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The Walt Disney Co.'s (NYSE:DIS) shares trade at $75 and have been steadily increasing over the last year. The nearly 40% increase was the result of increasing investor confidence in Disney's stock. The company holds an extremely strong portfolio of products on which it depends to deliver investors profits. ESPN, the most-watched sports channel in the US, holds a more than 90% penetration rate in the market and exclusive rights to some of the most popular sports events including the NFL, NBA and FIFA is in Disney's portfolio. In this article, we will glimpse at Disney's stock, its operational performance and what value it holds for the future.

The First Quarter

(click to enlarge)

Source: Earnings Release

Media Networks

The media networks segment that includes ESPN and the broadcasting of popular series such as Modern Family grew by 4% as revenue jumped to $5.3 billion making it the most important revenue generator for the company. Higher contractual rates and increasing advertising revenue through higher pricing were the reasons behind the growth especially in the cable networks subdivision. The company has a long history of increasing its contractual rates (see graph below) and monopolizing the industry by having exclusive rights to some of the most-popular events.

The operating income for the segment improved 20% to $1.4 billion due to ESPN's growth, higher equity income from A&E Television Networks (AETN) and an improvement in the domestic Disney Channels. The absence of equity losses as a result of the sale of interest in the ESPN STAR Sports joint venture last year also inflated the results.

Parks & Resorts

Parks and resorts revenues for the quarter increased 6% to $3.6 billion and the segment's operating income increased 16% to $671 million. The operating income growth for the quarter was primarily due to increased guest spending at domestic parks and resorts which reflected higher average ticket prices as well as food, beverage, and merchandise spending. The increase in guest spending was partially offset by higher costs for the continued roll out of the company's MyMagic+ plus labour and other cost inflation.

Studio Entertainment

Successful Movie Brands Brought 23% Growth to Revenue

Studio Entertainment revenues increased 23% to $1.9 billion and the segment's operating income increased a whopping 75% to $409 million! The higher operating income was due to an increase in worldwide theatrical distribution results and increases in domestic home entertainment and television/subscription video on demand (TV/SVOD) distribution. The theatrical results reflected the strength of Frozen and Marvel's Thor: The Dark World during the current quarter compared to Wreck-It Ralph and no Marvel film in wide release during the same quarter last year.

These three segments made up more than 85% of the company's sales. Adjusted diluted EPS increased 32% to $1.04 and the company generated $1.2 billion in CFO, up 6% from last year's results. All in all, the quarter went ahead as the company planned as successful movies and a continuing penetration ratio resulted in higher revenue from all major categories.

In the Future…

The Success of a Movie doesn't end at the Box Office

The successful running of a movie at the box office provides results only for the quarter and that has been the case for Disney; however, that's just the first part of the total return the company generates through its franchised movies. Disney has shown a promising trend towards generating a higher figure of revenue from each successive sequel of its movies.

For example, Iron Man 3 topped $1.2 billion in global box office, far exceeding the $632 million for Iron Man 2. Likewise, Thor: The Dark World delivered more than $635 million global box office versus $450 million for the first Thor movie. Expecting this trend to continue, Disney's anticipated release of the Captain America sequel this coming April is likely to outperform its prequel. Marvel content and characters are all integrated and according to Disney, Captain America's sequel will set some critical events in motion that will lead directly into the upcoming Avengers: Age of Ultron. Similarly, some sides of the story in Captain America: The Winter Soldier will also be reflected in upcoming episodes of Marvel's Agents of S.H.I.E.L.D. on ABC.

With so many franchises appreciated by adults and children alike, Disney promises to perform well at the box office in the future as well. This August, the company will release Guardians of the Galaxy introducing audiences to a new cast of Marvel characters that will further develop franchises as part of Disney's long term strategy. Next year, the expected Star Wars: Episode VII will be one of the biggest movies the company has ever released.

I believe such a vast portfolio of movies is sufficient in itself to drive revenue higher. Add to that the indirect revenue (discussed below) they earn and we have no doubt that the company will generate return for investors.

Successful Brands lead to more Pricing Power in Disney's Theme Parks

The successful movies lead to DVD and toy sales, bring viewers to the company owned television networks and allow Disney to charge premium prices in its theme parks.

Media networks and theme parks will be using the characters from the franchises such as Thor and Frozen for years if not decades to come. The plan for Disney to outperform the market is well-established and is already working miracles for the company's long-term investors. The result is also already visible in the graph below as the company has beaten the Dow Jones for the past 5 years (see graph below).

Source: Ycharts

Conclusion

The attendance at Disney theme parks is at an all-time high. Per capita guest spending has also risen in line with park attendance. This trend has continued for the past several years and with upcoming movie sequels the revenue figures are going to be inflated to the joy of investors. This is just one side of the coin because Disney's television networks such as ESPN remain dominant to date. The channel experienced a 10% increase in advertising revenue in the last quarter and this was not an uncommon event.

There is no stopping Disney in the future and therefore it is fair to call the stock a self-earned buy.

Source: Disney Just Keeps On Getting Better