New Abu Dhabi Park And Streaming Will Unlock Global Markets

Key Takeaways

• Expansion into Abu Dhabi and new cruise markets enhances Disney's geographical reach and revenue potential in underexploited regions.
  
• Streaming and theatrical strategies focus on content synergy and franchise strength, aiming to drive subscriber growth and boost box office and merchandise revenues.
  
• Macro uncertainties, competition, and execution risks could negatively impact Disney's financial performance and margin growth, especially in the Experiences segment.

Catalysts

Operates as an entertainment company worldwide.

• A new Disney theme park in Abu Dhabi, part of a strategic partnership with the Miral Group, is set to expand Disney's geographical footprint and tap into a large, untapped market in the Middle East, which could significantly boost revenue through increased admissions and licensing fees.
  
• The integration of Disney+, Hulu, and ESPN's direct-to-consumer product into a seamless experience is expected to enhance user engagement, reduce churn, and drive subscription revenue growth and profitability for Disney's streaming segment.
  
• Disney's substantial investment in its domestic parks, including a $30 billion expansion in Florida and California, aims to increase park capacity and overall guest experience, potentially driving higher revenues and increasing return on invested capital.
  
• The upcoming strong theatrical slate, including films from major franchises like Pixar, Marvel, and Avatar, is anticipated to drive significant box office revenue and generate additional long-term value through merchandise and ancillary markets.
  
• The expansion of Disney's cruise line fleet, including a new ship for the Singapore market, is predicted to unlock new revenue streams and enhance margins, contributing to the Experiences segment's growth and overall financial health.

Walt Disney Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Walt Disney's revenue will grow by 4.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.1% today to 10.6% in 3 years time.
• Analysts expect earnings to reach $11.1 billion (and earnings per share of $6.17) by about May 2028, up from $5.6 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $8.7 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.1x on those 2028 earnings, down from 29.7x today. This future PE is greater than the current PE for the US Entertainment industry at 22.4x.
• Analysts expect the number of shares outstanding to decline by 0.84% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.07%, as per the Simply Wall St company report.

Walt Disney Future Earnings Per Share Growth

Risks

• Economic or industry conditions and competition could negatively impact Disney's financial performance, including revenue and earnings.
  
• Macro uncertainties and competition may affect Disney's ability to sustain strong revenues and net margins in its Experiences segment.
  
• The reliance on partnerships, such as the deal with Miral Group in Abu Dhabi, could pose execution risks that potentially impact revenues and net margins if not well managed.
  
• The initial higher costs of expanding Disney’s franchise and sustaining multiple new projects globally, like the streaming advancements and theme park developments, might reduce net margins in the short term.
  
• Consumer sentiment, particularly in international markets like China, where there is softness in demand, may affect revenue and margin growth projections.

Valuation

• The analysts have a consensus price target of $121.337 for Walt Disney based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $147.0, and the most bearish reporting a price target of just $79.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $104.4 billion, earnings will come to $11.1 billion, and it would be trading on a PE ratio of 25.1x, assuming you use a discount rate of 9.1%.
  
• Given the current share price of $92.17, the analyst price target of $121.34 is 24.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.