Should you buy Disney stock? 3-minute analysis

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Disney is an iconic company that has multiple revenue streams.

In 2022, the company made 28.7 billion dollars in revenue from its parks, experiences and products. And 55 billion in revenue from its media and entertainment segment.

That media and entertainment segment can be further broken down into linear networks, direct-to-consumer and content/licensing.

Linear networks includes a long list of TV and cable channels, direct to consumer accounts for Disney’s streaming services and content/licensing represents the sale of content to third party providers.

As you can see, Disney parks brought in 7.9 billion of operating income in 2022, linear networks generated 8.5 billion, streaming produced a loss of 4 billion and content/licensing lost 287 million.

Add it all up and deduct total costs and expenses and net income over the last months was only 3.1 billion on total revenues of 84 billion. Compare that to 2019 when Disney earned 10.4 billion dollars of net income on revenues of only 70 (69.6) billion.

In other words, Disney revenues have grown 19% in 3 years while net income has dropped 81%. Meanwhile, Disney has a current enterprise value of roughly 220 billion which means its valued at 2.7 times sales and 86 times earnings.

These numbers are so skewed because Disney is investing heavily in its streaming services. The company spent $25 billion on content alone in 2021 and should spend 33 billion in 2022. Overall, costs and expenses are a third higher than in 2019.

To be fair, heavy investment in streaming is the right move and Disney is seeing some success.

Disney’s 235 million subscribers recently overtook Netflix's 223 million. And management said the service should generate meaningful profits by 2024.

If we assume streaming can grow 10% a year for the next 5 years then become profitable with an 18% margin, that segment could add 6 billion in earnings in 5 years time.

Let’s assume that parks and streaming grow 10% a year for the next five years, linear shrinks to 5 billion in revenue and content/licensing grows to 10 billion. Total revenue in that scenario would be around 93 billion, and a 20% ebitda margin gets us to about 19 billion in ebitda in 5 years time. Apply a 20 times multiple to that figure and we get an enterprise value of 380 billion which works out to an investment return of 11.5% per year.

Disney could do better than that if its streaming services are a hit and margins get back to 25 or even 30%. But streaming is highly competitive and there are some questions over management. Disney also has a fair amount of debt thanks to its 2019 acquisition of Twentieth Century Fox.

Disney is approaching its centenary year with the stock price back to 2015 levels and it does look like a decent time to buy. But the upside doesn’t look large enough, which is why I give the stock a neutral rating. But these are my personal opinions, not financial advice. And I do own some shares in Disney.