Shanghai Park And Media Networks Will Help To Create A Bright Future For Disney

| About: The Walt (DIS)


Shanghai Park is expected to generate more than $323 million of revenue.

The company is expected to show $2 billion net income attributable to shareholders.

ESPN has official rights to major sports leagues and will generate huge amounts of revenue from advertising.

The expected growth is primarily due to ESPN and domestic Disney channels as well as effective programming and production cost controls.

The Walt Disney Co. (NYSE:DIS) has created some of the world's most attractive and largest theme parks in major cities of the world and now the company is going to open its Shanghai Disney Resort in China in 2015. Disney owns 43 percent of this park while the remaining ownership is held by the Shanghai Shendi Group. Disney announced it would finance another US$800 million bringing its total investment figure to US$5.44 billion. The increase in investment is aimed to add attractions to the park and to increase the park's capacity keeping in mind China's fast-growing entertainment and media market.

This project is going to increase the company's total assets and its asset turnover ratio. The company's last quarter's total asset turnover ratio was 0.57, which is expected to be 0.55 in the next quarter as total asset have been increased due to increased investment. On the other hand, the industry's expected assets turnover ratio is 0.50. A decrease in this ratio is a clear indicator of expected greater revenues as the company will utilize its assets more efficiently to boost its top line. However, this ratio will increase to 0.60 once this project is complete and the park begins generating revenue.

Moreover, the company's net fixed asset turnover will also follow a positive trend. Its current net fixed asset turnover ratio is 2.08 which will show an upward trend in the coming quarters once the Shanghai Disney Resort contributes more to Disney's revenue. Furthermore, its gross profit margin is speculated to increase from 25.59% in the previous quarter to 28% in the next quarter.

Disney Co.'s profit margin (after tax) is also expected to increase along with the opening of the new park. The company will also earn enough from increased subscriber fees in the US through ESPN and other Disney channels. ESPN's fee per subscriber has grown at an average annual rate of 9% over the past five years implying an average annual increase of 36 cents per subscriber. Apart from that, the company's next quarter is going to show a healthy top line as the new season of the NBA will be broadcasted on ESPN. In 2012, advertisers paid $1,000,000 for a minute of airtime.

Media Networks is the company's major segment in terms of generating revenue and it contributed 44 percent in the last quarter towards the overall revenue of the company. In the next quarter, this segment is projected to boom as numerous sports fans tune in to ESPN. Upcoming sports seasons, the ongoing World Cup and the dominant position of ESPN among other sports channels gives it a competitive advantage to generate more revenue for the company and allow it to charge higher rates for advertisements. Fortunately, ESPN contributes 35 percent of Disney's stock price so investors should expect to gain from price appreciation in the next quarter.

Source: Disney 10-Q

There are 11 Disney theme parks located within 5 Disney resorts around the world. According to the reports of the last quarter, the company generated $3,562 million from parks and resorts. Each park generated approximately $323 million of revenue so the Shanghai Disney Resort is expected to generate even greater revenue as China is the growing entertainment hub of the world.

With regards to movies, "The Avengers 2" and "Star Wars Episode 7" will be launched in the next financial quarter. The first Avengers' movie generated $1.5 billion of revenue so it is expected that the Avengers sequel will bring in $2 billion to the top line, keeping in mind the cast of the movie and its demand by viewers. As "Frozen" lifted Disney's revenue the first quarter, so it is expected that these two movies will also boost revenues. These films are likely to be the two top films of the year and could each bring in near $1.8-2 billion worldwide. Disney has an incredible film platform that should provide substantial growth.

The company's earnings are expected to rise by 6% from $1,917 million to $2 billion. Simultaneously, EPS will also increase by 5% from $1.11 to $1.17. Disney's expected revenue will increase by 4% in the next quarter due to above mentioned potential growth factors.

The current market price of Disney stock is $86.84 and its will definitely increase as the company is moving towards success.


Walt Disney Co. is expected to earn a sufficient amount of revenue from the Shanghai Disney Resort once it opens. The company's future is bright as upcoming movies are expected be box office blockbusters. The stock price will have enough gain for its investors and the ESPN channel is going to have the broadcasting for major upcoming sports seasons. Investors should buy Disney's stock as the company's foreseeable future appears bright.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: The article has been written by a Gemstone Equity Research research analyst. Gemstone Equity Research is not receiving compensation for it (other than from Seeking Alpha). Gemstone Equity Research has no business relationship with any company whose stock is mentioned in this article.