Disney is a realm of escapism - Recession Proof & Cash Flow Rich
The Walt Disney Company recorded negative operating cash flow for the first quarter of the year. Even in the second quarter, cash from operating activities was still outpaced by investments in diverse activities. This was mostly caused by a lack of action during the coronavirus demand destruction in fiscal year 2020. But now that the parks are reopened, there are less ramp-up requirements. The majority of Disney's movie ticket sales will result in revenue generation because the majority of the backlog of films has already been paid for. The free cash flow should significantly increase during the following quarters. Despite the most severe criticism, "Thor: Love & Thunder" is on track to surpass $500 million worldwide. The success of the movie was another evidence that the conventional approach is still effective.
10 Year TSR Value
Disney's track record of making more money than it needs is quite extensive. As a result, advancements into further growth areas can still be made in the future. Disney may be a sizable business, but it has plenty of room to expand as long as there are measures in place to produce adequate cash flow. They have a strong economic moat. The brand is extremely well-known, and the market is now discounting the Disney+ streaming component of the company's operations as the excitement surrounding it fades due to Netflix's (NFLX) sluggish member growth. We have to consider that Netflix have peaked their user base. However, Disney+ have enough tier to grow their client base.
Due to the parks being open again and new movies being released, cash flow is expected to increase significantly soon. In the long run, this corporation has a significantly more profitable method of producing films than many of its rivals.
However, One of the biggest disadvantage of holding this stock is due to their high operating costs, Disney's value will increase to about twice what it is currently trading for if operating margins return to the mean of around 17%.
As operating costs increased and park and cruise revenues decreased during the pandemic, Disney had to cut dividend payout. Undoubtedly, the dividend's reinstatement will be a bullish event that many are anticipating. Although market players despise dividend cutbacks, Disney's management at the time made a wise decision in doing this. Disney was able to leverage money from eliminating the dividend to make a splash in the streaming industry. However, it is in their best interests to compensate shareholders by resuming dividend payments in situations where the value of their firm is dwindling.
The market seemed to be concentrating too much on downside risks, that continue to drive Disney's share price lower, despite the fact that revenue growth continued to rise. In the future, Disney's earning power might increase significantly, just like it did a decade ago. The stock might surge once more with an operating margin returning to regular levels of 17-21%. As the company's free cash flows and direct-to-consumer operations may grow, Disney has a lot of potential in the long run. Disney produced record EPS and nearly $10 billion in free cash flows in 2019. Now that the theatrical industry is recovering from COVID the company is expected to generate record breaking free cashflow.
Total Revenue vs Total Operating Expenses
They have already begun to report positive financial outcomes for its fiscal year 2022. Revenue increased from $31.86 billion last year to $41.07 billion this year, a 28.9 percent increase over the same period previous year. From $918 million to $1.57 billion, net income has grown by 71.5 percent. Operating cash flow increased from $1.47 billion to $1.56 billion, an increase of just 6%. However, if working capital adjustments were taken into account, it would have increased from $1.84 billion to $4.67 billion. That is a 153.7 percent increase from the previous year.
Excellent Management & Strategic Growth over the years.
People seek escapism during recessions, and Disney's content offers them hope. Every week, 80 million Americans went to the movies, even during the Great Depression and since then movie businesses have won the label of "Recession Proof", The movie business has generally been one of the few industries that has been able to retain its place in the market or even grow admissions, even in some of the worst economic downturns ever. This is a result of people's continued consumption behavior. Even if they were impacted by economic downturns, The release of "Avatar: The Way of Water" this year and Disney's 100th anniversary celebration in 2023 will boost the company's marketing efforts and help them generate more sales revenue.
10 Year TSR Value
Disney's track record of making more money than it needs is quite extensive. As a result, advancements into further growth areas can still be made in the future. Disney may be a sizable business, but it has plenty of room to expand as long as there are measures in place to produce adequate cash flow. They have a strong economic moat. The brand is extremely well-known, and the market is now discounting the Disney+ streaming component of the company's operations as the excitement surrounding it fades due to Netflix's (NFLX) sluggish member growth. We have to consider that Netflix have peaked their user base. However, Disney+ have enough tier to grow their client base.
Due to the parks being open again and new movies being released, cash flow is expected to increase significantly soon. In the long run, this corporation has a significantly more profitable method of producing films than many of its rivals.
However, One of the biggest disadvantage of holding this stock is due to their high operating costs, Disney's value will increase to about twice what it is currently trading for if operating margins return to the mean of around 17%.
As operating costs increased and park and cruise revenues decreased during the pandemic, Disney had to cut dividend payout. Undoubtedly, the dividend's reinstatement will be a bullish event that many are anticipating. Although market players despise dividend cutbacks, Disney's management at the time made a wise decision in doing this. Disney was able to leverage money from eliminating the dividend to make a splash in the streaming industry. However, it is in their best interests to compensate shareholders by resuming dividend payments in situations where the value of their firm is dwindling.
The market seemed to be concentrating too much on downside risks, that continue to drive Disney's share price lower, despite the fact that revenue growth continued to rise. In the future, Disney's earning power might increase significantly, just like it did a decade ago. The stock might surge once more with an operating margin returning to regular levels of 17-21%. As the company's free cash flows and direct-to-consumer operations may grow, Disney has a lot of potential in the long run. Disney produced record EPS and nearly $10 billion in free cash flows in 2019. Now that the theatrical industry is recovering from COVID the company is expected to generate record breaking free cashflow.
Total Revenue vs Total Operating Expenses
They have already begun to report positive financial outcomes for its fiscal year 2022. Revenue increased from $31.86 billion last year to $41.07 billion this year, a 28.9 percent increase over the same period previous year. From $918 million to $1.57 billion, net income has grown by 71.5 percent. Operating cash flow increased from $1.47 billion to $1.56 billion, an increase of just 6%. However, if working capital adjustments were taken into account, it would have increased from $1.84 billion to $4.67 billion. That is a 153.7 percent increase from the previous year.
Excellent Management & Strategic Growth over the years.
People seek escapism during recessions, and Disney's content offers them hope. Every week, 80 million Americans went to the movies, even during the Great Depression and since then movie businesses have won the label of "Recession Proof", The movie business has generally been one of the few industries that has been able to retain its place in the market or even grow admissions, even in some of the worst economic downturns ever. This is a result of people's continued consumption behavior. Even if they were impacted by economic downturns, The release of "Avatar: The Way of Water" this year and Disney's 100th anniversary celebration in 2023 will boost the company's marketing efforts and help them generate more sales revenue.
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