Will Disney (DIS) collapse?

Disney (DIS) is in chaos. The company’s board has fired CEO Bob Chapek and brought back the legendary Robert A. Iger to save the company.

Bob Iger will serve as chief executive officer for two years and develop a new strategy for the Magic Kingdom, a press release reveals. I think this is a smart move, because I consider Iger Disney’s true founder.

To explain, Iger combined several media companies, including the Walt Disney Company, into today’s Disney empire. Wisely, Iger gave his empire the Disney name to keep the “Magic” and the heritage of Walt Disney. Even though today’s Disney bears little resemblance to Walt’s Magic Kingdom. For example, there were no superheroes or stormtroopers in Walt’s Magic Kingdom.

The Return of Bob Iger

Iger is a visionary who foresaw the direction modern entertainment could take and built a company to profit from it. For example, Iger spent big money to buy both Lucas Film (owner of Star Wars) and Marvel Comics. Unlike most entertainment executives, Iger understands the value of fandom and shared universes.

Disney has milked both franchises for enormous amounts of cash. For example, Disney bought Marvel for $4 billion in 2009 and made $22 billion from Marvel movies between 2009 2022, The Motley Fool estimates. Lucasfilm has been less lucrative, but it generates some profit. Investopedia estimates Disney spent $4 billion for Lucasfilm and made $10 billion from Star Wars films.

Moreover, Star Wars and Marvel shows and movies are critical to the growth of the Disney+ streaming service. Disney+ had 152.1 million subscribers in August 2022, Tech Crunch estimates. Plus, Disney+ added 14.44 million subscribers in the third quarter of 2022. All of Disney’s streaming services, Hulu, Disney+, and ESPN+ had 221.1 million subscribers in August 2022.

Can Iger Save Disney?

Hence, Iger is the man who built Disney (DIS). Now, Iger is returning to save Disney.

Ironically, Iger’s current trajectory resembles that of his late friend Steve Jobs. Like Iger, Jobs was a founder who returned to save the company he built, Apple (AAPL).

Iger has a tough job ahead of him. Disney has many problems, including streaming losses. Reuters claims Disney+ lost $1.5 billion in the last reported quarter. Plus, there are the theme parks, falling share prices, and what CNBC madman Jim Kramer calls the “balance sheet from hell.”

Why Disney must dump ABC

An even greater threat to Disney’s survival is the ABC broadcast TV network. For example, I found just one ABC program on Spoiler TV’s age 18 to 49 ratings average for scripted broadcast shows The Good Doctor. The Good Doctor’s rating for the 18 to 49 demographic, the group advertisers prefer most, was 0.39%.

Furthermore, ABC averaged 3.3 million viewers in a nation with a population of 335.695 million, TVLine estimates. Thus, ABC’s audience is under 1% of America’s population. I cannot see how ABC can make money with those viewing figures.

I think getting rid of ABC will be one of Iger’s most important moves. I suspect ABC is the biggest money loser at Disney (NYSE: DIS). Disposing of a broadcast TV network is tough. Paramount (PARA) and Warner Brothers Discovery (WDB) had to pay Nexstar (NXST) $54 million to take the CW off its hands, The Hollywood Reporter claims.  

My prediction is that Disney will sell or give ABC away soon. The move will shock observers, particularly in the old media, but I think it will be necessary for Disney’s survival.

Does Disney (DIS) have a Balance Sheet from Hell?

I have to wonder what balance sheet Kramer is reading. The Disney (DIS) balance sheet I found at Stockrow looks good.

For example, Disney had $11.615 billion in cash and short-term investments and $203.631 billion in total assets on 30 September 2022. However, Disney had $48.369 billion in total debt on 30 September 2022.

The total assets grew from $203.609 billion on 30 September 2021. However, the cash and short-term investments shrank from $15.962 billion on 30 September 2021. Plus, the total debt shrank from $58.313 billion on 30 September 2022.

I think there are many CEOs out there who want Disney’s “balance sheet from hell.” It looks good to me.

How Much Money is Disney Making?

The Walt Disney Company (DIS) is making less money. For example, Disney’s quarterly gross profit fell from $6.193 billion on 30 September 2021 to $542 million on 30 September 2022.

However, the quarterly operating income grew slightly from $507 million on 30 September 2021 to $542 million on 30 September 2022. Interestingly, the quarterly gross profit fell from $7.822 billion on 30 June 2022 to $542 million on 30 September 2022. Similarly, the quarterly operating income fell from $2.196 billion on 30 June 2022 to $542 million on 30 September 2022.

Conversely, Disney’s quarterly revenues rose from $18.534 billion on 30 September 2021 to $20.15 billion on 30 September 2022. Disney’s revenues grew by 8.7% in the quarter ending on 30 September 2022. However, the quarterly revenue growth rate fell from 26.33% on 30 June 2022.

I think Disney’s income, gross profit, and revenue growth are healthy. Disney is growing and making money.

How Much Cash is Disney (DIS) generating?

Disney (DIS) generates cash. The Magic Kingdom reported a quarterly operating cash flow of $2.524 billion on 30 September 2022. The quarterly operating cash flow fell from $2.632 billion on 30 September 2021.

However, Disney also burns cash. It reported a quarterly ending cash flow of -$1.343 billion on 30 September 2022. Disney can generate enormous amounts of cash. It reported a quarterly ending cash flowing of $14.488 billion on 31 December 2022.

On the positive side, Disney is paying off its debts. It reported a quarterly financing cash flow of -$2.482 billion on 30 September 2022. The quarterly financing cash flow rose from -$1.355 billion on 30 September 2021. Disney is paying off its debts.

Is Disney a Value Investment?

I think Disney (DIS) is a value investment because it is still a cash-rich company with growing revenues and shrinking debts. Moreover, Disney+’s subscriber numbers are still growing despite the losses.

Appealingly, Disney’s stock is cheaper. The share price fell from $154.15 on 22 November 2021 to $98.87 on 25 November 2022. However, Disney is still not paying a dividend.

I think Disney is a value investment that could get better if Iger figures out how to unload questionable assets such as the theme parks, cruise ships, cable networks, and ABC. Disney could become an even better value investment if Iger can restore the Disney magic.