The first cartoon character I remember that amused me and taught me something nice was Mickey Mouse. When I was very young it taught me to have faith that eventually things will fall in place sooner or later. Investors should have the same faith in Walt Disney (DIS), and they should not get spooked by its recent fourth quarter earnings and announcements.
Disney has made strong strategic investments in the past and delivered sound returns to its investors. The drop in profits should be seen as temporary, and it will later earn profits.
Theme parks are a major driver in Disney’s current earnings, and parks in Hong Kong, Paris and Anaheim are doing very well. Fantasyland, a part of the world amusement park in Florida, is undergoing expansion and improvements and will be open next week. "Be Our Guest" and Beauty and the Beast-themed French restaurant in the park will entice more tourists during the holiday season. The company helped to raise $16.8 billion for the American Red Cross on the National “Day of Giving” to help those affected by the Hurricane Sandy. This philanthropic act will be in the mind of the consumers when they go shopping, which will indirectly help the company’s performance.
The recent acquisition of Lucasfilm will add the Star Wars and Indiana Jones franchises to a studio that already includes Marvel, Pixar, and Disney's legacy film business. Disney owns some of the best content in film, which is the key in the present entertainment business.
A Look on What Others Are Doing
Walt Disney’s ESPN, the leading cable-sports network, provides about 75% of the operating income generated by Disney’s cable networks. Disney competes with Time Warner (TWX) in this segment. Time Warner’s has entered a new contract with Major League Baseball for TV and expanded digital rights through 2021, which should help the company’s position. Time Warner will launch new originals like Cougar Town, and it is also bringing back originals like Rizzoli & Isles and Leverage with double the number of episodes than what they had during the first quarter of 2012. There is a tremendous growth in the international market of HBO, and the company will soon debut its first premium network in India.
News Corp. has strengthen its position in Australia's Pay-TV industry as the Australian Competition and Consumer Commission (ACCC) has cleared the road for News Corp's Australian wing, News Ltd, to take over ConsMedia. The acquisition will provide 50% ownership of pay-tv provider Foxtel and full ownership of the Fox Sports suite of channels. News Corporation has also acquired ESPN Star Sports (ESS) by acquiring a 50% stake of Walt Disney in the joint venture. ESS has its presence in 24 Asian countries like India, China, Hong Kong, Malaysia, Taiwan, and Singapore through its 25 television networks and three broadband networks. ESS is now a wholly-owned subsidiary of News Corp, which marks the exit of ESPN from the Asian market.
The abrupt fall in the price of Walt Disney stock is nothing more than an over-reaction by investors. The new amusement parks and philanthropic activities will get more customers in the coming holiday seasons. The company’s current investments should reap benefits in the future. Walt Disney is a good long-term investment for the far-sighted investor.