Disney (NYSE:DIS) recently reported its Q4 2013 earnings. The company saw overall revenue growth of 7% driven by the theme parks segment as well as the consumer and interactive media segment. Net income was 12% higher at $1.39 billion and earnings per share grew 13% to $0.77. 
Higher attendance and per capita guest spend at theme parks and encouraging sales of Disney Infinity boosted Disney’s operating income. While the theme parks and consumer and interactive divisions fared well for Disney, media networks saw an 8% decline in operating income due to a reduction of $172 million in the recognition of previously deferred ESPN affiliate fee revenues related to annual programming commitments. 
Overall costs jumped 7% to $9.41 billion led by the increase in programming and production costs due to the addition of new college football rights, contractual rate increases for NFL, Major League Baseball (MLB) and college football rights and more episodes of original programming at the domestic Disney channels.
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The company has set the official release date for Star Wars Episode VII on December 18, 2015. Given the huge fan-base and followers for the series, this will be a big movie for Disney. Separately, the company announced that it will create multiple live action series and a mini series event exclusively for Netflix (NASDAQ:NFLX), beginning in 2015. The series will include Marvel’s popular characters; Daredevil, Jessica Johns, Iron Fist and Luke Cage. This original program will run over multiple years and lead to a Marvel’s The Defenders mini-series event that reimagines a dream team of heroic characters. Such deals will aid Disney’s overall revenue growth in the long run.
Disney appears to be on right trajectory and we believe it will see healthy growth going forward, primarily driven by its media networks, theme parks and the studio business. ESPN has already renewed the majority of its sporting licenses for the next decade. The theme parks business is getting better and bigger for the company due to higher guest spending. Disney Studios has a strong movie lineup starting with Thor: The Dark World releasing today to Need For Speed, Captain America: The Winter Soldier and Planes: Fire and Rescue coming in 2014.
We currently have $72 price estimate for Disney, which we will soon update based on the fourth quarter earnings announcement.
Disney’s Theme Parks Shine Bright
According to our estimates, the theme parks business contributes around 20% to Disney’s value. While the revenues at this division increased by 8% to $3.70 billion in Q4 2013, the operating income jumped 15% to $571 million, driven by increased guest spending, attendance and occupied room nights at Walt Disney World Resort and increased guest spending at Disneyland Resort.
Disney’s theme parks business is driven by the attendance in the parks and per capita guest spending, which after tumbling 6% in 2009, rose 3% in 2010, 8% in 2011 and 7% in 2012. In Q4 2013, domestic per capita guest spend rose by 9%. The annual attendance at Disney’s theme parks in the U.S. has grown slowly for the last few years amounting to an estimated 72 million in 2012. The attendance growth was driven by the improving U.S. economy and Disney’s investment in new attractions within its resorts. The company is currently developing an Avatar based theme park at The Animal Kingdom resort (Read More – Avatar Land Addition to Benefit Disney’s Theme Park Business). We believe Disney’s theme parks will continue to do well due to the economic recovery and increasing consumer spending that will drive per capita guest spend at the parks.
Consumer And Interactive Media Sees Solid Growth
Under the consumer products division, Disney operates an international chain of specialty stores selling only Disney-related items, many of them exclusive. The company earns revenues from merchandise sales based on popular Disney characters, including products such as toys, games, apparel, footwear, books, magazines, etc. The revenues for this division grew by 14% to $1 billion and operating income jumped 30% to $347 million due to increases at the merchandise licensing driven by Planes, Monsters University and Disney Junior merchandise. The outlook for Disney Stores looks strong as the company continues to expand internationally to capture a wider footprint and cater to the rising demand for retail especially in the emerging nations. The company recently announced its plans for the largest store to be opened in Shanghai (Read More – The Shanghai Store To Aid Disney’s Revenue Growth).
Disney’s interactive media division, which is involved in developing and distributing video games and content for branded online services, has been struggling the past few years due to poor performance from its releases. However, its latest game, Disney Infinity, has shown encouraging numbers for August and September topping the sales of one million starter pack units globally in a very short span of time. Interactive media revenues in Q4 surged 107% to $396 million and operating income was $16 million as opposed to a loss of $76 million during the same period previous year. If this positive trend continues, it might help Disney to turnaround the video game unit (Also See – Disney’s Interactive Media Unit Gets A Boost With Encouraging August Infinity Sales).Notes: