What is going on guys, Nick here back with another video! Disney reported earnings on February 8, and
overall it was definitely a really strong quarter for them, showing a lot of really good progress.
The stock saw a pretty good drop over 2021, but has seen a pretty good rebound from it's lows
in January 22. So let's see what changed during this quarter and what the stock is now worth.
First streaming numbers came in strong after adding 12M new subscribers during the quarter. And
since the last quarter came in a little light, a solid bounce-back shows Disney plus is no surprise
in good shape. It was just one bad quarter that happens sometimes and not a new trend. Disney
also says they plan to invest even more in streaming towards content,
including a bid for the NFL Sunday Ticket.
Disney Parks saw a good bounce back, with revenues at $7.2B vs $3.6B in the
same quarter last year. They were able to return to profitability with $2.5B
in operating profit vs the $100M the parks lost last year. As the parks bounce back,
it's going to really help Disney out by adding back a big chunk of their lost profits.
During the earnings call Disney mentioned the Disney's Parks in
Florida still haven't seen a return of international travelers. Those
international travelers accounted for about 18% - 20% of their guests in the
past. So there's definitely still plenty of upside the parks still have to recover.
Disney said they're still experiencing issues with TV and film production.
While some of their theater releases were some of the best films of the year,
movie theater traffic is still down, making it much harder for Disney to turn a profit here.
So Disney reported earnings of $1.06 adjusted vs the $0.63 expected. And revenue came
in at $21.8B vs $20.9B expected. Disney Plus subscriptions came in
at 129.8M vs 125.8m expected, so there were very solid beats across the board.
When we look at the trailing 12 months worth of earnings from each quarter,
we can see the most recent quarter in red, was a pretty substantial
profit for Disney showing their recovery is still going very well.
Looking at the past 10 years of revenue and income for Disney, we can see that things
have definitely been tough for them since 2020. Still, we can see that Disney continues to grow
revenue and has recovered nicely since then, so things are definitely looking up for them.
Now Disney changed how they report their segments a bunch. Still, the two major segments are the
media and entertainment, which are all of the TV channels, movies, and Disney+. The parks
businesses is obviously the parks. But we can see that media and entertainment surprisingly has
actually been dropping in profit over the last 3 years and a quarter. In 2019 it made
8.3B in profits, vs $7B in profits over the last year. But revenue has increased over this time.
Because I was curious about what was going on,
I made a second segment chart showing the media segment broken down.
So we have the TV segment in blue, direct to consumer, which is mostly Disney+
in green and the content sales/Licensing, which used to be called their theater segment in red.
We can see that TV hasn't really shown any growth since 2019. 2020 was actually its best
year over the last 3. While they did record 125M subscribers, Disney Plus
is actually still losing them $1.8B a year.
For comparison, Netflix hit 125M subscribers in 2018. They brought in about $16B in
revenue and $1.2B in profit during that year. These are the net income numbers,
not the operational profit like you see for Disney+. However,
I'm not sure that Disney is very pressed to make Disney+ profitable yet, and streaming
is Netflix's entire business, so this might not be a great comparison, but still interesting to see.
When we look at Disney's current forecasts, analysts see a pretty strong rebound going
forward. Disney is expected to recover their revenue and profits going from $73B in revenue
and $3B in profits over the last year, to $102B and $12B in profits during 2024.
When we look at their revenue growth, the company is projected to slow down by 2024,
growing only by 11 and 8% in those years. However, looking at net income growth, since
the parks business should gain a lot of profit growth, and Disney+ will likely eventually become
profitable in the next couple of years, the current projections are between 29% and 22%.
What makes this valuation very tricky is there are a lot of moving
parts with the different segments. Also, there's probably going to be a multiple adjustment with
the changing business. Historically Disney has traded around a P/E of 14 - 20, which reversing
my P/E calculator tool, gives them a growth rate of around 4 to 9%. This is going to be too low
for them. My guess is Disney will and probably should get a bump up to around 12% to 16% growth.
My thinking is while the parks coming back and Disney+ will boost profits,
the parks business can only recover to 100% of what it was, then it continues
at the growth it saw in the past. Netflix's growth is slowing down around 200M subs.
Since Disney+ has more international appeal, I think they'll pass that number. However,
my guess is that they'll start to slow like Netflix around 250 - 300M subs.
So a growth rate of 12% gives us a fair P/E value of 26.
And a growth rate of 16% gives us a fair P/E value of 37.
So this does put Disney in about it's fair value range with 2024 having an upside of about 21%
for the low end of the range, and 73% for the top end. Now, this earnings multiple
is up from where I valued them in the past, and I think the issue was I needed to add a little more
of that profit growth. Some people said they should trade at the same multiple at Netflix,
but I don't really agree because we're using an earnings multiple and not a total value.
This is hypothetical, so don't take it and run with it, but if we said since Netflix
has a market cap of $173B, then Disney Plus should add around $200B to Disney's valuation,
I think that's a more reasonable argument to make. But that's not the same as saying
Disney should trade at a P/E of 30-60 because that's what Netflix has traded at.
For Disney to justify the same earnings multiple as Netflix, they would have to
grow their entire business just as fast. So when we look at Netflix vs Disney's profit growth,
we can see how different the two have been. Before covid Disney was growing around 8 - 15%
on average, while Netflix was having a bad year if it only jumped by less than 50%
So, just a little extra explanation for you.
Thanks for watching till the end! But before you go, make sure you check out
this great video I have over here for you next. And as always, thanks for watching!