Wednesday, February 4, 2015

Disney's stock price hits over $100 per share {and why I am not surprised}

Hello dear readers,

As earning season continues, I am keeping an eye on the reported performance of the companies in my portfolio. Feels like yesterday when I shared the earnings commentary for Disney's performance during fiscal year 2014 (back in November). If you missed it, check out this post.

Another whole quarter has come full circle since then. Disney reported their performance for first quarter 2015, yesterday afternoon after market closed. I wasn't able to listen to the live earnings call but I did read the press release and transcript of said call.

Here are some of the highlights.

Financials Summary

Solid percentage increases were reported in virtually every metric when compared to the same quarter last year. On a consolidated basis--
  • Revenue increased 9% year over year from 12.3 billion reported in first fiscal quarter 2014 to 13.3 billion for this quarter.
  • Net income boosted 17% going from 1.8 billion to 2.1 billion
  • Cash from operations increased an outstanding 53% from 1.2 billion to 1.8 billion
  • Segment operating income was up 17% from a little over 3 billion to 3.5 billion
  • Free cash flow increased 55% from 554 million to 857 million
*The full report breaks down earnings in to each individual segment and corresponding metrics. If you wish to read further in to this, check it out here.

The Magic of 'Frozen'

The word 'frozen' was repeated only nine times during the earnings call. I was actually surprised and was expecting the word to come up more often considering the impact this movie has had on the bottom line of Disney, specially for this past quarter. 

As per Disney's CFO Jay Rasulo: 
"Revenue at Disney consumer products rose 22%...and operating income surged 46%...reflecting growth in both, licensed merchandise and sales at the company's retail stores..."Frozen" dolls, toys and other products were the largest driver of that growth"

Frozen was deemed the #1 toy brand for the year 2014, as per study from market research firm NPD group. The blockbuster hit, released in November 2013, earned almost $1.3 Billion at the box office internationally. Source 

Here are some of the 'frozen' references made throughout the earnings call:

"Higher operating income was due to an increase in home entertainment results, higher revenue share with the Consumer Products segment due to the performance of Frozen merchandise and higher TV/SVOD distribution results driven by more titles available internationally."

"The increase in operating income at Merchandise Licensing was due to the performance of merchandise based on Frozen and, to a lesser extent, Disney Channel properties, Mickey and Minnie, Spider-Man and Avengers."

"At our Retail business, higher operating income for the quarter was due to comparable store sales growth and higher online sales in all regions driven by sales of Frozen merchandise."

"Improved operating results were due to an increase at our mobile games business driven by the success of Tsum Tsum and Frozen Free Fall..."

Income was down in one single segment

While ESPN continues to be a solid leader within the world of sports-fanatics; cable operating income was down 2% thanks in part to rising sports rights prices. This is something I would keep watching in future earnings calls. Apparently having the right to broadcast popular sports show is expensive and Disney doesn't get any discounts for the privilege of offering this service to its viewers. Ever wondered how athletes are able to sign contracts for millions and millions of dollars? well, then can thank ESPN in part for that. 

Why I am not surprised at Disney's success and why I see this getting better

Disney is unique. There is nothing like it. Sure, you can compare it to other "entertainment" power  houses but it is my honest believe that this company is on a league of its own and they have been able to keep this up for generations. While some major corporations have been completely disrupted and destroyed by the fast-pace world of technology advancements- it seems that the management at Disney has done a phenomenal work keeping up. Remember this company has been around for over 90 years!

Strategic use of Technology. Just recently, Disney launched launched a devise called "MyMagic+"-- the technology was designed for their theme park visitors and consists of a wireless wristband meant to help customers plan their visit around the park more efficiently, as well as ease the process of making purchases within the park. You can read more about this innovation here. 

New state of the art theme park coming soon. As you may have also heard, Disney is opening a brand new, state of the art, theme park in Shangai, China scheduled to open doors in the the Spring of 2016.

Star Wars. After the acquisition of The Star Wars franchise, the first movie production is set to come out in December of this year. It will be interesting to see how this acquisition will benefit Disney's bottom line and how they will further monetize the brand. As per CEO Bob IgerThe new Star Wars film, which opens in December, would start “a new era of exceptional Star Wars storytelling that will be an opportunity for growth across all of our businesses.” Source

New exciting characters. Just five days ago, Disney announced plans for introduction of the first Latina princess, Elena, set to make its exciting debut next year on the Disney Junior animated show "Sophia the First". I feel this was way overdue considering the fast-growing Latino population in this country. There appears to be a lot of excitement around this new development. This new addition can represent a strong source of additional revenue for the already successful repertoire of Disney characters.

...and so much more. If I continue listing all of Disney's sources of income and why I feel they will continue being successful it will take me a while to finish this post.

So, that's all folks.

Tell me, What are your thoughts on Disney's brand and the company as a whole? How do you see Disney transforming in the next 10, 20 years? 

Thank you for reading and cheers to profits.