Keeping an Eye on Disney Stock
One of the most dynamic CEOs alive is Bob Iger, the head of Walt Disney Co (NYSE:DIS). Iger has built DIS stock into a revenue-generating machine, yet the share price is currently trading 21.5% below its 52-week high. Is Disney stock underpriced?
To put it mildly, yes. Disney is trading at a significant discount right now, reflecting fears that ESPN will not survive the digital revolution. The studio’s flagship network has lost seven million subscribers in recent years. Markets punished DIS stock accordingly.
From my vantage point, this is a huge overreaction. I would understand the panic if ESPN couldn’t recover those losses or Disney had a gaping hole in its financials, but neither of those things are happening. DIS stock is solid as a rock.
In reality, Disney’s bottom line is growing and its properties are getting more valuable. I don’t know why everyone is so worried. Sure, the modern media landscape is tricky, but Bob Iger is one of the few CEOs who get it. I’d put my money on that guy.
If there’s anyone in the entertainment industry who can produce huge gains for their shareholders, it’s sure to be Bob Iger.
DIS Stock: Franchises and Technology
Iger has developed a business model for Disney that’s proven incredibly successful. Theme parks have long been a central feature of the firm’s merchandising strategy, but Iger pushed for brands to be utilized across the board.
Successful films should lead to rides, attractions, toys, and, most importantly, sequels.
He pushed for a virtuous cycle of content and merchandise. A lot of other CEOs have tried something similar, but they fell into a crucial trap that Iger didn’t. He realized that micromanaging the creative process was a mistake.
I’ve actually been to Marvel Studios in LA. Although it’s housed on the same lot as Disney, Marvel has complete control over its operations. No one interferes in its process, which is why audiences are drawn to Marvel’s movies.
Marvel makes films people actually want to watch. It has built an entire cinematic universe where storylines are interwoven from different franchises. It is a complex network built to capture the attention of a fickle modern audience.
By putting content first, Marvel sold more than enough tickets to dwarf the price Disney paid for them. And now that Iger restarted the Star Wars franchise, the potential revenue is staggering. Last quarter was DIS stock’s best ever. (Source: “The Walt Disney Company Reports Record Quarterly Earnings for the First Quarter of Fiscal 2016,” Walt Disney Investor Relations, February 9, 2016.)
And gee, what else happened last quarter? Oh right, Star Wars Episode VII: The Force Awakens was released. Disney is following up the success of that film with another one every year until 2020, plus a dedicated theme park and branding for just about everything. I saw Star Wars-themed oranges and Star Wars-themed lipsticks.
Was there a genuine overlap in branding? Does it really matter? Iger declared open season on merchandising and everyone took advantage. I’d call that a win-win scenario.
More to the point, it drove a 36% year-over-year increase in earnings per share. I don’t understand how, in light of all this success, investors can worry about ESPN. But if you’re still fretting about those lost subscribers, let me put your mind to ease…
Consumers are cutting the cord, that’s true. But it’s not like they can simply stream sports on streaming services like Netflix, Inc. ESPN owns the rights to distribute that content, so all it has to do is offer live sports through a premium streaming channel. Customers will likely flock back.
It’s such an obvious move and if I can see that strategy, you better believe that Bob Iger sees it too. He has the golden touch for Disney stock. Under his tenure, DIS stock has shot up 122%. It could easily skyrocket again.