Disneyland is known as the happiest place on earth, some of this magic seems to be rubbing off on Disney (DIS) shares. DIS shares are making all time historic highs with both short term and long term share price catalysts. A shorter term catalyst was the recent announcement that Newscorp will be spinning off its publishing division, this will cause investors to focus their attention on other conglomerates for potential spin-offs. DIS is one of the only major media conglomerates left. It is surprisingly owner of ESPN, the sports channel and is in our opinion a candidate to be spun-off. ESPN is one of the most valuable franchises in the industry earning industry leading subscription fees, it is the major reason why most subscribers have cable.
DIS also has a great long term story in emerging markets with the upcoming opening of Disneyland Shanghai and has a proven ability to utilise technology to distribute its stories. DIS is brand manager for some of the most recognisable characters in the world. When these characters are combined with the most recognisable attraction that is Disneyland, it is no wonder why DIS is able to create stories and experiences which none can match. A hit DIS show executed to its full potential can become a world-wide franchise. A successful franchise can have its own show on the DIS cable channel, its own ride at Disneyland, its own films, games and even consumer toys/products. DISs ambition is to tell stories with great characters no matter what the medium and in this DIS has plenty of options.
DIS also has a great long term story in emerging markets with the upcoming opening of Disneyland Shanghai and has a proven ability to utilise technology to distribute its stories. DIS is brand manager for some of the most recognisable characters in the world. When these characters are combined with the most recognisable attraction that is Disneyland, it is no wonder why DIS is able to create stories and experiences which none can match. A hit DIS show executed to its full potential can become a world-wide franchise. A successful franchise can have its own show on the DIS cable channel, its own ride at Disneyland, its own films, games and even consumer toys/products. DISs ambition is to tell stories with great characters no matter what the medium and in this DIS has plenty of options.
The CEO Bob Iger knows animation is key, in his words. “A hit animated film is a big wave, and the ripples go down to every part of our business from characters in a parade, to music, to parks to video games, TV, internet , consumer products. If I don’t have wave makers, the company is not going to succeed.”
When Bob became CEO he watched a DIS parade down Main Street and realised that “after ten years of the Lion King, Beauty and the Beast and Aladdin there were then ten years of nothing.”1 The only characters that had been created in the past decade were Pixars. DIS had in fact lost money in the past decade on animation and even worse lost the ability to cross sell and leverage other products. Bob remedied this by acquiring Pixar and putting Pixar management in charge of DIS animation studios.
His second act, the acquisition of Marvel in 2009 seems to playing to the same script with the hit release of the Avengers. Avengers have the potential to become DIS next big franchise. As of June 2012 it is the 3rd highest grossing movie of all time behind Titanic and Avatar and was the biggest opening weekend in North America. During DIS last quarterly call management announced plans for a sequel. They also commented that a lot of product had already been sold out with DIS working hard to stock shelves as fast as possible.
The bad news is that Bob Iger has announced that he would step down as CEO in March 2015 and as chairman in June 2016. It is always hard when a great CEO leaves but what makes us comfortable is the fact he has increased investment spend (see chart below) for future growth and DISs high quality board.
Source:10K
The capital expenditure is funnelled into DISs three growth pillars of creating great family content, making experiences more memorable and accessible through innovative technology and growing internationally mainly through Shanghai China. Shanghai Disney is a joint venture with the local government and is the culmination of a ten year negotiation. It is planned to open at the end of 2015, a population of 330 million live within a 3 hour travel radius. DIS also has a a great board and has always been able to attract smart individuals. Unfortunately Steve Jobs has passed away but a recent addition is Sheryl Sandberg COO of Facebook.
The stock approximately trades around a 10% discount to its historic multiple range and with clear evidence of another franchisee hit (Avengers came out May 4th after quarter end) and in our opinion potential spin-offs shareholders should continue to benefit from the magic of DIS storytelling. If you can’t get to Disneyland buying the shares should help put you in a happier state of mind.
Source: Happy the dwarf from DIS facebook page
Jason
1. Steve Jobs by Walter Isaacson
Disclosure: Decisive is long DIS
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