The wide-moat firm is launching two direct to consumer offerings, and think the stock offers an attractive entry point for investors.
posted a mixed third quarter of fiscal 2017, as the top line came in below expectations but EBITDA was above projections. The company announced the acquisition of an additional 42% share of BAMTech, raising Disney’s ownership to 75% of the direct-to-consumer streaming tech firm that was spun out of MLB Advanced Media. The firm will use BAMTech to launch a new OTT network of ESPN channels in 2017 and a U.S. version of DisneyLife, an SVOD aimed at families, in 2019. We are maintaining our wide moat rating and our fair value estimate of $134. With shares trading in the 4-star range, the stock may offer an attractive entry point for investors.
Neil Macker, CFA, is an equity analyst for Morningstar.
Revenue was flat versus last year at $14.2 billion as the growth at parks and resorts offset the declines at the studio and consumer products. Media networks revenue fell 1% as affiliate fee growth was weaker than expected at 2% year over year, despite a 7% increase in contractual rates. While worrisome, we think that the inclusion of Disney channels in every OTT pay service available demonstrates the strength of the firm’s overall channel package. Advertising declined 6% due to lower impression and two fewer NBA Finals games. Operating margin for the segment fell by 840 basis points due to higher content costs including the NBA rights.
The 12% topline growth at park and resorts was driven by the Shanghai resort as well as improved results at Disneyland Paris. Studio revenue was down 16% due to a tough comp with Captain America: Civil War, The Jungle Book, Finding Dory, and Alice all in the third quarter last year. As a reminder, fiscal 2017 will be a down year for the studio side given the weaker slate. Overall segment operating income fell 10% to $4.0 billion, as the 22% decline at media networks more than offset the 18% improvement at parks and resorts and the 12% growth at consumer products.
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