August - 1999 - issue > Business

When most people think of Disney, they think "Mickey Mouse." However, the company is much more than that. Disney’s Magical Media Kingdom is the world’s number-two media company (behind Time Warner). The Mouse has interests in TV and movie production (including Buena Vista Motion Pictures Group, Buena Vista Television and Miramax Films), theme parks (including Animal Kingdom, Disneyland, Disneyland Paris, Tokyo Disneyland, Disney-MGM Studios, Epcot Center, and North America’s most-visited theme park, the Magic Kingdom in Orlando, Florida), publishing companies, a cruise line, Internet companies, such as Infoseek and professional sports franchises (Mighty Ducks of Anaheim NHL team). Division ABC, Inc., includes the ABC TV network, nearly a dozen TV stations and shares in nine cable channels, including sportscaster ESPN. Led by chief Mouseketeer, Michael Eisner, this is certainly no Mickey Mouse operation.

Its Movie Assets Are No Dwarves
Most people will be surprised to learn that Disney is one of the largest movie producers in the world. It just does not make animations like Snow White and the Seven Dwarves, Tarzan, A Bug’s Life and the Lion King, but also regular movies that have grossed very well at the box office. Some of Disney’s most valuable assets are hidden in the form of copyrights of classic movies for kids such as, The Lion King, Beauty and the Beast, Cindrella, Pinnochio, The Jungle Book and Snow White and the seven Dwarves. These movies can be re-released after every few years and consistently generate revenues. After all, it does not cost much to re-release a movie.

Orlando: 57 Million and Growing
In 1998, 57 million people visited Orlando, the year’s number-one tourist spot. In the year 2000, over $75 million are expected due to the push by Disney and travel companies, which have declared year 2000 as the "Destination Orlando Year." The company started The Disney Channel (a cable channel) and opened retail stores in the 1980s, followed by Tokyo Disneyland (1984) and Disney-MGM Studios Theme Park in Florida (1989). Disneyland Paris (originally Euro Disney) opened in 1992 amid French concern over the park’s possible effects on the nation’s culture. It became France’s biggest tourist attraction by the mid-1990s. Lately, however, a little skill has been missing from Disney’s magic. ABC has been troubled by low ratings, labor disputes and the $9.2 billion it paid for National Football League TV rights. Disney merchandising, home video and retail sales at Disney Stores have also been less than spectacular. But thanks to its theme park business and the performance of films like "The Waterboy" and "A Bug’s Life," there’s still plenty of energy in the Mouse — enough energy, in fact, to do battle with Yahoo! and America Online. Disney and its 43 percent-owned partner Infoseek launched GO Network in 1999, a Web site featuring news, online shopping, free home pages and other standard portal fare. Disney is considering buying the rest of Infoseek, a roughly $2 billion move that could lead to a spin-off of Disney’s Internet ventures. It can be seen that even though, in the short term, Disney may be having a difficult time boosting sales and earnings in the long run, it has grown sales at over 22 percent a year and earnings at a respectable 13.9 percent annually. Long term investors have been well rewarded for sticking with the stock. In the last decade, Disney’s stock has grown at a rate of over 19 percent per annum despite the fall in the last 18 months. $10,000 invested a decade before would amount to over $35,000 today. There is a lot of support at the $25 to $27 range, and it is unlikely that the stock will decline below that level. Long term investors can begin accumulating the shares.

Risks and Rewards
At the current levels of around $27, the stock has the potential to touch $50 in the next three years, which will almost double the investment. In a worse case scenario, I see the stock hovering in the $24 to $27 range for a while before moving up. Patience will be key. It makes sense to gift this stock to your children, buying in the child’s uniform gift to minors account (UTMA). The kids will grow up and appreciate the gesture when they use the appreciated stock to pay for their college education. With Disney’s new push in the Internet world and the potential to convert hidden assets into regular streams of income, the company has a lot of room to grow. Also, a major theme park in China or Honk Kong can potentially generate enormous growth. Disney can pursue several areas for doubling revenues in the next five years. While investors wait for the long-term gains to accrue, I cannot wait for my one-year old daughter to grow up so we can take her to Orlando.

Vik Mehrotra is a Registered Investment Adviser and stockbroker and manages hedge funds and individual accounts. Copyrights-Venus Capital Management, Inc. Write to: vik@siliconindia.com.This is not a recommendation or a solicitation to buy. All investment decisions should be made after consulting with an investment adviser based upon an investor’s investment objectives. This is not a guarantee of performance and the views are solely that of the author, whose clients can be long and/or short and/or hold option positions in any of the securities mentioned at any given time.