Strong studio results and a new $1 billion live streaming investment underscore the Mouse’s wide-moat rating and our $134 fair value estimate.
By Neil Macker, CFA | 08-09-16 | 11:30 PM | Email Article

 Disney posted a slightly better-than-expected third quarter of fiscal 2016 with strong studio results offsetting weak media network results. The firm also announced its widely rumored investment in BAMTech, purchasing 33% of the firm for $1 billion. We are maintaining our wide moat rating and our fair value estimate of $134. With the stock trading in 4-star range, it may offer an attractive entry point for investors with a longer-term investment horizon.

Neil Macker, CFA, is an equity analyst for Morningstar.

Revenue increased by 9% year on year to $14.3 billion, just above our $14.0 billion estimate. The revenue growth was led by studio entertainment with a 40% improvement. EBITDA increased 9% to $4.7 billion as the 58% improvement at studio entertainment and the 10% improvement at parks and resorts more than offset the 7% decline in consumer products. Media networks revenue grew by 2.4% broadcasting as 5% affiliate fee growth more than offset 6% decline in TV/SVOD distribution as Disney sold fewer cable programs in the quarter. The growth in parks and resorts reflected the impact of preopening revenue from the Shanghai resort which opened on June 16. Management remains positive on the park which largely received positive reactions from both local press and social media.

Management discussed its investment in BAMTech, the spinout from MLB Advanced Media. The $1 billion investment in the firm provides Disney with a minority stake of 33% along with the option to buy the remainder of BAMTech. BAMTech is one of the leading online live-streaming companies and currently operates the online platforms for HBO Now, the NHL, the PGA, and WatchESPN, among others. We believe the investment by Disney can be seen as an analogue to the company’s previous investment in Maker Studios in that management perceived a deficiency in its understanding of a new media platform and corrected the deficit via investing in expertise and knowledge. 

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Neil Macker, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.
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