Thoughts on Disney:
Disney is valued at 180 billion dollar - roughly the same number that it was valued in 2015. For almost 8 years - stock price/valuation of the company has went no where. Yes- there was a good “trade” opportunity when it went to 80$ stock price during covid low of 2020 and went as high as 200$ during market peak in 2021, but it is back to where the price of the stock is in 2015 (just below 100$). There are multiple reason behind it.
1. Company was decently priced back in 2015-2016 era. They were making 55-60 billion dollar in revenue - spending total of 45 billion and creating a profit of 9 to 10 billion dollars. You generally give 18 to 20 times profit as your valuation and hence it was valued roughly 180-200 billion dollar valuation. But there was no “Growth” - neither in Revenue nor in profit.
2. So, they made the acquisition of “FOX” assets in 2015 for 70 odd billion dollars. If they would have executed that deal well - it might have worked out, as they were making 10 billion dollar in profit, they had some cash in hand - so to compete with Netflix and jump in the streaming business was the right approach.
3. However, the problem was - completion of the deal took almost 2 years and in the mean time, Board was unwilling to pay their CEO Bob Iger big salary. So he wanted to move on and retire. Perhaps he had some political ambitions (not sure), but him leaving and not seeing through the completion of the FOX deal and success of Disney Plus - created big issues.
4. On top of it - Disney Board made their next CEO as someone who handled their PARK - resulting in less focus on Disney Plus/ Movies. Their movie content went below par, parks were unable to do business during Covid, and they also had debt of buying fox assets for 70 billion (not all , but some debt).
5. Disney board realized their mistake and got Bob Iger back but he said - he is here only for 2 years. He will probably focus on fixing issues with Disney Plus, but we are not so sure on who is going to take over once he leaves.
So, now we have a company which makes 80+ billion in revenue but they spend 75+ billion - resulting in profit of only 3 to 5 billion dollars. Based on their current profit - it should be valued 1/3rd of it - but investors are willing to give a chance to Bob Iger to do his magic and put Disney back to business. But there are lot of issues..
1. Their current political fight with Florida Governor - put park business in a Jam
2. Political issues between US and China - also put their park business or movie business in china in a jam.
3. ESPN is consistently losing money for years and they are not able to create a separate company for it.
4. Hulu - seems to be a product that neither consumer, nor NBC/Comcast wants to buy from them.
5. Hotstar - Fox asset is also losing money.
6. Debt they pilled up to get money for FOX Assets - now has increased interest based on Fed interest rate moving from 0 to 5%.
Even if every issue gets resolved and some how Bob puts company back to 2015-2016 era of resulting in 9 to 10 billion dollar profit (which market assumes, he will in a year or two), that puts company valuation exactly where it is now. So, in order for it to “GROW” - it has to resolve all of above issues - and be able to compete with Netflix/Amazon on streaming business (which is a very tough ask). Market has so many great opportunities, I am not sure it is wise to stick to company just for the “Brand” name it has - in a hope that it will go back to it’s Glory days - plus - they do not even pay Dividend anymore (rightly so as they don’t have money for it).
