Disney (NYSE: DIS) is an incredible media story with a lot of exciting intellectual property assets, but at the end of the day, investors put their hard-earned money into the stock because they believe it will go up in value. From that point of view, it isn't Star Wars or cartoons that drive the current analysis; it is, instead, ESPN.
More specifically, it's a certain equation: ESPN plus new-digital-age-with-many-platforms equals...what, exactly?
The bull story is well-known: Disney's brand equity differentiates its portfolio from the rest of the pack and will allow cash flows to grow over time. That's probably even close to the company's mission statement (at least at one time, if not now).
But for Disney to continue growing and to avoid the destiny of becoming just another income-generating stock (which I suppose all companies are destined to become, but let's hope that fate doesn't befall this media behemoth for a long, long time) it needs something.
Some unknown acquisition of the future.
I would be willing to bet that, if not directly, CEO Bob Iger and the board are vetting candidates for the company's succession plan with that very inquiry -- what would you buy for Disney that will help it grow?
This is not an inconsequential question. Disney produces content, but in the context of an acquisition strategy. The company's most famous purchases were based on mythologies driven by technology and special effects; they made Iger a legend on Wall Street. But while Iger will be remembered for being willing to take on debt and pay a premium for character collections and brands, one has to wonder exactly what else is out there for the next Disney leader to acquire.
When you think about it, there aren't many obvious targets on the media landscape right now. There may not be for a long time, if ever...at least on a magnitude similar to a Lucasfilm. It seems as if the era of a Steve Jobs building up a Pixar or a George Lucas putting together a science-fiction mythology (and, arguably, Lucas was also partially responsible for Pixar) may be destined to remain latent; it's hard to think of a person out there who is patiently creating a popular branded universe that isn't already associated with a media company and/or is overvalued (i.e., try taking Harry Potter from Time Warner, for instance.)
The space that seems to offer some hope might be the multi-channel network industry as represented by Alphabet's YouTube. But those entities are made, like anything is I suppose, to be cashed out as quickly as possible, and they may not make the best of investments. Maker Studios is an example of something that might worry a Disney shareholder. Really, has Maker done much for the Mouse? Years from now maybe we'll all look back and say we should have seen it, but it's the kind of digital-not-content play that is puzzling. Other acquisitions by Disney have likewise not panned out as planned; certainly see less-than-thrilling assets such as Club Penguin, and of course the sad history of Disney's attempt to self-publish video games during a transitional period in that industry.
Then there's the question of the acquisition Disney should have made but didn't: DreamWorks Animation. Yes, I am serious; quite so, in fact. Comcast grabbed this asset, but Disney should have taken it off the public trading markets a while back. Why have the second Pixar (or even the third/fourth Pixar, if you are less inclined to be charitable) in the hands of a cable giant that actually might benefit from it? If head Pixar guru John Lasseter could catalyze Disney's troubled animation department (as it was not so long ago) and give us Frozen and Moana, what could he have done for DreamWorks Animation's properties and ultimate creative direction? How could he have used the company to tell more stories, and maybe combine universes in the same way that Disney Infinity game allowed? (In other words, could Shrek have been a toy in Toy Story?) At the very least, Iger owning DreamWorks Animation would have led to less complexity in regard to future release dates for his company's cartoons.
The company has made investments in platforms like BAMTech and Vice, and one could pontificate if that is the way to go in the future. Again, these might be interesting areas upon which to place some bets, but in the end, it's the story/character that works best for Disney; it's hard to imagine how action figures can be made from Vice (although Disney could perhaps use Vice as an incubator for fictional content; Vice does publish science fiction on the Terraform section of its Motherboard website, as an example). Media companies are indeed making these kinds of buys; recently, and turning back to the YouTube strategy for a moment, CNN purchased Beme from Casey Neistat and his investors, as reported by Variety. Neistat may have visions of turning his popularity and brand into a big media presence, but Disney may want to stay out of this space if a clear strategy of content production is not attached (a Neistat-type business model is probably a better fit for a CNN than it would be for a Disney, to perform a quick thought experiment).
I remember the days after the 3:1 split of Disney's shares back in 1998. I recall watching the stock a lot and wondering when it would go up instead of acting in a range-bound pattern. It's the action of a fool to compose an article trying to predict future price behavior of an equity, and I'm essentially not trying to attempt that. Instead, I am attempting to brace myself for holding a stock that may not do too much in the near future because of the shifting world of on-demand platforms, expensive cable bills and streaming platforms producing original content at the rate of a hyperactive galaxy producing solar masses. The market knows about Star Wars, Doctor Strange, and Cars; it knows about Iger, Lasseter, and Marvel's Kevin Feige, the intellectual resources to which the board has access. It's what the market doesn't know that will move the stock. Who will be the next CEO...what will the next CEO buy? When that is known, the stock will move. Until then, let's hope the company can surprise Wall Street with unexpected dividend increases to reward shareholders.
Disclosure: I am/we are long CMCSA, DIS, GOOG, TWX.
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.