Why Did Disney’s Stock Price Increase Over 30% In The Last Year?

After Disney’s CEO Bob Iger’s announcement in November 2018, regarding the expected launch of Disney+ in a year’s time, Walt Disney (NYSE: DIS) saw its stock price increase by 34% from around $109 levels in December 2018 to around $146 in December 2019. This was primarily driven by higher revenues and expansion in the price-to-earnings (P/E) multiple on the back of a better revenue outlook with the launch of Disney+. The sales growth during FY 2019 (fiscal year ends in September) was driven by the acquisition of 21st Century Fox and consolidation of Hulu’s operations. We break down the movement in Disney’s stock price into four factors: growth in revenue, change in share count, expansion in P/E multiple and change in net income margin. You can look at our interactive dashboard analysis What Factors Drove Over 30% Growth In Disney’s Stock In A Year? for more details.

Revenue Growth

• Disney has added over $10 billion to its revenue base in FY 2019, led by growth across all its operating divisions.
• Media Networks added close to $3 billion in revenues driven by higher affiliate fees due to higher contractual rates; higher advertising revenue and TV/SVOD revenues due to Fox acquisition benefits.
• Parks & Resorts added $1.5 billion in revenues due to higher average ticket prices for theme park admissions and for cruise line sailings, along with higher daily hotel room rates.
• Studio entertainment added $1 billion in revenues due to higher theatrical distribution benefiting from Fox.
• The biggest change in revenues was driven by the sharp rise of $6 billion in the direct-to-consumer division due to higher advertising sales driven by consolidation of Hulu operations and at Disney’s international channels, along with higher subscription fees due to Hulu and Fox’s international program sales and higher fees for ESPN+.

To know how each operating division of Disney is expected to perform going forward, view our interactive dashboard.

Net Income Decline

• Net income decreased by $1.5 billion in FY 2019 despite healthy growth in revenue, driven by a sharp drop in net income margin.
• Disney’s net income decreased from $12.6 billion in FY 2018 to $11.1 billion in FY 2019.
• Net income margin declined from 21.2% in FY 2018 to 15.9% in FY 2019.
• This can be attributed to sharp drop in net income margin, partly offset by higher revenues.
• Total expenses increased from $46.8 billion in FY 2018 to $58.5 billion in FY 2019, while total expenses as a percentage of revenue has also gone up from 78.8% to 84.1% during this period.
• All major expenses have seen an increase in FY 2019, mainly related to the acquisition of Fox.
• Disney recognized $4.8 billion of gain from Hulu consolidation, which saw a sharp drop in other expenses.
• Effective tax rate saw a sharp rise in 2019 as major tax gain was recorded in 2018 following the implementation of TCJ Act

Drop In EPS

• Disney’s EPS declined from $8.36 in FY 2018 to $6.64 in FY 2019, driven by drop in net income and higher share count.
• Number of shares increased from 1.5 billion in FY 2018 to 1.7 billion in FY 2019, due to shares that were issued in connection with the acquisition of 21st Century Fox.

Expansion in P/E Multiple

• Disney’s P/E multiple expanded from 13.4x in Dec 2018 to 21.2x in Dec 2019.
• This compares with Comcast, which saw its P/E expand from 7.2x to 16.0x and for AT&T from 5.7x to 17.4x during the same period.
• Expansion in Disney’s P/E multiple was mainly due to the projected addition of close to $12 billion to Disney’s revenue base in FY 2020, to be primarily driven by the expected pick up in Disney+, which could provide strong competition to Netflix and Amazon in the coming years.