Disney’s Earnings Call from a SWOT Perspective

William is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Upon studying the transcript of Disney’s (NYSE: DIS) Nov. 8 earnings call I realized discussing it from the perspective of Strengths, Weaknesses, Opportunities, and Threats would be most beneficial. Rest assured that this company's strengths and opportunities far outweigh its weaknesses and threats.

Strengths

Disney’s major strengths lie in the Pixar/Marvel-based films and Parks and Resorts segment.

In the studio segment, revenue growth comes from movies rooted in sci-fi and fantasy nostalgia. The Avengers, based on a comic book team of super heroes, defeat evil bent on destroying the world. Wreck It Ralph focuses on a character from an arcade style video game. Overall revenue in the studio segment declined 8%; however, success from The Avengers ($1.5 billion gross) and Wreck It Ralph ($125 million gross so far) softened the blow and proves its success within the sci-fi sector, a fact that will benefit Disney over the long term.

People like having new choices and experiences when going to Disney’s parks, resorts, and cruises, and it shows in the results. Disney’s parks and resorts segment revenue increased 10%. Upgrades, increased attendance, hotel expansio,n and international expansion propelled growth.

Disney amusement parks themed with brands from its movies and acquisitions also represent strength. Amusement park company Cedar Fair (NYSE: FUN) whose rides aren’t typically associated with an iconic brand don't fare as well as Disney's. In Cedar Fair’s most recent quarter, revenue and net income declined 3% and 8%, respectively.

Weaknesses

Some of Disney’s weak spots reside in advertising revenue. ESPN’s and ABC’s ad revenue was flat due to lower ratings according to the earnings call transcript. Rate increases for ESPN and ABC didn’t quite make up for the ratings shortfall. On a bright note, affiliate revenue increased.

Most Disney movies not made under the Pixar and Marvel umbrella flopped in 2012. John Carter was a colossal flop, costing $250 million to make and worldwide gross barely exceeding that mark at $283 million. Frankenweenie worldwide box office gross of $63 million exceeds its budget by only $29 million. The question is if Disney can produce more original blockbuster hits. Disney studios needs a talent shakeup.

Opportunities

Opportunities abound for Disney, shareholders, and partners. Potential Marvel blockbuster Iron Man 3 is slated for release May 3, 2013. Pixar’s interesting sounding Monsters University will also be released in 2013. Other movies with familiar names slated for release in 2013 include Lone Ranger and Oz the Great and Powerful.

The acquisition of Lucasfilm, the highest-profiled opportunity to date, will add potential to Disney in the form of new blockbuster tales and new toy lineups and merchandise, providing potential new licensing revenue. Lucasfilm’s Industrial Lights and Magic division gives Disney the opportunity to provide state of the art special effects to the movie industry as a whole.

New opportunities with ESPN include adding the Wimbledon to its lineup and a new long-term relationship with Major League Baseball through the 2021 season.

Increasing international expansion bodes well for Disney. Disney acquired UTV, a leading studio and broadcaster with 100 million viewers in India. Attendance at all overseas resorts are on the rise, and the construction of the resort in Shanghai will provide opportunity for growth in China as well.

Other companies stand to benefit from the opportunities afforded Disney. New movies such as Iron Man 3 provide opportunities for licensees such as Hasbro (NASDAQ: HAS) to capitalize on toys based on this movie, in addition to leftover enthusiasm from The Avengers movie. New Star Wars movies and television series will provide Hasbro with ample new toy line ups to produce as well.

Threats

An analyst at the conference call expressed concern regarding the decline of broadcast television, thus threatening long-term ad revenue. I share this concern. Video games, DVD rentals, DVR recordings, and internet downloads serve as threats to this medium. Some individuals, including me, tire of being interrupted by commercials when watching our favorite television shows and sometimes wait for the DVD release or internet download to avoid them. Others increasingly escape to the world of online gaming.

Conclusion

Disney’s strengths in the foreseeable future will be drawn from the divisions that own trusted brands and titles such as Marvel, Lucasfilm, and Pixar. Disney studios need a talent shakeup so it can get in a position to produce original blockbusters to complement Marvel, Lucasfilm, and Pixar’s well known brands and titles.  Opportunities include a whole new string of potential Marvel and Pixar blockbusters slated for release in 2013. A greater international footprint will add exposure to all of Disney’s brands. Newer mediums from DVDs, DVR recordings, internet, and gaming will continue to threaten the traditional broadcast medium. However, the strengths and opportunities outweigh the weaknesses and threats, making Disney a viable long-term investment.


stockdissector has a position in Walt Disney. The Motley Fool owns shares of Walt Disney and Hasbro. Motley Fool newsletter services recommend Walt Disney and Hasbro. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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