According to aggregated portfolio data, the five broadest owned entertainment companies as of the third quarter are Walt Disney Co. (DIS, Financial), Twenty-First Century Fox Inc. (FOXA, Financial)(FOX, Financial), Netflix Inc. (NFLX, Financial), News Corp. (NWSA, Financial) and CBS Corp. (CBS, Financial).
Industry background
The entertainment industry includes companies typically involved in the programming and production of content. Such companies engage in high competition on factors like availability of content and quality of service. Additionally, the industry is sensitive to changes in the business cycle: although a flourishing economy allows for high advertising demand, entertainment companies typically lower expenses during economic downturns.
Walt Disney and Fox
The top two broadly held entertainment companies are Walt Disney and Fox, companies tied to a merger in which the Burbank, California-based company will acquire Fox’s film and television businesses. Prior to the merger, Fox expects to spin off its broadcasting and network businesses into a newly-listed company.
Twenty-seven gurus own positions in Walt Disney, with a combined weighting of 38.14%. Gurus with large holdings in Disney include Andreas Halvorsen (Trades, Portfolio), Lee Ainslie (Trades, Portfolio) and PRIMECAP Management (Trades, Portfolio).
GuruFocus ranks the company’s profitability 9 out of 10 on several positive indicators, which include expanding profit margins, a robust Piotroski F-score of 8 and a return on equity that ranks higher than 90% of global competitors. Additionally, Disney’s business predictability ranks 4.5 stars out of 5 on strong and consistent revenue and earnings growth over the past 10 years.
Seth Klarman (Trades, Portfolio)’s equity portfolio has Fox as one of its top 10 holdings, with Class A shares representing 18.95% of the portfolio and Class B shares representing an additional 6.24%. The Baupost Group manager joins a party of 22 gurus that own Class A shares and 20 gurus that own Class B shares.
GuruFocus ranks Fox’s profitability 7 out of 10 primarily due to operating margins and returns on equity both outperforming over 80% of global diversified media companies. The company’s operating margins have increased approximately 3.60% per year over the past five years, a good investing sign according to Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio)’s four-criterion investing approach.
Netflix
Twenty-one gurus have holdings in Netflix, including Frank Sands (Trades, Portfolio) and Spiros Segalas (Trades, Portfolio). The combined weighting as of the quarter is 30.29%.
GuruFocus ranks the Los Gatos, California-based company’s profitability 7 out of 10: even though operating margins outperform just 59% of global competitors, margins have increased approximately 22.60% per year over the past five years. Additionally, the company’s return on equity and Joel Greenblatt (Trades, Portfolio) return on capital both outperform over 90% of global competitors.
News
Sixteen gurus have positions in News Corp., the holding company for key brands like the Wall Street Journal, Herald Sun and The Times. Gurus with large holdings in News Corp. include Richard Pzena (Trades, Portfolio)’s Pzena Investment Management Inc. (PZN, Financial) and Dodge & Cox.
GuruFocus ranks the New York-based company’s financial strength 6 out of 10: while it has solid interest coverage of 37.82, News Corp.’s Altman Z-score of 1.07 suggests possible financial distress. Additionally, the company’s Piotroski F-score ranks a modest 4 out of 10 on several weak indicators, which include lower returns on assets, higher leverage and lower current ratios year over year.
CBS
Fifteen gurus have holdings in CBS Corp., a major operator of cable networks and content production. Gurus with large positions in CBS include Hotchkis & Wiley and Larry Robbins (Trades, Portfolio).
GuruFocus ranks CBS Corp.’s profitability 7 out of 10: the company’s operating margins outperform over 79% of global competitors despite contracting approximately 3.2% per year over the past five years.
Disclosure: No positions.
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