The decision to buy 21st Century Fox (NYSE: FOX) will have many observers wondering if the Walt Disney Co. (NYSE: DIS) is making money. The financial data indicates Disney is making money, but it also shows why the company’s CEO Bob Iger wants Fox.
Disney is still a money making machine it reported a net income of $8.98 billion on 30 September 2017. The problem is that net income is falling; Disney reported an income of $9.391 billion in December 2016. The Magic Kingdom is making less money than it was last year.
Revenues are also down at Disney, they fell by around 2.76% during third quarter 2017, ycharts calculated. Disney began quarter three with revenues of $55.5 billion and finished with revenues of $55.14 billion. Those revenues were $55.63 billion in September 2016.
Disney is Making Less Money
The obvious conclusion for Iger is that Disney’s current business model is not sustainable. Before he leaves the building, Iger wants to leave Disney with a growing business, and he’s moving to build one.
Disney still pulls in a lot of cash; it reported $12.34 billion in cash from operations in September 2017. That was down considerably from $13.14 billion in September 2016. Iger understands that he needs to grow the cash and the revenue.
An obvious way to achieve that is to buy Fox’s $2.986 billion in income, $29 billion in revenues, and $3.543 billion in cash from operations. Another reason why Iger likes Fox is that its income and revenue are growing. Fox’s revenues grew by 7.62% between 3rd quarter 2016 and 3rd quarter 2017, while Disney’s shrank by 2.76%.
The figures indicate that Fox has a growing business, while Walt Disney does not. Iger understands that which makes him a great chief executive. Iger understands the big picture, and he’s preparing for it.
Disney has a Lot of Value
Even though Walt Disney is making less money, it still has a lot of value including:
- $4.017 billion in cash and short-term investments in September 2017.
- A free cash flow of $2.617 billion on September 30, 2017.
- $95.79 billion in assets on September 30, 2017.
- An enterprise value of $193.49 billion on December 20, 2017.
- A market capitalization of $165.65 billion on December 20, 2017.
Disney’s stock was also a very good deal; it offered investors a 20.97% return on equity on September 30, 2017. Those investors took home a dividend of 84¢ a share on December 8, 2017.
That dividend rose by six cents during 2017, it was 78¢ in July. Disney’s dividend has been far higher in the past; shareholders received a $1.15 dividend as recently as 2014.
That makes Disney a value investment was worth the $109.90 a share it was trading at on December 20, 2017. The recent drops in value add to the value.
Disney and 21st Century Fox at a Glance
So what actually is Disney and what can it do for investors? Here is short and dirty look at the Magic Kingdom:
The Walt Disney Company at a Glance
- Founded in 1923 in Los Angeles as an animation shop by Walt and Roy Disney.
- Disney; and his brother Roy, made a fortune by selling cartoons to studios during the Golden Age of Hollywood and merchandising the characters to comic book, toy, and other companies.
- Disney branched out into theme parks, live-action films, and television production during the 1950s.
- The company floundered in the 1980s until CEO Michael Eisner reinvented it with a focus on movie and TV production.
- Current CEO Bob Iger reinvented Disney again, as a multimedia conglomerate in the 21st Century by buying such companies as Marvel Comics, Lucas Film, and Pixar.
- Disney owns one of the big three U.S. broadcast networks ABC.
- Created modern digital movie animation and Pixar in a partnership with Apple’s Steve Jobs.
- Disney is the world’s most profitable movie studio with a recent gross of $17.1 billion.
- Disney produced almost half of the top 100 grossing movies the year that ended in December 2017.
- Founder Walt Disney was an innovator who produced the first sound cartoon, the first color cartoon, and the first feature-length animated film; Snow White and the Seven Dwarves. Disney also invented the modern theme park.
- Disney; and his brother Roy, invented modern merchandising by licensing their cartoon characters to comic book publishers, toymakers, and other companies.
21st Century Fox at more than a Glance
- Market Capitalization of $62.79 billion on 20 December 2017.
- Enterprise value of $77.87 billion on 20 December 2017.
- Assets of $52.03 billion on September 30, 2017.
- $6.901 billion in cash and short-term investments on September 30, 2017.
- Worldwide box office gross of $7.1 billion.
- Also known as 20th Century Fox.
- One of the six biggest movie studios in the world, and one of the surviving studios from the Golden Age of Hollywood.
- Founded in 1935 when movie mogul Darryl F. Zanuck combined two ailing studios; 20th Century Pictures and Fox, into a new organization, called Fox-20th Century or 20th Century Fox.
- During the 1930s, child star Shirley Temple saved the studio with silly musicals.
- Introduced the widescreen format CinemaScope during the 1950s.
- Almost went bankrupt because of high production costs on the lavish epic Cleopatra in 1963. One of the biggest costs was Liz Taylor’s salary.
- 20th Century Fox can be blamed for the ridiculous salaries film stars get today. It began the trend by meeting all of Elizabeth Taylor’s demands on Cleopatra; including moving the production from England to Italy because of a better climate.
- Zanuck and his son Robert returned to save the studio and became the only father-son team of movie moguls in Hollywood history.
- The Sound of Music saved 20th Century Fox by making enough money to cover the losses from Cleopatra.
- During the late 1960s Robert Zanuck revived the studio and changed Hollywood; with such groundbreaking films as Planet of the Apes, Butch Cassidy and the Sundance Kid, MASH, and Patton.
- Robert and Daryl F. Zanuck were both fired by the company they built and saved in the early 1970s.
- Pioneered the modern movie franchise and sequels in the 1970s; with Planet of the Apes and Star Wars.
- Acquired by Rupert P. Murdoch’s News Corp in 1986.
- During the 1980s and 1990s, Fox became the only company to successfully compete with the Big Three (NBC, CBS, ABC) and build a rival broadcast TV network in the United States.
- Revived animated TV series in the 1990s with The Simpsons.
- Changed American political discourse with Fox News.
- Owns Sky TV in the United Kingdom.
- Owns several cable networks including FX and the controversial Fox News.
- Has a vast library of classic film and television that includes such diverse titles as: The Grapes of Wrath, The X Files, The Sound of Music, MASH, 24, Alien, Buffy the Vampire Slayer, Married with Children, The Simpsons, The Longest Day, The Shield, House, and My Darling Clementine.
- Owns the movie and TV rights to the Marvel Superheroes: The X-men, Wolverine, X-Factor, X-Force, The New Mutants, and Deadpool.
- Possibly owns the movie and TV rights to the Marvel characters Captain Britain and Cable.
- Spun off from News Corp in 2012.
As you can see 21st Century Fox is a great acquisition for Disney because it would add a vast amount of value to the company. That will help Disney thrive in the Age of Netflix.