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Sydnee Gatewood
Sydnee Gatewood
Articles (3566) 

Ruane Cunniff Comments on Disney

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February 26, 2021 | About:

The Walt Disney Co. (NYSE:DIS) was added to the portfolio in June when the stock was depressed due to concerns about how COVID would affect the company's Parks business. Though Parks is certain to be unprofitable for the near future, we believed the stock market was overreacting given the segment only represents about 25% of the company's normalized operating income. We expect Parks to rebound quickly when leisure travel resumes.

Meanwhile, we have been following Disney for some time and were impressed by management's clear commitment to streaming with the launch of Disney+ in late 2019. The combination of an iconic content library and a world stuck at home due to the pandemic helped Disney+ reach 60 million subscribers in just nine months, a target it had originally set for 2024. Capitalizing on its early momentum, Disney has reorganized its divisions to be streaming-first, upped its financial investment in streaming, and laid out an ambitious goal of roughly 245 million Disney+ subscribers by 2024. It is still early days for streaming, but we believe Disney's unparalleled franchises should position it to be one of the dominant players as the streaming market naturally consolidates.

Disney rallied during Q4 as the market began to appreciate the size of the streaming opportunity. Today, the stock trades at 27x our estimate of underlying 2021 earnings, already nearly 50% higher than where we purchased our shares in June, but still a fair valuation for a company that we expect to compound earnings at a double-digit rate annually for the next decade.

From Ruane Cunniff (Trades, Portfolio)'s Sequoia Fund 2020 annual report.

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