– By Sangara Narayanan
Disney (DIS) is an entertainment conglomerate with revenues derived from multiple segments, their media network which includes high-profile names such as ESPN, ABC and several Disney chains, parks and resorts spread across the globe, from products consumer, studio entertainment units that produce and acquire live and animated action films, from live video content, live musical recordings and plays and from their interactive segment that creates and delivers branded entertainment and lifestyle content on media platforms.
A machine to generate stable income
While its entertainment-based revenue stream does not appear to be so diverse with nearly 44% of its 2015 revenue coming from media networks, Disney is also gaining a significant share of other segments, thereby avoiding its revenue growth. business depends on a single segment. .
Disney has been extremely consistent with its revenue growth since the recession. The company has managed to increase sales by 4-9% over the past six years, which is no small feat for a company of this size. With $ 155 billion in market capitalization at the time of writing, Disney stock is trading at 17.4 times earnings and 16 times earnings ultimately.
Disney’s biggest gap is its investment of time and money in sports entertainment through its ESPN brand. With multiple channels around the world, ESPN already has a significant global presence, and as such, it will be difficult to expect this unit to continue to grow forever. At the same time, it can be a huge cash flow machine for the business for decades.
Is Internet TV a Threat to Disney?
The future of television is under increasing pressure due to the growth of video on demand services provided over the Internet. It is extremely possible that in the future we will all end up switching from consuming content via cable TV to consuming video on the Internet on demand. YouTube has started broadcasting live sporting events, Twitter has signed deals to get NFL live streaming and the list goes on.
While this threat of tech companies entering the live sports streaming market is real, there are still many years to come to break TV’s hold on the market. In anticipation, Disney has invested 33% in Hulu LLC, one of the leading providers of video on demand services in the United States. In addition, Disney also sells its programs to subscription video-on-demand (SVOD) services, such as Netflix (NFLX), Hulu, and Amazon (AMZN). Fortunately, the company understands the need to be present in this new and growing field.
Unlike some companies who watch their market erode before their eyes as other companies disrupt their core offerings – like Blackberry (BBRY) watched Apple (AAPL) pull the rug off them – Disney, despite being the one of the oldest companies in the world, understands the undercurrents of the industry and is already positioning itself in this new field. With sports fans present all over the world, sports programming requires constant negotiations and a keen sense of making deals, an expertise that Disney has built over many years.
No one will stop Netflix from signing a deal to live stream a football game in Europe or an NFL game in the United States. It is always a possibility. But from Disney’s perspective, they’ll be just another bidder in the auction, as the company already knows how to stream through the new delivery system and has Hulu in its books if the whole world decides to watch it all on. Internet tomorrow.
As such, Disney has found a very effective way to manage their risk and few companies can break the security gap they have built around them.
Disclosure: I have no positions in the stocks mentioned and I do not plan to initiate any positions in the next 72 hours.
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This article first appeared on GuruFocus.