00:00 Disney is one of the world's most valuable brands but the stock is down over 50% from
00:05 its all time high. At the current share price the company has a valuation of $162 billion.
00:11 It's got almost $14 billion in cash and $45 billion of debt so the enterprise value is $194
00:18 billion. Revenue over the last 12 months is $87 billion, net income is $4.1 billion while adjusted
00:25 EBITDA is $12.5 billion. So Disney's stock is valued at 2.2 times revenue, 16 times EBITDA
00:32 and 40 times earnings. Looking at a historical chart Disney appears undervalued when compared
00:38 to revenue but overvalued when compared to earnings and there's an obvious reason why.
00:43 While Disney's top line revenue has continued to grow in recent years,
00:47 its profits have fallen. Disney revenue is up 47% since 2018 but net income has fallen 67%.
00:55 The main reason is that Disney's costs have almost doubled. After launching Disney+ in 2019
01:01 significant amounts of free cash flow had to be poured into content creation. It's not called
01:06 the streaming wars for nothing as Disney is competing not only with channels like Netflix
01:11 but social media platforms like YouTube and TikTok. Even with significant investment Disney+
01:17 subscribers declined 2% in the latest quarter. Meanwhile the shift to online streaming means
01:23 that Disney has started to lose revenue from its highly profitable linear network segment.
01:28 To top it off, Disney park admissions could be nearing a post pandemic peak. But Disney remains
01:34 a valuable franchise and the stock is already pricing in a lot of weakness. Returning CEO Bob
01:40 Iger could sell some assets and if margins improve the stock has room for upside. But it's worth
01:46 remembering that it was Iger who decided to pay over $70 billion for 20th Century Fox in 2018,
01:53 a deal that saddled the company with significant debt. That debt is now costing the company
01:58 billions of dollars a year in interest payments. Let's assume Disney can grow revenue 5% a year
02:04 for the next 10 years, get net income margin back to 10% and then trade at a 20 times multiple
02:10 to earnings. In that scenario the company would be worth around $280 billion, which works out to an
02:16 investment return of only 5.6% a year. Sooner or later Disney stock will see a bounce but right
02:23 now the company has too many negative forces converging at one time. I give it a neutral rating
02:30 but these are my personal opinions not financial advice and I've got no position in Disney stock.
02:35 For more detailed investing ideas make sure to visit our website overlookedalpha.com
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