The views expressed below are those of Anchor Capital Advisors, LLC (“Anchor”) as of the date written and are subject to change at any time. They are based on our proprietary research of the stated company and the following is a summary of the primary factors that support our beliefs and rationale for investing in the company. Please see additional disclosures at the end of this publication.
MSCI ESG Rating: A
The Walt Disney Company is a diversified entertainment company. It operates through the following segments: Media Networks, Parks, Experiences and Products, Studio Entertainment and Direct-to-Consumer business. The company was founded by Walt Disney in 1923.
With the successful launch of its Direct-to-consumer (DTC) streaming subscription business, Disney is transforming itself from a great content creator to a great content creator as well as distributor. Very few companies have the content depth and the distribution breadth like that of Disney. Between Disney, Pixar, Star Wars, Marvel and Fox studios, it owns one of, what we consider to be, the best content libraries. Combined with its recreation parks and cruise business, Disney has the potential to become a complete family life-style brand, one that most families cannot live without.
We believe current valuation doesn’t fully reflect the potential for significant earnings growth as DTC business becomes profitable and as the parks start reopening globally.
Confirmation through Research
We believe Disney is well positioned to be a winner in the DTC business and we expect its subscriber base to overtake its key competitors in the next few years. In the past Disney relied on 3rd parties to distribute its content via movie theatres, TV stations and home videos. But the DTC business has allowed it to take control of its content and manage its own distribution.
Disney had a very successful launch of its DTC businesses, including Disney+, Hotstar and Hulu. Combined subscriber base reached more than 70 million in less than a year following its launch and stands at more than 150 million today. DTC revenue increased by more than 50% during the second quarter of its fiscal year 2021 and segment operation loss narrowed down significantly.
While the DTC business continues to grow fast, Disney’s parks, entertainment and cruise line business has been suffering due to the pandemic. Parks, experiences, and products revenue declined by more than 40% in the second quarter of fiscal year 2021 and the segment profit went down from $800 million to a loss of $400 million. We believe this business is well positioned for a strong recovery as the world recovers and people start traveling again.
We believe very few companies have been able to pull the digital transformation the way Disney has. Not only does this create high visibility into medium-term revenue and earnings stream, but also allows Disney to take control of its content and business, potentially at higher margins than in the past.
We believe that recent derating in the stock is a great opportunity to invest in a company and the market doesn’t fully appreciate this potential.
In order to enhance current and prospective investor understanding of our process, approach and views, the highlighted investment summary has been selected to illustrate Anchor’s investment approach and/or market outlook. It has not been selected based on performance-related criteria. This investment summary represents a recent investment made and the strategy described may change in the future. Various portfolios actively managed by Anchor may or may not contain this security. Ultimate portfolio design recommendations will be based on in-depth analysis and considerations of factors specific to each client, including risk tolerances, liquidity parameters, return expectations, etc.
The views expressed are those of Anchor Capital Advisors, LLC (“Anchor”) as of the date written and are subject to change at any time. Anchor does not undertake any obligation to update the information contained herein as of any future date.
Certain information (including any forward-looking statements and economic and market information) has been obtained from sources we deem reliable, but is not guaranteed by Anchor, nor is it a complete summary of available data.
The information should not be considered investment advice or a recommendation to buy or to sell the security mentioned. These opinions are not intended to be a forecast of future events or a guarantee of future results. It should not be assumed that investments in such securities have been or will be profitable.
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