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Disney vs Netflix and the others – now far from a Mickey Mouse operation

It’s ‘the sheer scale of the business that you’ve got to understand. It has a market cap of just over $300 billion’: Gary Booysen from Rand Swiss.

SIMON BROWN: I’m chatting now with Gary Booysen. He is from Rand Swiss. Gary, I appreciate the early morning. You did a webcast last week, looking at Spotify, looking at Roku as investment options – also looking at Disney. I think we’ve all seen a Disney movie; many have been to Disney Parks. There’s now of course Disney+ streaming. This is a giant business. In some senses, it’s got Netflix as one of its divisions, Disney Parks coming back online – that catalogue that they own – merchandise capabilities. This is an amazing investment story.

GARY BOOYSEN: Good morning, Simon. Yes. If you look at this, it’s one of the stocks that we hold in our offshore portfolios, and it offers South Africans a very different and unique entry point into financial markets. We have nothing like it on the local exchange. 

So if you consider Disney, yes, we can chat about the various growth prospects through Disney+; as you say, Hulu, ESPN, all the franchises that it has. But it’s just also the sheer scale of the business that you’ve got to understand. It has a market cap of just over $300 billion. Obviously, the revenue numbers are a little bit up and down based on the Coronavirus that you’ve just been through, but next full year they’re expecting around $67 billion in revenue. 

So putting that in perspective, depending on where you take your currency calculations, it’s almost R1 trillion a year in revenue. That’s comparable to the South African government’s tax revenue. This is the size of the company you are talking about. As I said, just the scale and the brand – it’s a company that’s 98 years old. It IPO’d in 1957. It’s been around a long time and it offers a level of stability to investors that is difficult to find in financial markets these days.

SIMON BROWN: And the Parks business was shut down during the pandemic, reopening in the US. They’ve also got a Disney World in Europe. They’ve got one in Asia as well. As those start to come back, that’s going to be a fairly significant kicker, I imagine, particularly because a lot of folk over the last year haven’t been to a Disney Park. The pandemic is over for them and they [may be thinking] let’s have a good weekend – and off they go. They potentially are going to have record earnings.

GARY BOOYSEN: Absolutely. So you can just look up what’s happening across Europe – especially if you’ve been watching the football – people are going back to live events. We want to get out, we’ve been trapped in our houses for a long time. While the pandemic was going on, Disney obviously wasn’t resting and doing nothing. It really took the opportunity to revamp a lot of its Parks. 

They’ve opened a lot of new attractions, imported new technology that they couldn’t have done while the Parks were open. So they’ve launched a whole new app system for the queues. If you have been to Disneyland or Disney World, one of the big memories is probably those long queues. That doesn’t exist anymore because it’s now a mobile app. You literally go and scan your phone at the front of the ride. You walk around, buy your popcorn, buy a Mickey Mouse shirt – whatever you want to do – with your phone or buzzword when you need to go for a ride. They’ve introduced a lot of technology during the downtime. 

But absolutely, people were very, very concerned. If you look at how the institutional analysts were rating the stock. As we went into the pandemic, because the Parks business makes about 23% of revenue generation, people were wondering what was going to happen to this inflow when they shut down the Parks. You saw a lot of coverage, a lot of guys moving the stock onto a hold. We had only one guy moving it onto a sell. But since the reopening – they reopened Disney Paris on the June 17 – you’ve seen that kind have reversed almost entirely. So all that institutional coverage is now moving Disney back onto a buy. We’ve got an indicative upside of around 19% in dollars on the stock, so we’re comfortable to buy at this stage. 

And we still haven’t talked about the most interesting part of the business, which is Disney+, which is ready to take on Netflix. 

SIMON BROWN: I forgot about Hulu and ESPN. ESPN is their sport; that’s relatively small. Hulu is not bad. That was a weird thing which Disney ended up owning. But Disney+, they’d launched, they had some stretched targets. The pandemic meant that they went straight through those stretched targets. I think they were heading for 2024 targets in 2021 already. They’re a juggernaut and they’ve got not just the massive library, but they’ve also got the capacity to make and own brands. They’ve got Star Wars and Superheroes and all the rest. That is perhaps in time going to be the juggernaut within Disney.

GARY BOOYSEN: I think that’s right. So as you said, they obviously got a kicker from the pandemic as more people moved online. You know, they saw a big pickup in subscribers. But listening to Bob Chapek, the CEO, speaking at a Credit Suisse conference recently just around media, they were saying that the real value unlocked from their Disney business hasn’t even been ……[5:25]. They went into the pandemic and sure, they’ve brought on subscribers, they brought in eyeballs. But they’ve kind of an omnichannel approach versus a Netflix. 

Netflix really has the subscription revenue as the way that it makes money, which makes it a little more fragile than Disney. Disney can offer this, yes, you’re going to get the subscription revenue, but you’ve got all the brands and the weight and basically, the physical goods and services that you can sell around the business that makes it so interesting.

And they’ve really been cut off. They haven’t been able to use all these other tools in their arsenal; they’ve just had to focus on getting these subscribers. It was kind of a weird launch of Disney+ for them, but, as you say, still very, very successful. 

The one point I’ll make – you kind of mentioned it as well – is the content libraries that these companies have that really gives them the competitive advantage. It doesn’t matter who you look at – whether you’re looking at Amazon Prime, Netflix, whether you’re looking at something like Roque, a kind of a platform for platforms – it’s all about what content you have and what content do you control. We’ve seen the flourishing of Netflix Originals. We’ve seen the spend picking up at Amazon around their original content with the buying studios trying to just secure their intellectual property.

Disney already has this. They have a long history. They have a huge, huge library. They have loved brands and they have the ability to leverage that. They also have the expertise to kind of continue making movies. And that’s why, if you look at pure share-price performance, Netflix as has been the better performer over the last five years; but this was before Disney streaming launched. And with their slightly different model, slightly more robust model, as well as their content library, I think they’re going to do very, very well over the next five years.

SIMON BROWN: I hear you on that. And the new CEO – we were chatting about Amazon yesterday. There were worries about the new CEO as Bob Iger stepped down after 15 years. But that worked perfectly well. CEO transitions can happen well. 

That’s Gary Booysen, portfolio manager at Rand Swiss.

Our poll today on our social media platforms. We are asking you about Disney. Certainly, we all know it. We’ve watched the movies. Many of you might’ve been to the Parks. A question: is it a stock you have in your offshore portfolio? You can give us your answers. You can give us your views and thoughts on our LinkedIn, Facebook and Twitter platforms.

Listen to Thursday’s full MoneywebNOW podcast here.

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