The Walt Disney Company

A Fairy-Tale Company

When I think of Disney, all those great animated movies immediately come to mind. Donald Duck, Mickey Mouse, and The Lion King shaped my early childhood. In my opinion, most of the movies conveyed great values that were especially valuable for kids growing up. Later I became a huge Star Wars fan who almost worshipped the movies and watched them over and over again.

So why not think about investing in such an enchanting company? The Walt Disney Company is pretty broadly positioned, and there's something for every taste. The Star Wars galaxy and the Marvel Universe now belong to the Disney group. The many theme parks spread around the world are very successful. TV channels like the Disney Channel also bring in hefty profits, even if this division is currently shrinking. But no reason to worry: Disney+, the company's own streaming service, will open its doors later this year.

The Origins and Business Model of The Walt Disney Company

Walter Elias Disney was born in Chicago on December 5, 1901. Even as a child he loved to draw, and at the age of 14 he attended the Chicago Academy of Fine Arts. There he was able to develop his drawing skills and learn new styles. A few years later, his older brother Roy was drafted into World War I. He wanted to serve too, but he was too young. So he joined the Red Cross together with a friend and was then deployed to France as an ambulance driver. By coincidence, at an army camp in Connecticut he met Ray Kroc, the future head of McDonald's.

Back in the USA, Disney concentrated on his drawing career. He first worked as an artist in the advertising industry and made a name for himself that way. After a failed attempt to build an animation studio, he and his brother moved to Hollywood. The two dared a fresh start and founded the Disney Brothers Cartoon Studio, where a great many short films and later also Mickey Mouse and Donald Duck were created. Walt finally wanted to make the leap to a feature-length animated film, so he and his artists worked on Snow White and the 7 Dwarfs. When the movie was released in 1937, it broke all records & Disney set new standards in the cartoon industry.

Besides animated films, Disney later increasingly worked on live-action films as well, which were also consistently successful. Over the course of his life, Walt Disney was nominated for an Oscar a whole 59 times and won the award an impressive 26 times. No other film producer has ever won so many Oscars. With the opening of the first Disneyland in California in 1955, he fulfilled a lifelong dream. Walter, a heavy smoker, died at the age of 65 from lung cancer.

Today, The Walt Disney Company earns its money in 4 different business segments: Media Networks (Disney Channel, ABC, National Geographic); Studio Entertainment (Walt Disney Studios, Pixar, Marvel Studios, Lucasfilm, 20th Century Fox); Parks, Experiences and Products (Disneyland & Disney Cruise Line); Direct-To-Consumer and International (Disney+, Hulu);

What's Next for The Walt Disney Company?

The next project coming up for the media champion is certainly the streaming service Disney+, which will be released in November 2019. In recent years, TV ratings have steadily declined. Surely a lot of viewers have moved over to Netflix or Amazon Prime - the advantage of watching what you want, when you want, beats the good old TV schedule. So Disney is investing heavily in its own platform, which will cost a lot of money at first. In addition, the license fees from Netflix and co. will disappear once they're no longer allowed to show Disney productions. I do think this will be felt in profits over the coming years, but in the long run it's a great opportunity for the group to gain a foothold in this market. By the way, management already expects between 60 and 90 million users by 2024 (for comparison: Netflix had 155 million users in the first quarter of 2019).

Apart from Disney+, a lot of movies are coming soon. When I look at the box office results of the most successful movies of all time and notice that 7 of the top 10 come from Disney, I think someone here really knows their craft pretty well. Besides Avatar and Indiana Jones, new Star Wars sequels are also supposed to hit theaters. Theme parks are currently even being expanded with Star Wars attractions. That will certainly attract more tourists.

What About the Dividend?

The Walt Disney Company pays a semi-annual dividend, currently yielding 1.5%. Shareholders received their first dividend as early as 1956. Since 2009, the dividend has grown year after year - by an impressive 17% on average. The payout ratio is currently very low at 20%. In other words, this means Disney has 80% of its profit available for productions, innovations, and further investments.

Conclusion:
Together with his brother, Walter Disney built the world's second-largest media group (number 1 is Comcast). Besides movies, comics, series, and theme parks, the streaming business will soon be added. I see a fairy-tale future for Disney and can only warmly recommend the stock to long-term investors and movie buffs.