Disney Ends Fiscal 2019 With Strong Fourth Quarter

Disney DIS ended its fiscal 2019 with a strong fourth quarter as revenue was in line with consensus and adjusted EBITDA strongly beat S&P Capital IQ consensus expectations. All four segments had strong revenue growth led by the studio segment. With the launch of Disney+ in the U.S. almost here (Nov. 12), fiscal 2020 will be focused on the firm’s direct-to-consumer efforts including the global expansion of Disney+ and content growth at Hulu. We are maintaining our wide moat rating and expect to raise our FVE of $130 by about 7% to 8% to account for increased DTC growth.

Revenue for the fourth quarter increased 34% year over year to $19.1 billion. Media networks revenue improved 22% due to growth at cable networks and the broadcasting segment. Affiliate fee revenue in the quarter was up 18%, which was made up of a 15 basis points increase from the Fox assets and 7 basis points from higher pricing, with a 4 basis points decline from lower subscribers. This implies a 3% growth in affiliate fee revenue, excluding the effect of the acquired Fox entertainment assets. The segment operating income margin for media networks fell sharply to 27.4% from 34.6% due to higher programming costs including sports rights at ESPN and increased marketing costs for the launch of the ACC Network.

Parks and resorts continue to shine with 8% growth as higher guest spending offset lower attendance at Disneyland. Domestic attendance was flat despite the hit from Hurricane Dorian in 2019. Per capita spending growth of 9% was impressive as was the 85% occupancy rate in bad weather. Revenue at the studio improved 52% due to another strong theatrical quarter, which included "The Lion King," "Toy Story 4," and "Aladdin." Revenue at the DTC segment hit $3.4 billion due to the consolidation of Hulu and the Fox assets. The segment operating margin for the firm fell to 18.0% from 22.9% as revenue growth was more than offset by ongoing investment in DTC and increased marketing and programming costs.

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