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Stock Analyst Update

Disney Ends Fiscal 2019 With Strong Fourth Quarter

We are maintaining our wide moat rating and expect to raise our fair value estimate.


Disney (DIS) ended its fiscal 2019 with a strong fourth quarter as revenue was in line with consensus and adjusted EBITDA strongly beat S&P Capital IQ consensus expectations. All four segments had strong revenue growth led by the studio segment. With the launch of Disney+ in the U.S. almost here (Nov. 12), fiscal 2020 will be focused on the firm’s direct-to-consumer efforts including the global expansion of Disney+ and content growth at Hulu. We are maintaining our wide moat rating and expect to raise our FVE of $130 by about 7% to 8% to account for increased DTC growth.

Revenue for the fourth quarter increased 34% year over year to $19.1 billion. Media networks revenue improved 22% due to growth at cable networks and the broadcasting segment. Affiliate fee revenue in the quarter was up 18%, which was made up of a 15 basis points increase from the Fox assets and 7 basis points from higher pricing, with a 4 basis points decline from lower subscribers. This implies a 3% growth in affiliate fee revenue, excluding the effect of the acquired Fox entertainment assets. The segment operating income margin for media networks fell sharply to 27.4% from 34.6% due to higher programming costs including sports rights at ESPN and increased marketing costs for the launch of the ACC Network.

Parks and resorts continue to shine with 8% growth as higher guest spending offset lower attendance at Disneyland. Domestic attendance was flat despite the hit from Hurricane Dorian in 2019. Per capita spending growth of 9% was impressive as was the 85% occupancy rate in bad weather. Revenue at the studio improved 52% due to another strong theatrical quarter, which included "The Lion King," "Toy Story 4," and "Aladdin." Revenue at the DTC segment hit $3.4 billion due to the consolidation of Hulu and the Fox assets. The segment operating margin for the firm fell to 18.0% from 22.9% as revenue growth was more than offset by ongoing investment in DTC and increased marketing and programming costs.

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

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