Disney: 30% Less Dependent On ESPN

Originally published in partnership with Seeking Alpha and due to contractual agreements, only the first paragraph and highlights are posted here.



The fixation on Disney's ESPN woes provides investors with a buying opportunity.

The Media Networks segment made up 70% of the company's income in 2011 and for 2016 it was down to 49%.

Disney has lessened its dependence on its Media Networks segment as its other franchises continue to post robust grow.

A decreased dependence on ESPN will allow Disney liberate itself from this overhang and move higher.

The Backdrop:

Disney (NYSE:DIS) is a long term buy despite its ESPN woes and the recent sell off provides investors with a long term buying opportunity. We’ve heard the endless doomsday scenario for Disney over its slumping ESPN franchise. This is in contrast to the share appreciation (moving from $91 in October of 2016 to $116 as of recent or a 27% appreciation) and bullish analyst sentiment in 2017. Although ESPN makes up a disproportionate amount of the company’s revenue and income, all of its other franchises are posting robust growth hence Disney will be relying less on its ESPN franchise over the coming years.

In 2011, its Media Networks segment made up 70% of its income and that has decreased to 49% in 2016. It slashed its Media Networks contribution to the company's income by 30% since 2011. Disney’s perpetual stock slump throughout 2016 leading up to its recent resurgence in 2017 was almost entirely attributable to the decrease in ESPN subscribers and subsequent revenue slowdown. I feel too much of an emphasis is being placed on ESPN as it weighs less on overall profits. Disney offers a compelling long-term investment opportunity considering the growth, pipeline, diversity of its portfolio, share repurchase program and dividend growth in light of the slowdown regarding its Media Networks segment.

ESPN and the Obsession that Won’t Quit:

Seeking Alpha contributors Max Greve and “Individual Trader” have recently put forth articles pushing the bearish long term sentiment on Disney shares based on the ESPN thesis. Max Greve and “Individual Investor” have suggested that Disney shares are “considerably overvalued” and “I’m looking at sub-$95 prices… but the damage could be much worse”, respectively. I feel that the theses proposed by these authors are overly negative while long term investors will be on the right side of this investment. All business segments (yes, Media Networks) are growing revenues along with EPS while expanding its moat via Shanghai theme park, Star Wars, Marvel universe, Pixar and corrective measures being implemented to address its ESPN issues.

ESPN Numbers Over the Years and Potential Spin-Off:

Taking a look the Media Networks segment over an expanded time period sheds more of an accurate light on the ESPN issue from a revenue standpoint. From 2011 through 2016 its Media Networks segment has grown both revenue and income with the exception of income in 2016 (Table 1, Figures 1 and 2).

Figure 1 – Disney's 2013 annual report

Figure 2 – Disney's 2016 annual report