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Disney Stock: Can Direct-To-Consumer Growth Justify Current Valuations?


  • Disney has transformed itself into a direct-to-consumer powerhouse. It's trying to position itself as a growth stock.
  • Its current valuation also seems to have reflected its transition. Nonetheless, DTC is still a relatively small segment compared to its total revenue.
  • We discuss whether Disney stock's current valuation is justified.
  • Looking for a helping hand in the market? Members of Ultimate Growth Investing get exclusive ideas and guidance to navigate any climate. Learn More »
Disney To Close At Least 60 North American Stores

Joe Raedle/Getty Images News

Investment Thesis For DIS Stock

The Walt Disney Company (NYSE:DIS) has transformed itself under CEO Bob Chapek into a "growth" player. It has astutely used the COVID-19 pandemic to drive its transformation into a direct-to-consumer (DTC) powerhouse. The company suspended its dividend when the pandemic

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This article was written by

JR Research profile picture

JR Research is a seasoned investor with a background in economics. He focuses on identifying 3 main things - leading growth companies, emerging market trends, and secular growth opportunities. His approach combines price action with fundamentals investing.

He runs the investing group Ultimate Growth Investing which specializes in identifying high-potential opportunities across various sectors. The group is designed for investors seeking to capitalize on emerging, high-growth opportunities, and investors looking for sustainable growth opportunities at a reasonable price.

Learn more

Analyst’s Disclosure: I/we have a beneficial long position in the shares of NFLX, GOOGL, ROKU either through stock ownership, options, or other derivatives. 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.

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Comments (12)

valuinvstr99 profile picture
JR Research
What is your take on Max Greve's 11/2/21 SA article "Disney's ESPN Problem May Finally Be Catching Up To It"? If I'm getting the correct message from both articles, they appear to conflict on the ESPN role in the DTC mix/profits.
La Marque profile picture
A very optimistic article. My 2 cents is that DIS is worth about 120 after the pandemic runs its course. Disney's content is all over the place, being narrowly marketed by niche. It is a very capital expense strategy to try to be all things to all consumers.
Rogue Trader profile picture
@La Marque Capital intensive to be all things to all... Amazon? I think that if you're generating good ROI go ahead and invest the capital while financing is easy. And I really do think that in 10 years we'll applaud Disney for its transition.
La Marque profile picture
@Rogue Trader Pardon me for disagreeing. Disney at today's prices is dead money unless one is trading with the greater fool theory in mind. Disney does not have a cash cow service like AWS to fund its fantasies. Entertainment and content generation is very capital intensive relying upon fickle consumer tastes, not like a basic digital infrastructure business.
Rogue Trader profile picture
@La Marque Fair comment but I too disagree :) Content generation isn't new for Disney, it's always been producing it. Going forward, it'll be business as usual just with the TFCF addition.

AWS wasn't a core operation for Amazon and it needed to invest heavily to create it. Disney's DTC is similar in terms of its scalability and profitability.

Moreover, parks are highly cash generative for Disney. Perhaps not as much as AWS but nothing to sneeze at. Disney has been generating $5 bn to $9bn FCF for a long, long time now.
Clauser1960 profile picture
In the US, a monthly Disney subscription costs less than two hours of a baby sitter......
VoiceofSanitySometimes profile picture
Too much emphasis on the pipe instead of the material flowing through it.

If Disney keeps making top quality content that people want to consume, I have absolute faith that no one is better than Disney at monetizing that demand.

That is the big question -- can they keep creating the best content on the planet? They have a solid history of delivering on that promise, but the last year has seen a few disappointments too.
Rogue Trader profile picture
@VoiceofSanitySometimes I'm not at all sure the quality matters as much as we think. Disney's content is, as you say, unarguably the best on the planet. In my opinion, Netflix's is very poor. I struggle to find things to watch on Netflix never mind watching more than once and I see many people around me thinking the same. The rewatchability is essentially the key to long-term recurring revenues and will make or break unit economics in both customer acquisition and content production. Netflix's quality seems to suffice for now. It'll be interesting to see if people churn from NFLX once HBO and DISCA merge their IP.

By the way, I do genuinely think that Disney will keep it up.
nerd_rage profile picture
@VoiceofSanitySometimes The difference between DIS and NFLX is that with big brands, DIS can apply its content budget more efficiently.

To stumble across one Squid Game hit, NFLX has to spend billions on random content from all over that mostly will just disappear into a black hole. They have no good way to predict what money will be wasted and are just throwing darts at the wall.

But DIS has a reasonable expectation that anything called Star Wars or Marvel will at least not disappear without any attention paid to it at all. That means DIS can put a larger budget and more attention into the smaller roster of content they make. The result is that they appear to have far higher quality overall than NFLX and I don't see why that would change since it's all driven by having brands or not.

NFLX needs some decent brands and DIS needs to expand into content that has appeal beyond kids and nerds. NFLX is trying to expand and DIS is being held up by the Comcast deal but are moving forward overseas by integrating Star with Disney+.

Both have viable strategies, both know what they need to do and both are doing it. I'm very confident in both.
wwloon32 profile picture
@nerd_rage Unfortunately for Disney, each production cost $200m to produce at average. The whole series of Squid Game cost $20m, and that series alone has larger impact on youtube than GoT which has 10 years run of series.

Which means, Netflix can afford to have hundreds of darts to throw with and will surely hit one or two. Disney can only throw thirty darts and that's it. If it misses, it miss.

It did miss. Which is why their Disney+ subs acquisition is now faltering.

I am itching to write an article on this one.
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