Peltz is shaking up the mouse’s house.
Dealbook has a longer write up of the events since July. I wont copy them here…it is not fair usage. Peltz has a history of successfully shaking up major corporations for profits. The stock is at an 8 year low.
In March do you back up the truck?
I did not see the earlier post on this.
It’s basically where it was 5 years ago. My sis has this as a long term buy and hold and I really think when she gets out of it the stock will literally just be 10 points higher. What a terrible way to invest your money. I think Disney’s allure is over. So expensive - the magic is not there any more. It’s an allusion. Never buying into Disney. It’s over.
Disney is an entertainment company. Entertainment is optional. Therefore, entertainment is cyclical. It goes up, it comes down, generally in sync with the general economy. They went down with the Covid shutdowns. People couldn’t go to the parks or movie theaters. So two major sources of income got hit. Things got better as the parks re-opened and people starting going to the movies again. They also got slightly lucky with their timing of Disney+ coming out just before the pandemic hit. That was one revenue source that didn’t get interrupted, and probably increased faster than expectations.
Right now, Disney has about 164 million Disney+ subscribers. Guessing that they average about $8 a month for the subscription, that gives them $15 billion in revenue from there. Looking at a bit of history, pre-pandemic and pre-D+, they did about $70 billion. Adding those two, gives a run rate of $85 billion today as a benchmark. As of the most recent reported result (9/30/22), their trailing 12 months is at about $82 billion. The 12/31/22 numbers should be out very soon, and they almost certainly will be pushing 90 billion in TTM revenue.
So the company is doing OK for now. They definitely lost some business during 2020 and 2021. 2022 showed really good recovery from the pandemic. And they’ve ousted their underperforming CEO, bringing his predecessor back. That should improve things further.
On the down side, we do have a potential recession looming in 2023. If that comes about, it will almost certainly cut into revenue from Parks. Cheaper and/or shorter vacations will be in order. Movies could be hurt, as folks put off seeing new films until they are at cheaper venues or come out on D+. But D+ is likely to be pretty sticky, if not growing. If you can’t afford to see the latest movie, subscribe to D+ instead and let the whole family see a bunch of movies for less than the price of a single theater ticket.
Then there’s the upper income strata. Folks there are basically unaffected by recession. Yes, they make less, but still way more than they need. They will continue to visit parks and movie theaters, and might even take the grandkids along more often if the parents cut back.
Disney certainly isn’t over. They may have a slightly rough patch ahead, facing both recession and rebuilding from a failed CEO. Longer term, I think they are going to be fine. If you’re investing for the next 6 months, Disney might not be a great choice. If you’re investing for the next decade or two, this is likely a time for bargain hunting.
–Peter
This may well be an opportunity coming up for a low entry into Disney.
I bought some Disney a few times over the last few weeks as it neared its 52-week and 5-year lows. This is the first time over a 40+ year investing life that I’ve owned any Disney.
It’s not like its been a terrible stock over time. You could have bought at about $50 ten years ago, and it’s about $100 today. And in the mean time you would have gotten $10 in dividends. That’s somewhere in the neighborhood of an 8% return.
Not a high flyer, for sure. But reasonably steady performance. Particularly if you ignore the strange price movement during the pandemic. Why would a company that lost a sizeable chunk of its revenue for several months see it’s stock price double? Clearly stock traders were smoking something pretty good there for a few months.
–Peter
The suit filed Tuesday in Los Angeles Superior Court alleges that Disney and its studio 20th Century Fox committed a number of transgressions, including withholding profits and cutting deals to boost its streaming platforms and stock price. This act deprived TSG of cash to invest in individual films and its efforts to sell its stakes in other movies, the lawsuit says…
TSG co-finances the production and marketing costs of films in exchanges for a share of the defined gross receipts after the film’s release. The group has helped co-finance around 140 films produced by 20th Century Fox, which Disney acquired in 2019, including “Avatar: The Way of Water.” In total, the company said it has invested around $3.3 billion in the studio’s content since 2012.
DB2
The studio giant has also delayed another Disney movie and a Pixar title, while removing one Disney and one Pixar project from the calendar as the actors’ strike rages on, threatening to upend next year’s film slate…
Disney’s live-action remake of “Snow White” has been postponed from March 22, 2024, to March 21, 2025…
Meanwhile, Searchlight’s “Magazine Dreams” — originally slated to open in December — has been yanked from the theatrical release schedule altogether…
Disney-Pixar’s “Elio”…has been moved from March 1, 2024, to June 13, 2025.
DB2
Those delays make sense for a couple of reasons.
With the actors on strike, they aren’t available for promotion of the movie releases. That promotion and hype helps bring more people into theaters to see the movie. Some of that promotion is things like photo shoots which are done after principal filming has wrapped but well before the scheduled release date
And the actors aren’t available for the small, last bit of clean up of the movie. It’s not unusual to bring actors and some crew back to fix up some little things, particularly in an animated movie, where all you need is a recording studio and an audio engineer along with the actor and director (and probably a couple of others). Live action is harder, but might be done if the fix is important enough or easy enough to do.
For the conspiracy minded, there’s the possibility of holding up the release to delay the payday for actors. Any actors who get part (and sometimes the bulk) of their pay based on the financial success of the film want to see the film released sooner rather than later. That might encourage some actors to settle for a bit less in the contract negotiations. Personally, I doubt this is a big reason, but it could be the proverbial straw on the camel’s back.
As to investors in Disney specifically, it’s all just a tempest in a teapot. The bulk of Disney’s profits come from Parks and Experiences, not the various movie divisions. So delaying a couple of release dates is a big nothingburger for shareholders.
–Peter
And there has been talk recently, that Disney’s park price increases have been excessively aggressive, and that is the reason for weak attendance, rather than blowback from the company’s “woke” attitude.
The magnitude of Disney’s park price increases always bothered me when I held DIS. Just seemed to exploit parent’s inability to say “no” to their little ones.
Steve
They shouldn’t. You are (or were) a shareholder.
Disney parks have a couple of things going for them. They are truly head and shoulders above any other theme park group. Yes, including Universal. (Although Universal is getting better and catching up.) That advantage is mainly in the experience itself.
Having spent time at Knott’s and Universal as well as Disney, there is no comparison. You can go to Knott’s for a year for the same price as a single day at Disney. There’s a reason for that - both in the people and the park itself. Universal is getting pretty good at copying Disney. (Right down to their name tags!) But they still have a bunch of older rides that just aren’t comparable. To their credit, they’ve gone more into the thrill ride area than Disney, so there’s definitely a point of differentiation.
But start interacting with the employees and it’s a totally different feel. Universal employees aren’t bad, but they’re just doing a job. Disney employees - at least those who interact with guests - are just different. Partly, that’s in the employee screening. Disney uses a personality test as part of their hiring process. Don’t pass that, and you are screened out of guest-facing jobs. You get redirected into positions that don’t have heavy customer interaction - behind the scenes stuff.
I know this because my son easily passed the screening test and is working with people at Disneyland. I tried to do the same (I’m a Disney fan and thought it would be fun to work there part time), and got redirected to some other positions away from guests. I guess my grumpy old man tendencies showed through too much. 
Back to investment thesis.
Park admissions are much like airline seats. Once the plane has left the gate, you can’t sell the empty seats. Once the day is over at a Disney park (or any other theme park), you can’t sell another admission for that day. Theme park operators who have been open for a while know what their attendance patterns look like - what days and times of year are busiest, and what are the slowest. They charge more for busy times to get all the revenue they can. And they charge less at the slow times to try to get a few more people in the park to fill up the empty slots.
Disneyland (my local park) has 6 or 7 pricing tiers, that vary by as much as $90 a day ($104 up to $194, depending on the day - plus an another $65 if you want to visit both parks - Disneyland and California Adventure - on the same day). Universal Hollywood does the same thing - although the difference between low and high is around $50.
As a business, they’re both going to increase prices to maximize profits, not make things easy for parents.
–Peter
For a company that styles itself as “family friendly” squeezing those families for every nickel they can, realizing that the spawn that want to go have no concept of money or what the parents have to give up to accommodate their pleas, just does not sit well with me. They have been taking a “supply side” approach, rationing park capacity by ability to pay. DIS justified their price escalation by noting that the price increases had not hurt attendance (until now?) and they intended to keep ramping prices up until attendance did decline. I advocated that, if they want to avoid the parks being overcrowded, they should build more capacity, like maybe another USian park, rather than minimizing investment, artificially limiting capacity, and maximizing their take from each person through the turnstyle, a Shiny way of doing business.
Steve
Another aspect that is crucial for me is that Disney puts tons of money into high quality cooling shade producing in sun and protectively warm in winter landscaping that also creates a much stronger sense of the fantasies. Universal is waaaay behind as are others (six flags best park is Los Angeles are “Magic Mountain” mostly because the developers of that park knew original Disney was the competition).
You have to do landscape early because it will not hurry up…
david fb