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Value Trap Stocks: Disney (DIS)
Why It's Time to Buy DIS Stock
Walt Disney Co (NYSE:DIS) may look attractive. It’s trading at a price to earnings ratio of just 14 and has some really great assets, from its iconic theme parks, to great movie franchises like Marvel and Star Wars.
But the reality is that in the short term, DIS results will continue to be uninspiring thanks to the proliferation of cord cutting and Netflix.
Cord cutting is hurting ESPN, which is a key part of Disney’s overall business. Meanwhile, cord cutting and the rise of digital advertising are harming Disney’s ABC TV unit. In the quarter ended in December, the operating income of Disney’s Media Networks business — which includes both ESPN and ABC — tumbled 12% year-over-year.
Meanwhile, the tremendous popularity of Netflix has had a negative impact on movie theaters and Disney’s own home movie business — denting Disney’s studios unit in the process. Last quarter, even with the release of a Star Wars’ film, the operating income of Disney’s studio entertainment unit fell 2%.
It’s important to note that, taken together, Media Networks and Studio Entertainment account for over 50% of the company’s revenue and segment operating income.
Over the longer term, Disney has correctly decided to take a “if you cant beat them, join them” approach to dealing with the Netflix phenomenon.
Specifically, Disney is launching its own streaming TV service next year, along with a sports TV streaming service.
But given high content acquisition costs, startup costs, and high initial promotional spending requirements, those initiatives are unlikely to be profitable before 2020.
Source: Investor Place