streaming properties.
“It’s clear to us that the exclusivity we assumed would be so valuable for subs wasn’t as valuable as we thought. Content can exist on linear and streaming due to different audiences.” -- CEO Bob Iger
3c. Charter Showdown:
The contract renewal battle between Charter and Disney is a clear sign of how the linear video landscape has changed. Disney pulled ESPN and the rest of its channels off of Charter’s Spectrum on the eve of college football season. You could you feel the outrage on social media from passionate fans and it’s this passion that led to an expeditious resolution after about a week.
The structure of this new deal further hammers home the power and draw of ESPN (and streaming too). So what’s in the new 10 year deal? While complete financial terms were not shared, Charter will supposedly pay Disney $2.2 billion in content access fees. Interestingly, it will drop 8 of Disney’s 27 stations including less popular channels like Freeform, while accepting Disney’s price increases on the remaining 19.
The most notable piece of this newer deal, however, is how it morphs together the worlds of linear and streaming. Charter customers will gain access to the ad tiers of Disney+ and ESPN+ via a new wholesale agreement. The price of these services will be baked into the Spectrum bundle’s overall consumer fees.
Furthermore, Spectrum customers will have access to ESPN’s planned streaming service whenever that goes live (which is inevitable). This ensures Spectrum continues to hold rights to that coveted content as the streaming revolution marches on.
This is somewhat perfect for Disney as it secures more cash flow and leeway going forward. Why? Disney has long relied on Charter and Comcast as centralized distribution partners for its linear TV assets. They aggregated the traffic. That outlet potentially vanishes in the world of streaming, but as part of this deal, Spectrum will continue to serve as a distributor to its nearly 15 million customers. That will mean more immediate traction and ad reach for the services and was the sticking point for Spectrum making the other concessions Disney wanted. It really was all about maintaining access to great content as that content moves off of linear.
Finally, this allows Disney to keep linear TV as a cash cow (a deteriorating cash cow but still a cash cow) for the next decade. That gives it far more flexibility and control over setting the pace of its eventual full shift to streaming. It can make this shift from more of a point of comfort rather than need thanks to this deal getting done. Laura Martin, one of my favorite media analysts, calls this a “win, win” and I’d have to agree.
4. Disney Media -- Streaming
Disney’s streaming assets consist of Disney+, ESPN+ and Hulu. Streaming and Direct-to-Consumer (DTC) are considered synonymous and used interchangeably throughout the section.
Iger has come back to Disney with the following streaming playbook:
Cut costs to push Disney+ to positive EBIT by FY 2024 & Focus on the Core
Rationalize organizational structure.
Price to value.
Create Globally Relevant Content.
& Hello Licensing.
4a. Cut Costs & Focus on the Core
Let’s start with cost cutting and the push for positive streaming EBIT by the end of FY 2024. Per Iger, Disney has gotten far too aggressive on content quantity and general entertainment (outside of core brands and IP). Because Disney+ was born during a time when investors solely cared about subscriber growth, that’s what Disney prioritized. As a result, it flooded Disney+ and Hulu with large volumes of low-quality, low-rated content to try to minimize churn. In reality, it had been thinking about this segment incorrectly. Eyeballs want world-class entertainment.
Now, Disney is actively shedding un-compelling titles and is focused on quality as part of its aim to drive $3 billion in content cost savings. It doesn’t see these cuts having any impact on churn or subscriber growth to date. While that’s encouraging, it’s also a byproduct of how bloated and misaligned its budget had truly become. Frustrating, but totally fixable (really, isn’t that what we are looking for as an investment opportunity?).
This change is why it stopped guiding to quarterly subscribers: Priorities evolved in favor of what Iger calls “aggressive content curation.” Bloomberg also recently reported that it’s cutting internal subscriber targets for 2024 that were set over a year ago. Considering the abrupt shift in philosophy, this was inevitable.
Near Term Impact of Focusing on the Core:
Disney is now shuttering some new projects, ending struggling shows, removing low value licensing agreements and becoming “highly picky” on which general entertainment content it chooses to keep. Overall, Iger and his team are obsessively reviewing every cost line item to ensure streaming is becoming as efficient as it can be. This drive for productivity lead to the combination of its product and program marketing teams as well which fostered modest cost savings. This all created a $2.65 billion restructuring charge this past quarter with severance adding $210 million to that one-off hit. Conversely, it has also led to streaming losses improving by $1 billion since Iger took over with further improvements expected going forward.
For the year, most subscriber churn has been powered by Disney+ Hotstar’s decision not to renew India Cricket rights (wouldn’t outbid Paramount). In India specifically, the service’s subscriber count most recently fell from 52.9 million to 40.4 million Q/Q. But it was only a subscriber hit. Hotstar subs come with much lower revenue per user vs. core Disney+ ($0.59 vs. $6.58) and contribute immaterial revenue and EBIT to its overall streaming results. Not chasing the rights was the correct decision and shows Iger is serious about belt tightening. Overall core subscribers (which excludes Hotstar) continue to gradually rise Y/Y with international additions offsetting minimal losses in North America.
It’s important to note that Disney fully expects streaming subscriber growth to continue for the long haul. The team has simply placed added emphasis on guaranteeing the unit economics as growth continues. It sees ramping core subscriber growth as we wrap up fiscal 2023 and head into 2024. The confidence stems from easier comps, a strong content slate and partners like Sony adding to the library’s appeal.
Tighter Global Focus:
Like countless other firms have done over the last 2 years, Disney will focus on only its highest value international markets for streaming. It will pull back on local content spend and completely exit some geographies with perhaps some licensing agreements to more efficiently maintain revenue. It will focus on only the countries where it sees a high probability of success. It’s safe to assume this will be North America, Western Europe and parts of Asia Pacific.
4b. Rationalize Organizational Structure
Interestingly, part of the cost savings here will come from reorganizing teams in a more cohesive and streamlined manner. After Iger left in 2020, Disney was restructured in a way that siloed content, marketing and distribution teams. This led to severe budget bloating, mismatched costs, and some poor execution. The issue has been most noticeable for its film studios which I’ll cover later on. Iger has since re-unified these teams to ensure those making budgeting decisions are actually communicating with the people who have a better sense of content value. This will mean writers are held fully responsible for their creative success. That newfound accountability shows how Disney will be run more like a meritocracy and less like a children’s soccer league handing out participation trophies.
Its distribution teams have also rightfully pushed Disney to embrace omni-channel windowing. If it’s already incurring the costs, why not accrue maximum value? It’s now doing so.
The Magic Kingdom’s content differentiation comes from its unmatched library of loved brands and franchises. While it has had success with some general entertainment titles like Modern Family, that’s not where it excels. It’s now focused on what does makes it stand out: Core IP. The shifting content priorities will lead to Disney producing fewer titles with more emphasis on what has made the company iconic for a century.
4c. Flex the Pricing Power
As part of the subscriber arms race of 2020-2021, Disney priced its streaming services too generously. Part of this was its focus on general entertainment and part of it was just a strategic blunder (in hindsight). Like the content glut issue, it’s hard at work to alleviate this concern as its EBIT quest supplants subscriber growth as the top streaming priority.
It successfully passed on significant price hikes across its streaming assets in 2022. The churn was so minimal that it decided to hike prices this summer by another 27%. Disney+ is discovering that its streaming service may need to be a bit more niche than it originally expected… but that shift should mean incremental price elasticity of demand. Impressively, since launching the service at $6 a month in 2019, the price increases have compounded at a nearly 20% clip through 2023.
Another objective for the hikes is to drive more subscribers to Disney’s ad-supported tier. It rolled this plan out in early 2023 with Iger “very pleased” about the response. Specifically, 40% of its new subscribers last quarter opted into ads while Disney will debut the tier in Canada and Europe by the end of 2023. Ad-based plans deliver subscriber value beyond where Disney’s ad-free subscriptions had been priced. Hulu (Disney’s only profitable streaming service today) and Netflix have both explicitly demonstrated the same reality. It’s basically a no lose situation.
“The Disney+ ad tier continues to improve our ARPU.” -- Interim Disney CFO Kevin Lansberry
4d. Go Global
Disney is re-thinking global vs. local streaming distribution. Per Iger, Disney+ territory managers were becoming too… well… territorial. Disney was producing too much content at hefty price tags for specific markets without global appeal. Catering to the World instead of just the USA is another way to ensure dollars spent are as impactful as they can be. Yet another example of maximizing the value derived from incurred costs and behaving as a rational business. This is a key investment case theme.
Interestingly, Disney’s parks segment has always had this global focus. It has long welcomed visitors from across the world to share in globally relevant mining of its IP. Under Disney’s reinvigorated approach, it will emulate this philosophy within Disney Media. ESPN, Disney, Pixar, Fox, Lucasfilm and Hulu will ALL more strongly contemplate global relevance when looking at best use of funds.
4e. Hello Licensing?
When Disney+ debuted, it halted content licensing agreements with streaming competition to support its own product. As reviewed above, this thinking has been proven flawed. Interestingly, while Disney may be producing less content for itself, it may not be producing less content overall. As part of the Fox acquisition, the company secured a lot of creative talent. This creative talent will have less work to do given Disney’s new approach. Iger sees “likely opportunities” to allocate some of those extra hours to creating for other streamers and networks.
It will NOT license its core IP to the competition, but will more liberally license its general entertainment across the industry. This is another key sign to me that Disney is now singularly focused on maximizing shareholder value. Embracing licensing meshes well with its aim to get more aggressive on windowing content more frequently.
“Making use of all platforms is the best way to monetize.” -- CEO Bob Iger
4f. Consolidating Streaming Apps & Build Advertising Reach
Disney is tweaking its streaming go-to-market to focus more on bundling. Its current marketing campaigns focus on the “Disney Bundle” of Disney+, ESPN+ and Hulu while it just released a Disney+ plan featuring a plethora of Hulu’s content. The unification approach is really is just the cable bundle 2.0. It worked well with Disney’s international bundling of Star into Disney+, and its intuitive to think the same benefit will be realized domestically.
Note: Disney owns 2/3 of Hulu while Comcast owns the rest. Disney has a 2024 option to buy the rest at a $27.5 billion valuation. No decision has been made, but CFO Kevin Lansberry told investors he has zero liquidity concerns if Disney decides it wants to other 1/3.
Bundling traction would create Disney value in a few key ways. The first is intuitive. Cross-selling directly drives higher retention. Even with the discounts offered to bundlers, that churn advantage means better lifetime value and more visible unit economics.
The next item pertains to advertising. Since Disney embraced streaming, it has been a leader among legacy media players in implementing new technology. It has a tight partnership with The Trade Desk on the buy side to extract maximum value from its inventory. With The Trade Desk, streaming ad buyers routinely pay hefty impression premiums because of the incremental targeting granularity (and returns) it provides. That’s the luxury of the always signed-in nature of streaming which linear or other channels like web advertising have never enjoyed. Now, Disney knows exactly who is watching what while The Trade Desk helps it know what those eyeballs want to be sold. So? Ad buyers receive more value and are willing to pay more to Disney.
When paired with this tech upgrade, streaming app unification will mean more data scale and a better view of consumer preferences than Disney has enjoyed in the past. Today, 40% of Disney’s total inventory is addressable/targetable. That proportion will keep rising to further enhance the value of Disney’s impressions. Addressable impressions boast more resilient demand than non-addressable counterparts and that bodes well for the future. Need proof? You’d be hard-pressed to find any weakness in The Trade Desk’s 2022-2023 results despite it presiding in the violently cyclical advertising sector. That’s because essentially 100% of its inventory is addressable/targetable and because streaming is such a large chunk of its revenue.
Rita Ferro (Disney’s President of Advertising) has been an instrumental part of Disney’s ad modernization. Aside from working with The Trade Desk, she facilitated the opening of Disney’s ad inventory to other demand side platforms (DSPs) and data agencies and freed advertisers to enjoy what they truly want: Minimum frequency with maximum returns. She has been vital in bringing Disney+ targeting up to par with Hulu’s capabilities. Interestingly, Hulu is already comfortably profitable for evidence of the Disney+ ad-tier potential.
Now, Rita and Disney are working to debut more of a self-service buying process to cater to smaller ad buyers. This will unlock economically rational growth from these smaller customers due to diminished Disney service requirements. Incremental layers of automation allow Disney to actually fulfill this demand without jeopardizing unit economics. Exciting development.
Finally, like Netflix, the company will crack down on account sharing with new user agreements by the end of calendar 2023. This is expected to drive profitable growth more noticeably in 2024. Iger won’t offer specific stats on this issue but does call it a significant opportunity.
4g. Streaming Can & Will Be a Great Business:
There’s a growing narrative on streaming being an awful business. Based on the fully addressable nature of ad impressions, Disney’s rapid progress towards breakeven EBIT, and Netflix’s solid EBIT profile, I reject this notion.
Disney turned linear up-front ad selling into a phenomenal business despite the lack of data driven targeting and measurement. Do you really think that as eyeballs finish shifting to streaming, the incremental addressability can’t turn into that same cash cow? It will take time, but streaming margins should be just fine. Netflix’s CFO agrees as he recently told investors that he fully expects run rate margins to approach linear TV.
The perceived margin risk will take a while to fade away as streaming rationalizes spend, scales and consolidates. Give it time as the rest of these cost and value improvements play out. Investor preferences can change on a whim… operational pivots for massive organizations take longer to bear fruit.
“We wouldn't be doing everything we're doing if we did not believe that streaming was a business that would deliver long-term sustainable returns to shareholders.” -- Outgoing CFO Christine McCarthy
5. Disney Media -- Film Struggles
5a. A Tough Year:
Disney has been a hit content machine and box office dominator for a long time. It’s had one successful franchise after another capturing the hearts and minds of the World. While that dominance has served the company well for a long time, it now seems to have morphed into a form of complacency that Disney now needs to address.
So far in 2023, the new Ant Man sequel missed expectations and burned through tens of millions based on lackluster ticket sales. Its Indiana Jones Sequel (A billion dollar, can’t miss franchise) lost significant money as well. Both cases point to real sequel fatigue. Little Mermaid disappointed by barely crossing $500 million in total box office sales -- by far its worst live action remake to date. The title needed $600 million just to breakeven after accounting for a $250 million product budget plus marketing and distribution costs.
Lightyear also lost money with just $227 million in total sales on a $200 million budget for production alone. Some think this was because it laced cultural issues into the plot which turned off some cohorts. Specifically, Lightyear was blocked in 14 countries throughout Asia and the Middle East for showing same sex kissing. Many think its underwhelming “Strange World” release failed for the same reason of infusing politics into entertainment. With Pixar’s niche being children, whether you like it or not, some parents aren’t comfortable exposing their young kids to these titles. That’s Pixar’s reality and it must adjust to deliver optimal shareholder value.
“Haunted Mansion” late last year was arguably the worst opening weekend for a Disney film in a long, long time. It generated just $33 million in global sales and awful reviews despite a $150 million budget. Movies generally need to earn about 2.5x-3x their production budgets to turn a net profit. These didn’t and Iger explicitly acknowledged the “disappointment” on the firm’s last call. All of these issues rhyme with streaming’s issues: Too much content and too little focus on the quality of storytelling and entertainment. Tighter emphasis and reuniting content and financial teams should help mightily.
2023 wasn’t a total bust for Disney and gives it a clear idea of what actually continues to work. The “Guardians of the Galaxy” sequel actually did very well while “Elemental” also recovered shockingly well following a poor opening weekend. Ticket sales from week 1 to week 2 fell by less than 40% which is comparatively very good. That momentum has continued. Reviews for both films were excellent and polarizing scenes were not part of either movie. Maybe a coincidence… but probably not.
Furthermore, box office revenue isn’t the end of value creation for Disney film releases. The Little Mermaid release, for example, has led to strong merchandise sales which offset the theater traffic weakness. So while it lost money as part of the release, these sales surely buffered the burn. That’s why the $900 million loss estimate floating around from Disney’s last 8 releases is misleading. The figure ignores the other levers it has to pull to generate more revenue and EBIT from a given title.
Looking ahead for the rest of the year and into 2024, there are a few big tests that bear attention. Pixar’s “Wish” will debut in November. “Snow White” and “Moana” will come in 2024 as key live action remake tests. “Mufasa: The Lion King” will also be released next year as a sequel to the iconic IP (We’ll see if it has staying power). Hopefully the great “Guardians of the Galaxy” results are a sign that sequel fatigue is really just poorly done sequel fatigue.
5b. What’s Wrong with Box Office Costs?
So what the heck is happening here? I’m glad you asked. There are issues on both the demand and cost sides. Let’s start with cost.
First, production budgets have gotten out of hand. It has spent nearly $1 billion on its largest group of films this year with single movie costs routinely surpassing $200 million. Higher costs mean a higher minimum revenue threshold to clear to turn a profit (even with merchandise and indirect park traffic boosts from releases). For example, while Super Mario Bros. cost $100 million and generated $1.3 billion in total sales, Indiana Jones cost $300 million with much lower revenue.
Cost control efforts are now live, but the results will take time to materialize. Movies are several years in the making meaning fat trimming today likely won’t mean more profits for quite some time. Still, there are smaller shorter-term aids that should start to kick in soon. The pandemic ending helps. Movies became more expensive to produce amid pandemic controls, constant interruptions and frequent testing requirements; those associated costs should vanish. Furthermore, Disney is shifting more content production to the U.K. to take advantage of its 25% cost reimbursement incentive.
All of this is taking place while Iger’s team obsessively reviews cost drivers to identify every single source of possible savings. There are redundant and unnecessary expenses to eliminate without sacrificing quality. That’s now a priority.
5c. What’s Wrong with Box Office Demand?
Content is King:
Iger’s mission to “place creativity back at the center of the company” is telling. To me, this is his subtle way of saying the progressive agenda will take a back seat to simply creating the best films possible. That has to be Disney’s focus. Still, I don’t think the infusing of political topics into films is the root cause of demand weakness.
In my mind, the issues are related to content quality and balancing. First with quality, reviews for most of its recent films have stunk. Fans are growing tired of being inundated with one Ant Man title after another and instead are looking for something fresh. As briefly mentioned, Guardians of the Galaxy notably bucks this trend and shows the continued potential for SOME sequels to work. But Disney needs to be more selective in what it green-lights which Iger has directly acknowledged. It is intentionally slowing down the cadence of some sequel releases to try to reverse some of the over-saturation.
Streaming Balancing Act:
Disney+’s initial success led to a rebalancing in priorities that is now costing its film studios dearly. To appease and retain its rapidly growing list of subscribers, it leaned heavily into series production from Marvel, Pixar and Lucasfilms. For context, it has been nearly 5 years since the last Star Wars movie with several more years to go until another may be released. It felt the pressure to populate Disney+ with shows while in the past it simply balanced linear TV with film content creation. A third leg was added to this balancing act and it got overly focused on it. Disney bore the cost of its priorities drifting too far towards streaming series creation.
Iger explicitly told investors this in a recent interview. In it, he blamed “Marvel’s mass of Disney+ content” and some windowing decisions as the reason for box office weakness. He added that some “creative misses” were to blame, accepting accountability for some poor films. Again, “placing creativity back at the center,” conjoining content and financial teams and fully fixating on quality content is the recipe to resolve all of this. Disney has been a content king for a long, long time and it has more than enough IP, talent and brand power to continue on in that role.
“There’s nothing inherently off with the Marvel brand. We just have to look at the characters and stories. You’ll see a lot of newness in Marvel over the next 5 years. We’re going to bring back the Avengers but with a new set of Avengers.” -- CEO Bob Iger
As a brief aside, this pain is not solely Disney-specific. It still owns a leading 37% share of box office ticket sales in 2023 to offer signs of Disney’s struggles being related to sector-wide weakness. Sales still being 20% off of pre-pandemic highs adds to that evidence pile. Across the globe, the lingering pandemic lockdown in China well as the loss of Russia as an international market has been tough. China is coming back, Russia comps will normalize and Disney will look to execute more consistently.
The Theatrical Window:
Part of box office normalization is re-embracing exclusive theatrical windows. In 2020, Disney began releasing films to Disney+ and theaters on the same day with this approach lasting through most of 2021. Pixar did this until spring of 2022 which is likely why its weakness has been the sharpest of the studios. While Disney does well with streaming films (Nielsen reports it had 10/15 most streamed 2022 titles), it needs to find a way to maintain this traction while embracing theaters like it’s now doing.
The timing change conditioned movie goers to know they could simply watch at home which more casual fans did. Super fans will also routinely see a movie in theaters several times, but the proximity of streaming availability diminishes that urgency. That reality cannibalized Disney’s box office success and alienated theater partners. It’s intuitive to think that this is a material reason for 2023 being the first year in 10 that it may not have a $1 billion+ release.
Just like Iger and Disney are restarting more enthusiastic series licensing, the company is reinstating theatrical window exclusivity. It takes time to retrain movie fans, but that process is underway. The newest Avatar is a wonderful example of how impactful proper windowing could be over time. While it was the 3rd highest grossing film ever, it has also been a key engagement driver in home video release and streaming.
Extract more Value per Title:
Disney was raking in the dough from streamers like Netflix and Max before it started competing with them. Again, as part of its realization that “exclusivity isn’t all that valuable” for driving subscribers, Disney is re-opening its arms to these types of agreements. It cannot be said enough: If you’re incurring steep costs, it’s silly not to monetize wherever possible. This is what rational businesses do.
All in all:
Disney needs to get back to its roots of creating great content and storytelling. It needs to better balance film and TV resource allocation, needs to cut per-film costs and needs to recapture the magic that has made this company so ubiquitous. It has all of the needed tools and is making decisions that quietly convey (to me) its willingness to change for the better.
6. Disney Media -- ESPN
You’ve likely noticed that a key investment case piece is Disney’s willingness to optimally generate profit from incurred costs. It has frustratingly forgone low hanging fruit for years. That’s now changing, and nowhere in this business is the change clearer than with ESPN. Let’s start with gambling.
Disney’s ESPN is rich with highly valuable and wildly expensive live sports content. It spends billions for NBA, College Football, Olympic, FIFA World Cup and NFL rights. Paying up for these rights does make some sense. 90% of the most watched titles in North America are live sporting events while Disney owns roughly 1/3 of those watch hours with ESPN. This drives traffic to linear channels and (eventually) subscribers to its streaming apps.
Furthermore, with live sports widely seen as the last domino to fall in the cord cutting trend, Disney has a certain amount of control over pace of this evolution. It will choose when to move ESPN’s content to streaming once and for all and that will likely mark the nearing end of linear TV.
While paying up for these rights makes sense, actively choosing not to fully monetize the traffic you’ve already paid for makes no sense. This is why it has been so baffling to me that Disney hasn’t entered sports gambling. Evidently, I’m not the only one because now it has.
Disney recently announced a new ESPN Bet app as part of a Penn Entertainment (PENN) partnership. Penn will rebrand its Barstool Sportsbook app while the two entities share promotional and cost burdens. As a nod to ESPN’s clout, Penn sold Barstool Sports back to its old owner for $0 just so that it could work with Disney (Disney wouldn’t work with Barstool).
Penn will pay Disney $1.5 billion and considerable stock warrants for ESPN brand access over the next ten years. Iger was asked “why Penn” on the last earnings call. According to him, Penn simply proposed an offer miles better than any others on the table. He couldn’t refuse.
The main risk I see within this partnership is the actual quality and interface of the newly branded app. The Barstool product is awful compared to all others on the market and that was Penn’s fault. Considering how low consumer switching costs are here, ESPN and Penn have a lot of work to do to bring it up to par with DraftKings and Fanduel.
Sports gambling is set to cross $10 billion in total revenue this year for a trailing 5 year CAGR of 98%. ESPN is synonymous with sports for passionate fans and infusing interactive bets within lives games could intuitively build rapid traction. It should absolutely take a meaningful piece of the pie. Considering Disney is entering the fray AFTER the 2020-2021 period of irrational promotions to chase market share (the one silver lining of being a late entrant), the unit economics associated with this revenue should be fine. Again, Disney already has all of the eyeballs. It’s exciting to think what monetizing the value of these eyeballs will mean.
6b. ESPN’s Path Under Iger
Beyond sports gambling for ESPN, Disney is exploring strategic partners for the media brand to help with distribution and cost sharing. Rumored partners include Apple, Amazon and/or Verizon which all represent compelling opportunities to grow this asset in an economically responsible manner. Regardless of the partner, Disney will retain majority ownership in the business. Again, streaming lacks the consolidated distribution partners that cable provided for decades. Disney is now required to seek out that distribution aid and partners can help to mimic it. The aforementioned Charter deal is one way to do so and this is another.
Either Amazon or Apple (or both) would be wonderful partners for another reason. Both aggressively bid on sports right content just like Disney does. Both have deeper pockets than Disney’s. Working with either would make bidding less competitive and would make mega-cap tech competition less intimidating. I’d love for Disney to find a way to partner with both. If that’s not possible, partnering with one of the two seems almost imperative at this point.
Beyond partnerships, like other Disney units, ESPN will “become more selective” with content spend. This incremental selectivity won’t be as noticeable for ESPN as for its scripted content. Still, Disney will still look to modestly tighten ESPN’s spending belt going forward.
ESPN will eventually be a streaming app. As this transition shakes out, its ad impressions will become more lucrative thanks to the aforementioned targeting edge that steaming provides. As an indication of where an ESPN streaming app could go, look no further than ESPN+. This is a secondary service to ESPN without marquee content but just some random games and programming sprinkled in. While that doesn’t sound compelling, it has already crossed 20 million subscribers. Fans sure do love their sports.
7. Disney Parks and Experiences (DPEP)
DPEP is the healthiest portion of Disney’s business today. There has been a lot of noise about recent performance, but after digging all the way in, the segment is fine. It certainly has its risks and challenges, but none are insurmountable.
7a. Some Service Missteps
In 2022, under Chapek, Disney hiked ticket prices at its parks considerably. Per Iger, these price hikes were too aggressive, “alienated customers” and distanced Disney from the affordable brand it strives to be.
Iger has quickly made changes to address this negative blowback. Here’s a bulleted list of the key changes implemented:
Added new employees to help with crowding; ramped tech investments to automate and expedite processes.
Added new campuses across its parks to space out traffic and “mine value” from more of its IP. More are coming.
Extended its early bird discounted ticket specials from available 15 days per year to 50 days.
Relaxed reservation requirements for annual pass holders while adding days they can attend with no reservation. This reservation system was implemented in 2020 due to pandemic capacity restrictions.
Cut some concession stand prices.
Reinstated comped self-parking at its Florida resort.
Debuted free photo downloads for Genie+ customers (which lets you skip some lines).
Intentionally limited capacity to reduce crowding and enhance the guest experience.
That last bullet points leads us perfectly into the topic of reported park traffic declines. For several quarters, Disney has been actively and intentionally capping its traffic to re-capture its reputation of strong service and to improve experience. This approach has been in place all year while it “looks to get more creative at managing capacity” via automation, park expansion and better employee training. Service quality is priority one, but Disney is fixated on growing visitation while maintaining this core objective. New exhibits using Moana, Avatar, Frozen and other IP are actively being built. Overall, Disney will keep aggressively investing in park expansion projects like the several year EPCOT transformation now wrapping up. That will all help a ton with expanding capacity without creating off-putting crowds.
Along these same lines, the pandemic gave Disney a chance to tweak its service without disrupting park traffic. It used this flexibility to implement the aforementioned reservation system, modernize its tech stack and implement dynamic pricing that floats with demand. The updates have improved Disney’s ability to balance crowding, allocate labor hours more accurately and manage traffic to improve its parks’ abilities to delight guests.
From a pricing perspective, per Park Chairman Josh D’Amaro, Disney got much more “precise with promotions” amid the negative demand shock. That should make its DPEP segment more efficient through the next cycle and could leave perhaps more margin upside as well.
This month, Disney finally reintroduced parking lot trams from Resort Hotels to its Epcot and Hollywood studios. These were taken away during the pandemic when attendance caps remained heavily restrictive. Disney had told fans to expect this return by the end of 2022, but only met that promise for Magic and Animal Kingdoms. Now it’s doing so for the remaining Walt Disney World parks. It’s a 15+ minute walk to various parks without the tram; Florida gets very hot in the summer, especially in 2023. This development seems small, but is an important one for making attendance as convenient and comfortable as possible.
“Following recent changes, we continue to see positive guest experience ratings and positive indicators for future bookings.” -- CEO Bob Iger
7b. Traffic & Margin Risk
There have been reports swirling about Disney’s park traffic vastly shrinking Y/Y. None of these reports mentioned Disney’s intentional capacity caps and, simply put, they’re inaccurate. Domestic park attendance has modestly risen throughout the year. This growth is despite daunting comps related to lapping the Walt Disney World 50th year anniversary celebration. Furthermore, Disney’s international park growth has been a bright spot for the company as it outpaces domestic performance. Paris and Japan parts are thriving while its Greater China parks recover.
The Actual Data:
Overall, DPEP EBIT rose by double digits Y/Y this past quarter. DPEP in North America also continued to grow despite Walt Disney World seeing EBIT declines via lapping its important anniversary. Walt Disney World’s profit decline was materially amplified by a $100 million accelerated depreciation charge for its Galactic Starcruiser experience. Perfectly timed headwinds. These costs will continue to weigh on DPEP margins by another $150 million next quarter with that charge vanishing for fiscal year 2024.
Despite tough Florida Park comps, EBIT there has compounded at a healthy 7% clip since 2019 with revenue compounding at a 5% clip. Its California park continues to “perform very well.”
Interestingly, Disney’s political drama with Florida government has not been a material headwind to park traffic. That data just doesn’t spell out the death of Disney parks that many media pundits are inexplicably arguing. Sometimes noise truly is irrational. Still, there is room for improvement.
“Political headlines have not impacted the parks business. The things that have taken place have had zero impact on business results.” -- Park Chair Josh D’Amaro
Tough Walt Disney World comps and depreciation charges will both fade away soon enough. This will happen while China rebounds and poor macro shows signs of bottoming. Chaotic macro hits discretionary spending and expensive trips to Disney’s parks certainly aren’t spared from this reality.
For Asia specifically, recoveries across both Shanghai and Hong Kong parks were “better than expected.” Specifically, revenues spiked 94% higher Y/Y last quarter thanks to Shanghai finally being consistently open for business. When pairing international tailwinds with resilient domestic performance, improving macro, normalizing comps and effective service enhancements, there’s a lot to like about prospects here.
“Forward bookings across Asia are very strong.” -- Old CFO Christine McCarthy May 2023
Some think these factors are just excuses to cover up more structural, Disney-specific issues. I simply don’t agree. Concrete tax collection data in Florida clearly shows tourism weakness as the unleashing of pent-up demand normalizes following Covid. If this was a Disney-only problem, the state wouldn’t be seeing this broad-based weakness across ALL of its theme parks. This is not an existential Disney problem. This is a transient consumer issue that Disney continues to overcome reasonably well.
How can that weakness coincide with other travel players like Airbnb performing well? Because cross-border travel to Europe is recovering and domestic travel is no longer the only game in town. That’s also why its international parks are outperforming domestic while China’s reopening helps a lot too.
All previously discussed issues make Disney’s continued top and bottom line growth in this segment more impressive. While the media segment is recovering from a point of uncertainty and weakness, the parks segment has more room for improvement from a point of strength.
7c. Park Growth Prospects:
DPEP has plenty of growth left to enjoy beyond the macro backdrop becoming more favorable. Its thriving cruise line is operating at 98% capacity despite just launching a new ship. It will launch 3 more over the next 3 years to reach 8 in total.
Disney also has, in Iger’s words, “a lot more land than people are aware of.” It sees ample opportunity to build out its existing parks footprint which will mean more revenue while maintaining quality service. It’s currently adding large Zootopia, Frozen and Peter Pan exhibits around the globe. Interestingly, its removal of 3rd party debt and equity partners in its Paris park also gave it more flexibility to build out that destination.
Florida, however, will have new competition from a new exhibit being opened by Universal in 2025. That could diminish some expansion opportunities and pricing power as well. Leadership doesn’t see that happening, but it wouldn’t be surprising if they’re wrong here. This is somewhat of a zero-sum game with finite total demand.
8. More Risks
While better execution across its business is the main risk here, there are others as well.
8a. Streaming Profits and Margin Maintenance:
While I’m optimistic on where streaming EBIT margins can go, nothing is certain. The competitive landscape is highly fluid. Linear and broadcast have helped drive Disney’s profit growth for a long time. As its content moves towards streaming, that linear profit driver will have to be replaced. I’ve spelled out why I think that will happen. Still, the process will be a long one and you’ll constantly hear people tell you that streaming can’t make money while it plays out. I consider this to be noise.
Along these same lines, there’s real risk to how durable Disney’s profit compounding will actually be. It has essentially manufactured expected 8% non-GAAP EBIT growth this year via cost cuts. Those cost cuts cannot continue forever and will eventually need to coincide with strong demand for the money making machine to keep churning. The world is trying to decide if profit growth is one-off or durable. I’m optimistic, but time will tell.
8b. Writer Strike:
The Writer Strike is ongoing and there’s very little clarity on when the situation will be resolved. Disney is a bit insulated from this threat thanks to its ample live sports content… but emphasis here is on “a bit.” The Strike will still greatly impact Disney with that impact intensifying as negotiations drag on. The longer this lasts, the bigger the scripted content hole becomes. The small silver lining is that lower content spend will mean more free cash to pad its balance sheet. That will be a temporary phenomenon and is not a structural change… so it’s less important.
The Alliance of Motion Picture and Television Producers (AMPTP) represents Disney, Netflix, Paramount, Amazon Prime and others. Last month, the organization submitted its latest offer to Writers Guild of America (WGA). The offer included a 13% pay raise, generative AI protections and minimum employment lengths. Shortly after the meeting, AMPTP publicized the details which WGA called a move to get them to “cave.” The response hints at this offer not resolving key issues and this strike continuing for now. The longer it goes, the tougher 2024 content slates will become to deliver. This is something to closely watch.
8c. Poking its Nose in Culture:
I would love for all of my investments to entirely avoid taking stances on controversial political issues. Be quiet, execute on your objectives and deliver for shareholders. That’s all you need to do. I’m confident that Iger will be a more neutral leader than Chapek and equally confident that Disney will optimize its financial results rather than its influence on pop culture. Its decision to drop part of its current Florida lawsuit was an important step, but it should just throw out the entire thing. It’s not a matter of left or right wing, but shareholder value maximization.
As briefly mentioned, Disney has turned the Florida government from a close ally to a bit of an enemy. The battle resulted in the state removing the firm’s special tax status for Walt Disney World. It also meant replacing the Reddy Creek Improvement District with the Central Florida Tourism Oversight district. The former was full of Disney loyalists who ran Walt Disney World while the latter is full of DeSantis loyalists.
This new district board recently filed another complaint against its predecessor. The complaint stems from offering impermissible free passes and discounts to district employees such as Firefighters. The accusation involves just $2.5 million in total, so the financial hit would be immaterial. What is material is the adversarial relationship between the company and the Florida state government. This could cost Disney more money and control over its Florida park in the future. While Iger was rather sharp in his criticism of Florida’s government when he re-took over, he has since quieted down. I’m optimistic that this will continue given his track-record of maintaining good government relationships in the past.
8d. Capital Allocation:
Iger overpaid for Fox as part of his prior tenure. To be fair, he also facilitated highly successful Marvel, Lucasfilm and Pixar acquisitions. Regardless, investors will always focus on the risks when discussing large scale M&A… and rightfully so. Disney has shown a willingness to make multiple big splashes like these. I would like for them to avoid doing so for the foreseeable future. If anything, it should be selling assets.
Disney’s debt load has ballooned in recent years from under $20 billion in 2014 to nearly $50 billion today. Between large acquisitions, buybacks and its access to very affordable rates, it has understandably leaned heavily on credit. That’s fine when your free cash flows are hefty, durable and growing. Disney’s cash flow, however, has actually fallen since 2014 from ~$6 billion to $4.2 billion expected this year. That’s likely why the buyback cadence has diminished and share count growth has resumed. Cash flow spiked higher this past quarter, but that was helped by the ongoing writer strike.
Debt has been a strategic decision to fund its operations, but it does need FCF to re-ramp to further de-lever its balance sheet. The planned reinstatement of a small dividend this year shows a belief that the re-ramp will occur.
Finally, there may be a fresh cash infusion soon coming from its linear assets. Rumors are swirling that Disney is exploring a sale of ABC to Nexstar and also received a $10 billion bid for channels including ABC, FX and National Geographic from Byron Allen. I would wholeheartedly support either move. Both would give Disney more cash to fund its targeted content spend while ensuring linear stays a (decaying) cash cow in the years to come. Additionally, this would allow it to focus more strictly on differentiated content vs. general entertainment. Liquidating the excess while it can makes a ton of sense. Get it done.
9. Financials, Overly Simplistic Model & Plan
Demand and profit compounding over the last several years have not been stellar. As a new shareholder however, I care less about where metrics have gone and a lot more about where they’re going. All of the qualitative factors already discussed should translate into compelling demand and profit compounding over the next 3 years.
In what will be a very tough year for the Magic Kingdom, the company will still grow revenue at about 8% Y/Y. It has reiterated this expectation on every fiscal year 2023 call so far. Over the next three years, sell side expects revenue compounding of roughly 6.5%. A lot of negativity is baked into this estimate.
Considering betting coming online, strong streaming pricing power, cruise line capacity additions, park expansion projects, easier comps and stabilizing macro headwinds, there could be some upside to this figure. Uncertainty within the linear to streaming transition, however, makes me hesitate to assume any upside here.
I think 6.5% growth is actually a good, margin of safety-building guess which I used for my base case. The 9.8% trailing 5-yr revenue CAGR for DPEP is a decent growth ceiling to strive for. The 6.7% trailing 5-yr media CAGR could possibly accelerate as cord cutting intensity wanes and streaming scales. Considering the 2/3 contribution of Media to the whole business, this leaves ample room for disappointment with this investment still working.
From a profitability perspective, Disney is looking for 15% EBIT compounding for the next 3 years. Analysts also expect 18% earnings per share (EPS) compounding and 37% free cash flow (FCF) compounding (easier base) over the same time frame. This implies meaningful operating leverage which should be a safe bet considering shifting priorities, cost cuts and how easy profit comps will be going forward.
Iger already raised the $5.5 billion cost cut goal he strived for when he took over. Disney continues to identify more fixed cost to shed while it looks forward to the other margin tailwinds already covered. All of these factors taken together provide a degree of optimism in exceeding sell-side estimates. Like with demand however, I’m not willing to bake that upside into my investment case.
I do believe that assuming a 15% FCF margin at the end of a 3-yr planning period is safe. That’s below Disney’s previous cycle high by a decent spread. EBIT should become a better and better FCF proxy as it gets content spending in check. This 15% free cash flow margin assumption does not rely on much operating leverage from here, but simply better working capital dynamics which it’s fixated on delivering. I again think my margin and profit growth assumptions are too pessimistic, but necessarily so.
Disney does not need a lick of upside for this investment to work. It’s about 80 days away from trading at 17x forward earnings and 13x forward EBIT. That works quite well considering the forward estimates and the still (yes still) pristine nature of this brand. I’ll take a sub 1x forward PEG for a firm of this stature any day of the week.
Items to note from the charts above:
GAAP margins for Q3 2023 were hit by the large restructuring charge from exiting some streaming content. Non-GAAP margins adjust for this one-time charge.
3-yr bps comparisons include the weird pandemic era for Disney. This makes 5 year bps trends a more reliable metric. You can see the margin contraction playing out here.
The last chart above clearly depicts how Media’s transition from linear to streaming has been the root cause of Disney’s margin contraction.
Far from a crowded trade, the latest 13f season was not a kind one to Disney. It showed just how deeply out of favor its stock has fallen. Funds with Disney in their top ten fell by nearly 50% to 48. That could just be a product of the tanking stock, but new positions started also fell by 42% and closed positions rose by a whopping 79%. Funds aim to beat benchmarks quarterly and Disney’s turnaround will take much longer than a quarter. Considering this, the trend makes sense. The luxury of not needing to outperform on quarterly basis is a delightful thing.
$11.5 billion in cash & equivalents with another $2.4 billion in content advances and $10.5 billion in undrawn revolving credit capacity.
$3 billion in total investments and $1.1 billion in empty land.
$44.5 billion in debt with $2.6 billion current or due in the next 12 months.
Interest rates on its debt tranches range from 0.875% (due in 2026) to 3.8% (due in 2060). Access to rates like these is a company strength and is why its debt position has grown.
Moody’s Disney debt rating sits at A2 and is stable. Standard & Poor’s rates it at A- and positive (meaning improving). Fitch rates it at A- and stable. All ratings are comfortably in investment grade territory.
Share count has resumed very slow growth while the buyback is halted.
Overly Simplified Modeling:
My modeling motto is keep it simple and take it with a massive grain of salt. As Buffett and Munger will tell you, modeling involves making predictions about unknowable future variables and is a waste of time. Tweak an assumption just a tad and you’ll be left with completely different scenarios. This is why I spend all of my time learning the business, its prospects and risks. This provides a deep understanding of the firm’s financial statement plumbing. With that work already done, spending more than 30 minutes developing a simplistic model offers deteriorating marginal return for time spent.
Still, I know a lot of you want to see this in the piece, so I’ve included 3 overly simplistic scenarios based on all of the assumptions I provided. As you can see, these prudent and perhaps somewhat pessimistic assumptions still would leave shareholders with strong returns.
I started a Disney position on August 11th. My current cost base is $87.71, and I consider my position to be half full at this time. Anyone trying to call a bottom here is purely guessing as always. I have no clue where the bottom is. The chart is ugly, drama continues to surface and investor sentiment remains putrid. When will that all change? As financials show signs of improvement over the next several quarters… certainly not overnight. This company needs a turnaround which will take time! Patience here will be required as it usually is. I don’t expect this to right the ship nearly as rapidly as a firm like Meta did. There’s more to fix and those fixes will take more time to bear fruit.
Today, I simply know that the recipe and team are both in place to revitalize this company. If the multiple continues to contract via share declines or estimates rising, I’ll continue to add. It’s already cheap, so these additions will be more aggressive than they’d be vs. a pricier growth position. Long Disney… hopefully for a long time.