With Subscriber Declines Continuing, How Much Is ESPN Worth?

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Walt Disney

Disney’s (NYSE:DIS) flagship sports network ESPN has been facing subscriber declines for the past few years driven by cord-cutting and secular pressures. Its upcoming launch of ESPN Plus, a subscription streaming service, can be seen as a way to target cord cutters and stem the overall subscriber decline. Given the limited availability of content for streaming, ESPN Plus’ near-term outlook is cloudy. Overall, we believe that the network’s subscriber declines are likely to continue, but that should be partly offset by continued increases in average subscription fees. We forecast ESPN’s revenue to grow modestly, at 1-2% annually, which pegs the value of the network at around $28 billion. We have created an interactive dashboard that shows our estimate of ESPN’s value. If you disagree with any of our forecasts or assumptions, you can modify key inputs to come up with your own estimate.

Our $28 billion estimate is based on the following expectations. (1) Expected annual revenue of around $8 billion; (2) Cash flow margin (cash flow as % of revenue) of just over 15%, which is close to the average of the last few years; and (3) Price/Cash Flow (CF) multiple of nearly 17 based on the expected long term growth rate of 1% and weighted average cost of capital of 7%. While Disney, and consequently ESPN, is less risky from an investment point of view due to its strong market position, unique programming and recognized brand, the expected growth is so limited that assigning a high multiple is difficult. With these conservative estimates, ESPN’s estimated value would be around $28 billion, or 18% of Disney’s market cap. This percentage figure has come down over the years, due to weakness at ESPN but also Disney’s expansion of other businesses such as Parks and Resorts.

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