Deep Dive on Disney
Will Disney's upcoming streaming video launch, Disney+, enable the company to reinvent itself for the digital age? Or will it cannibalize its legacy business lines and struggle to compete against Netflix? We strongly believe the former.
As of this writing, DIS was a portfolio holding of Titan. This security may cease to be a portfolio holding at some point in the future.
"You've Got a Friend in Me"##
- The theme song from the 1995 Disney/Pixar animated film Toy Story embodies the paradigm that Disney pioneered: the creation of enduring entertainment franchises that turn stories into consumers' fondest memories.
- Disney is one of the world’s best businesses. Warren Buffett’s right-hand man, Charlie Munger, described the company as the equivalent of “an oil company that can put the oil back in the ground after it is done drilling so it can drill again.”
The Market's Concerns about Disney##
- Streaming video technology has begun to shift our viewing habits, causing some investors to sour on Disney's growth prospects. After all, most of Disney's franchises tend to start at the box office.
- Disney’s stock has barely kept pace with the market over the past five years due to concerns about cord-cutting (e.g., consumers shifting from cable TV to streaming video like Netflix).
- Some investors have been worried that Disney’s own transition to the streaming video model via its upcoming Disney+ launch will require heavy investment and therefore depress its profits for years to come.
Our Contrarian View##
- We believe Disney is on the cusp of a transition to a more direct-to-consumer business model via Disney+ which should drive significant growth.
- Its re-organization around streaming services will unlock pricing power and improve unit economics, while putting to rest concerns about traditional media disruption and near-term profit weakness.
- At its current valuation, we think the stock appears attractively valued for long-term investors, with +30% potential upside in the next few years.
Read the Deep Dive##
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