Stock analysis Disney (DIS)

 

Disney's business division is divided into four major divisions. 1.Media Networks 2.Parks, Expereinces and Products 3.Studio Entertainment 4.Direct-to-Consumer & International.

Looking at the income statement above, the quarterly operating income decreased by 72% year over year to $ 1,099 millions. The massive increase in restructuring and impairment costs has resulted in huge losses in operating profit.

This is the sales increase/decrease table by business. Looking at the quarterly results from the same period last year in the table on the left, you can see that overall sales were down 42%. The business units that saw the biggest decline in sales and operating profit were Parks, Experiences and Products, which were directly affected by COVID-19. The direct-to-consumer (DTC) division has performed well, but has not yet reached the break-even point and is recording a deficit in operating profit. DTC refers to sales of Disney+ services.

 

Let's take a closer look at the income statement for each segment.

1.Media Network 

Although advertising sales fell 41% year-on-year, the increase in sales from TV/SVOD distribution made up for it, and total sales decreased by 2%. Operating expenses decreased by 27%, resulting in a 48% increase in overall operating profit. The increase in TV/SVOD copyright sales occurred at Disney Television Studios, FX and Disney Channerl programs.

 

Operating costs include programming and content production costs. The cost of content has also decreased due to COVID-19.

 

The increase in operating profit was driven by increased sales of programs on ESPN, ABC Television Network and FX Networks.

2.Parks, Experience and Products 

As a result of COVID-19, all Disney theme parks, resorts, and cruises around the world were shut down, hitting direct sales. Sales fell by 85% year-over-year and operating profit was in the red, $1,960 millions. With the uncertainty when the COVID-19 end will be possible, it seems difficult to recover in the short term.

 

Operating costs include operating personnel costs, product and distribution costs, and infrastructure costs. Operating expenses have also decreased as most of the business ceased. Depreciation and amortization costs have increased with new theme parks and resorts in the United States.

3.Studio Entertainment 

The decline in movie screenings in theaters due to COVID-19 led to a 55% decline in sales and 16% operating profit compared to the same period last year. Sales in the lower home entertainment segment were partially compensated for by lower operating expenses. The TV/SVOD segment increased sales by 11% due to increased sales of content on Disney+. Featured content sold at Disney+ includes Artemis Fowl, Star Wars: The Rise of Skywalker, Onward, and Maleficent: Mistress of Evil.

The operating cost includes a movie installment fee. This cost has been reduced due to fewer screenings. The cost of distributing goods and films has likewise declined due to the theater shutdown.

4.Direct-to-Consumer & International

In Europe, subscriptions declined by 7% due to certain contracts and channel expiration, resulting in a decrease in royalty revenue. Advertising revenue fell due to an approximately 10% decline in advertising fees and an approximately 37% decline in sales by the International Channel. Subscription fees more than doubled in sales due to increased subscribers to Disney+, Hulu and ESPN+, which began in November 2019. This division has not yet reached the break-even point, resulting in an increase in deficit compared to the same period last year.

Figures on the left are Disney, figures on the right are industry averages. Its ROE remains at around 20% and is slightly above the industry average. The average 5-year EPS growth rate is about 8%. It appears to have been downgraded due to a decline in net profits from COVID-19 this year. The Quick Ratio is 1.29, which has sound short-term debt repayment capabilities. LT Debt to Equity has a high debt payment ability of 75.38%. Financial strength is excellent. Asset turnover appears to have been lowered to 0.33 due to a decline in sales this year. Dividends paid out semi-annually dividends, but dividends have ceased from the second half of this year.

Disney has long been a leader in the animation and film industry. Although the industry as a whole has been directly hit by COVID-19, our high market share and stable financial position are likely to overcome this difficult time well. If Disney+, which has not yet reached the break-even point, turns to the black in the future, our growth momentum is expected to increase significantly.