Disney: Advertising Revenues Stronger Than Expected

BOTTOM LINE We continue to rate Disney Hold now with a 110 YE2016 price target vs 106 previously Disney reported fiscal year 4Q15 results for the fourteen weeks ending Oct 3 2015 last week Total revenue was up by 91 one of the best companywide results of the past several years with similarly strong operating income margins of 239 vs levels below 20 for all other third quarters we have tracked Adjusted earnings per share were 120 slightly ahead of our 117 forecastThere were two particularly positive standout considerations for us from Disney39s fiscal fourth quarter earnings results First advertising at ESPN was up by 5 yearoveryear representing 9 underlying growth on a thirteenweektothirteenweek basis excluding World Cup related revenue in the yearago period including it we estimate ad growth was likely down by a couple of percentage points At ABC ad revenue growth was up by quotmidteensquot or midsingle digits on a thirteenweek basis which is ultimately the more impressive number Commentary regarding the fiscal first quarter of 2016 suggested more growth to come at the broadcast network and especially at the cable networks College football games which are last year aired in the fiscal second quarter will be running in the first quarter instead adding incremental revenue growth in the 39teens to the networkOne other key set of commentary for the segment related to the scale of the company39s digital activities Disney management noted that in September alone consumers spent 103 billion minutes with ESPN digital properties For a point of comparison we can contrast this with the approximately 574 billion minutes that were spent by people on domestic ESPN properties via traditional television according to our analysis of data from Nielsen With approximately 16th of the total potential inventory in digital media vs television ESPN39s digital inventory is significant in both absolute and relative termsConsumer Products was the other area of note during the most recent quarter with revenue growth up by 115 despite the exclusion of revenue recognition associated with the launch of new Star Warsrelated products on quotForce Fridayquot This should cause a meaningful incremental bump up in reported revenue and margins for the fiscal first quarter of 2016 More important than consumer products of course the biggest wild card for the next quarter is the degree to which the next Star Wars film drives the coming quarter39s growthOur estimates for fiscal 2016 have been revised upwards somewhat with revenue expectations now set at 89 We expect margins to be down slightly to 256 from 264 in the 2015 fiscal year with compression due to foreign exchange and the opening of the Shanghai theme park We forecast earnings per share of 588 or 592 for the calendar year on an asreported basisVALUATION We value DIS with a DCF using a 74 nearterm discount rate 109 longterm the lowest among its peer group and longterm growth of 525 the highest among its peer groupRISKS to Walt Disney include the hitdriven nature of video content production perceptions around the quotdeathquot of TV advertising and risks around slowdowns in the pay TV businessFULL REPORT INCLUDING RISKS AND DISCLOSURES CAN BE FOUND HERE DIS 11915pdfThe opinions and points of view expressed in this commentary are exclusively the views of the author and do not necessarily represent the views of MediaVillagecom MyersBizNet Inc management or associated bloggers

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Disney: Advertising Revenues Stronger Than Expected

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Brian Wieser

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