Weekly Media Notes: Disney’s Largest Retail Store In China And More

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The media industry remained active last week, with Disney opening its largest retail store in Shanghai. In another development, Fox’s management stated that they are committed to invest more into programming despite the recent ratings decline. In yet another, News Corp is in Australia Tax Office’s “top tax risk” radar. On that note, we discuss below these developments related to media companies over the last week or so.

Disney

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Disney (NYSE:DIS) opened its largest retail store (9,257 square feet) in Shanghai this week. [1] This was a much awaited for development for Disney as it bets on China’s buoying middle class. It must be noted that the company is also developing a $5.5 billion theme park in Shanghai, scheduled to open in 2016. There has been massive demand for Hollywood movies and characters in China, and it is also one of the biggest markets for various studios. There was a stellar response to the store opening and customers queued up to a mile outside the store. After one hour of opening, the store was closed amid fears of overcrowding. [2] The company’s entry into China will surely aid its international revenues in the coming years.

We forecast revenues of around $53 billion for Disney in 2015 and EPS of $5.00, which is in line with the market consensus of $5.00, compiled by Thomson Reuters. We currently have a $105 price estimate for Disney’s shares, which is slightly below the current market price of $110.

21st Century Fox

21st Century Fox (NASDAQ:FOX) will continue to invest in programming despite the recent decline in ratings. Fox’s prime time ratings are down 9% in the current television season and the company’s co-COO, James Murdoch, states that the network may have bottomed out. He also stated that the company has entered into the upfront sales season on a positive note with the success of Empire and Gotham. ((James Murdoch Says Fox Will Continue To Invest In TV Despite Ratings Drop, Deadline, May 18, 2015)) We have for long maintained our view that the media companies should continue to invest into original programming. While there has been a decline in advertisement revenues amid lower ratings in the recent past, higher retransmission fees and licensing revenues have been able to offset some of those declines. Continued investment in original programming will ensure demand for the content irrespective of the platform being watched on and, with non-advertising income growing at a higher pace than advertising income, the company can look forward for a stable growth outlook in the long run.

We estimate revenues of about $30 billion for 21st Century Fox in 2015 with EPS of $1.70, which is in line with the market consensus of $1.71, compiled by Thomson Reuters. We currently have an $39 price estimate for 21st Century Fox, which is around 15% ahead of the current market price of $34 per share.

News Corp

News Corp (NASDAQ:NWSA) is the only company in Australia Tax Office’s radar of high-risk category for tax avoidance. The company this week stated that the categorization of high risk is due to its complex corporate structure after a demerger. One of the journalists reported that News Corp’s 2013-14 tax refund was larger than the reported $923 million. For now, the company is under continuous review from the Australia Tax Office. [3] We will be closely monitoring this story as it develops further.

We estimate revenues of about $8.70 billion for News Corp in 2015, with EPS of $0.43, which is in line with the market consensus of $0.42-$0.55, compiled by Thomson Reuters. We currently have a $20 price estimate for News Corp, which is around 30% ahead of the current market price.

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Notes:
  1. Disney Store Opens its First and Largest Store in the World in Shanghai, China, Disney Press Release, May 20, 2015 []
  2. World’s largest Disney Store is forced to close just 1 HOUR after grand opening as eager shoppers queue more than a mile to get inside, Daily Mail, May 21, 2015 []
  3. The Weekly Beast: tax spats and male model jibes as News Corp and AFR go to war, The Guardian, May 20, 2015 []