Disney Earnings In Pictures: Drop Unwarranted

| About: The Walt (DIS)

Summary

I look at Disney segment revenue and income over the last two years.

ESPN is nothing to be concerned about as Disney is firing on all cylinders.

The stock drop is unwarranted.

I recently became a Disney (NYSE:DIS) shareholder only to see the stock drop as the company performs spectacularly well. Looking at Disney segment revenue over the last eight quarters, it seems that Disney is doing an outstanding job:

Looking at that you wouldn't even know what the complaint is about ESPN at all. Here is the income for the last eight quarters:

While there are quarterly variations, the general trend is up. Smoothing over the quarterly variations by using TTM numbers, here is what we get:

Disney growth is exponential as even the growth is growing.

Here are YoY growth numbers by Segment:

YoY Revenue Growth
2015 Q2 2015 Q3 2015 Q4 2016 Q1
Media Networks 13% 5% 12% 8%
Parks and Resorts 6% 4% 10% 9%
Studio Entertainment -6% 13% 0% 46%
Consumer Products & Interactive Media 5% -1% 8% 8%
Total 7% 5% 9% 14%
Click to enlarge
YoY Income Growth
2015 Q2 2015 Q3 2015 Q4 2016 Q1
Media Networks -2% 4% 27% -6%
Parks and Resorts 24% 9% 7% 22%
Studio Entertainment -10% 15% 109% 86%
Consumer Products & Interactive Media 35% 15% 13% 23%
Total 4% 7% 27% 20%
Click to enlarge

For any company in any industry, these kind of consistent growth numbers would be hard to come by. So where is the rub? The answer is that some people want to have their cake and eat it too. Look at each segment's contribution to revenue:

Media Networks still contributes a lion's share of total revenues. But as Disney makes more money from all the other segments than ever before, the Media Networks' contribution to income is dropping:

Now while there might be some understandable feeling that this is a bad thing, the reality is that this is a good thing. Disney is becoming less and less dependent on a single segment for income. It increases their diversification and shows that Disney is running all its businesses extremely well. If anything, this quarter shows Disney's resilience to deteriorating trends in cable subscriber losses.

I won't rehash the success of Marvel and Star Wars and their impact on both the Studio and Consumer Products segment. Shanghai Disney opens this year. Star Wars was not a roaring success in China, but more movies and the resort will only grow the audience for Star Wars there.

For some insight into Disney shows for cord cutters, "Daredevil" was watched by more Netflix (NASDAQ:NFLX) subscribers on its first day of release than "House of Cards" Season 3. Jessica Jones was no slouch either. And this is just the beginning. As for my personal opinion on cable "skinny bundles," I'm on one of them. And Disney makes more money from me than any other media company. I went to the theater to watch Star Wars and a few Marvel movies even though I generally avoid theaters. I watched both Daredevil and Jessica Jones. My son watches a lot of Disney content on Netflix and Disney has made the most of the few Android apps that I actually paid money to buy. Don't even get me started on Star Wars Lego toys and other superhero merchandise.

I expect Disney to have great years at least until 2020. And most likely beyond. Any drop is a good time to buy. The earnings were fantastic and they should continue to be so. In conclusion, I leave you with the trend:

Disclosure: I am/we are long DIS.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I may add to DIS or open a position in NFLX at any time