Investment thesis for Disney

Maddy: [00:00:19] Hello and welcome to youre in good company, a podcast that makes investing accessible for everyone. I'm Maddy, and as always, I'm in very good company with my co-host Sophie. 

Sophie: [00:00:29] I'm really excited today for two reasons. One, because we're recording together in the same room. Love that. Better energy, good vibes. That number two, because you are giving me an investment thesis today for a stock that we both love, which is Disney. 

Maddy: [00:00:45] Yes, I feel like this one is like, really defined our childhood. We've talked a few times on the podcast before randomly. Yeah, how I like Disney Kids. We've had a few arguments over which ones we love, which ones we listed, which films we watched. 

Sophie: [00:00:58] The Aristocats is the best. 

Maddy: [00:01:00] I mean, yeah. Anyway, what is your favourite? We'll say when we had this discussion, I went to Hannah Montana, but I'm like, Oh yeah, I've been actually reflecting on this. Quite. Here we. Sure, I'm glad. So you haven't? Oh, this is like I've never seen the aristocrats and I can. You have an older sister? So you like watched younger ones, old ones? I don't know. I mean, like, I feel like even though the oldest, I'm not trying to say that Hannah Montana is like the earliest Disney film I watched. Like that was made like 10 Disney Love. Yeah, but I felt like when I think about my Disney films, I think like Toy Story Monsters Inc, even like 

Sophie: [00:01:40] all like the classic cartoon. Yeah, yeah. Right? Interesting. Anyway, anyway, I'm excited for this one because you our previous season, I pitched Sonos and I did an investment thesis and I built it up in a certain way, so I'm intrigued to see how you build up your thesis. Yeah, and I am not going to tear it down, but I'm going to, you know, test you nuts.

Maddy: [00:02:02] But before we get into today's episode, let's hear from a YIGC community member. 

community member: [00:02:06] Show me the money, honey. Hi, everyone. I'm 25 years old and I work in retail part time while I'm in my last year of university studies and I'm currently earning around $2000 a month. Each month, I tried to invest at least $1000 into shares, particularly when everything has been so low. I was finding myself investing a little bit more. My portfolio has mainly consisted of ETFs and some individual blue chip companies. I started investing last year and my strategy was to invest in some stable shares and ETFs that pay dividends. Although after being influenced by some male figures, I found myself being caught up in FOMO and investing in overhyped speculative stocks. After being burnt with those stocks, I've been consistently sticking to buying and holding ETFs and some blue chip companies. Today, the total value of my portfolio is nineteen thousand one hundred and ninety two dollars, and I've made a profit of nine hundred and fifty dollars. I hope this motivates all of us to take the plunge into investing and that it's okay to stick with what you know and believe in and block out the other noise. 

Sophie: [00:03:10] Love hearing how someone else is kind of building up their portfolio and getting, I guess, a bit of the insight to their strategy in their stocks or ETFs. All right, let's jump into your investment thesis. 

Maddy: [00:03:19] Yes, so I'm a big believer when it comes to building up a thesis around a stock that you don't have to do too much work. Okay, all right. It's not i-, I'm really of the belief that if you have a good story and if you believe in the story and it makes sense to you, then it can often be a really good investment.

Sophie: [00:03:41] So but surely you have to have a bit of research into this story and

Maddy: [00:03:44] make sure the story is part of the research process, right? Like, that's when you look into it and you know, you might have an idea. Yeah, but I fill out the story a bit more, but I don't think it doesn't have to be complicated. I think it can actually be really simple. Idea is because at the end of the day, especially for a company like Disney, where the consumers. 

Sophie: [00:04:03] OK, so your investment thesis is going to be on Disney, and you said that the way that you build up a thesis is kind of creating a story to why you really like this company. So why don't we start at the beginning then? And you can give us some background on Disney and what's been happening? 

Maddy: [00:04:16] Yeah, great. So I think for Disney, this is particularly important because it was impacted like quite significantly by the pandemic, both positive and negative. First of all, we know that all of the theme parks were forced to close, and historically the theme parks have contributed like 50 percent of Disney's income. Wow. Huge, huge amount. So the fact that they were all shot and then even when they did reopen, you know, limited capacity people aren't travelling that were significantly impacted. 

Sophie: [00:04:45] So this was over like the Covid period, like 2020. A bit of 2021. 

Maddy: [00:04:49] Exactly. Yeah, OK. And then you've got the flip side of that, which is in November of 2019. So I guess five months before the pandemic sort of really hit Australia. Disney Plus. Launched and we all know how the streaming services Ren Covid, 

Sophie: [00:05:03] yeah, so it's like such a diversified business has a bit of 

Maddy: [00:05:06] both. Oh, this business is very diversified. My favourite thing about it. So if we take a step back and think about the stock price, when the pandemic hit theme parks and things with forced to shot, the stock price went from about $140 a share to eighty five when the market crashed, 

Sophie: [00:05:24] and that was mainly because of lack of travel restrictions and people not visiting the park. 

Maddy: [00:05:29] Correct. And I guess in the broader context like that was in March of 2020. So yes, the whole stock market was crashing, right? So it really has been quite a volatile time because obviously we know that a lot of their business had to shut down. Films couldn't be made, things like that. But then on the flip side, you've got these streaming services. And when they were releasing how fast their subscriptions were growing, you know, their share price went up quite significantly because investors really love to say that, especially in the context of like competing with Netflix and things like that. 

Sophie: [00:05:56] OK, so this is where I'm kind of a little bit sceptical. So I'd like to get, I guess, your opinion because obviously during Covid times, a lot of companies did benefit. Like you look at the likes of like, you know, obviously the streaming services, but even like the likes of Zoom, and the growth is kind of unsustainable. Like, for example, Zoom is down 60 percent this year. And for me personally, I feel like we've really seen that with Disney as well, because their top share price was in March 2021, when a lot of other businesses were struggling, that hit around $200. But then, in December of last year, they posted that their subscription numbers were less than what was expected by the market. So, you know, we saw this growth, and that's great for Disney. But what does it mean now? Because subscriber numbers dwindling? 

Maddy: [00:06:41] It's a fair call. I guess how I think about this is like, what were we doing in December of last year or in November of last year? Like we came out of lockdown, there was no way like, I don't think I picked up Netflix once like I was. We were out on the town. Oh, where are you? We said we skipping migrate is like, I think we were out of lockdown. It was summertime. And I'm sorry. I know this is in the context of Australia that was baking. But like I think in the post kind of pandemic phase, it'd be silly to think that subscriber numbers for things like Disney and Netflix aren't going to dwindle a little bit. 

Sophie: [00:07:15] And I think you have mentioned before that, like with the Netflix thing, that subscriber numbers really do kind of drive the share price sometimes because of its growth. So maybe this was just a period that I don't know why I'm supporting your argument.

Maddy: [00:07:28] I will also add to that that the first quarter results this year were much better and they have seen accelerated subscribers again. So bam. 

Sophie: [00:07:36] So we're talking about Disney Plus a little bit, and we've spoken about like that as the story. What are the elements that are building up like your conviction around a company like this? 

Maddy: [00:07:45] Yes. I think the biggest reason that I love Disney and you kind of touched around a little bit then is like, how you know, Netflix, for example, is driven so directly by subscriber growth, and Disney experience is a little bit of the same. But and there's also so much more to the Disney story or the Disney company. Oh, God. So the main thing that I want to come back to on this and talk about with you because this honestly blew my mind when I first started really digging into it. Is the Disney franchises right? 

Sophie: [00:08:12] OK, so what do you mean by franchise? 

Maddy: [00:08:15] Yes. I want to chop through quickly what some of the brands or shows that Disney actually owns, because I think I definitely didn't realise just quite how overarching it was and how incredible it was. 

Sophie: [00:08:28] So what you're saying is that Disney is a brand or a company, and it owns other brands and companies underneath it, but they all fall under like the Disney umbrella. 

Maddy: [00:08:36] Exactly. Gotcha. So I guess traditional Disney, you've got things like Mickey Mouse, Lion King, Aladdin, Sleeping Beauty, all iconic. All love. Yeah. Then you've also got Pixar and say, This is where I started to click with where we have like different experiences because I kind of feel like you have the Disney experience you Aladdin, The Lion King, Sleeping Beauty, Little Mermaid. I have the Pixar experience. So that's like Toy Story, frozen. I mean, frozen was beyond my time, but Toy Story four, wasn't it? So wasn't so much frozen. Toy Story Finding Nemo Monsters Inc cause like The Incredibles, OK, or Disney. Then you've also got Marvel, where there's like a whole lot of shows under that Star Wars fox like The Simpsons, X-Men Family. Oh, wow, yeah, they aren't everything Disney 

Sophie: [00:09:23] owns Fox 

Maddy: [00:09:24] Plus a lot of is like broadcasting assets as well 

Sophie: [00:09:28] random. 

Maddy: [00:09:29] Then you've also got other iconic franchises things like Winnie the Pooh, The Muppets of Pirates of the Caribbean and other major entities as well, including Lucasfilm, National Geographic, ABC History, Lifetime Vice. Like, it's quite unbelievable just how much actually comes under the Disney umbrella. 

Sophie: [00:09:46] I find that really interesting personally, because I didn't really know that about Disney. And one of the things that I was going to bring up because when you said you were pitching Disney stock, like I was having conversations with people about like, you know, why you wouldn't invest in Disney because we're trying to pull apart. Both arguments and one of them was a friend of mine at work had said that, you know, isn't Disney being a bit boycotted? Because when you think of the classic Disney brands of the movies that I used to really love, there's a lot of painting of the pictures of there's a damsel in distress and oh, true. Yeah, it is really true when you think about a lot of the films, and he was saying that there's going to be a next generation of children that might come through that won't be watching these movies because they don't want that picture painted of, you know, you've going to be this helpless woman that has to be saved by a prince or a man or whatever else. And I was like, Wow, I hadn't really thought about it, but I'm now contradicting myself a little bit because you've just explained that there's so many more areas that Disney is involved with. 

Maddy: [00:10:42] Yeah, true. And I think like what I'm thinking when you say that because I think it's a very valid point is like the probably the real question is is is Disney going to actually be able to shift in the movies that they make? Going forward, they're going to be able to be more encompassing and more inclusive. 

Sophie: [00:10:59] Yeah, I do actually agree with you there to some sense, and I feel like Disney is transformative in that way, because if you think about some of the more recent movies like Moana, make one of those people. I'm addicted to Moana. I don't know why I could watch it 10 times. 

Maddy: [00:11:12] Again, I have to say, Oh my God, 

Sophie: [00:11:14] you haven't watched Moana. I'm so sorry. Oh, okay. It's just like a really like on a Sunday watch miner makes you good. Makes you happy. But that kind of frames like a female heroine, you know who saves like the island. So I do feel like they do. They're very reactive to that kind of stuff. 

Maddy: [00:11:31] One of my friends, actually, I want to give a shout out, has a great podcast called Conceiving It All. And she actually had this conversation about Disney princesses and in the context of disabled people and how, when like, how important representation is in this context, because we grow up watching these films and these shows and we become so engrossed in the storylines. And if you're someone who is not in any way, shape or form represented in that, like, that's a real issue. Hmm. 

Sophie: [00:12:00] Well, it's interesting, then, I guess, to watch what Disney do in this space and how they keep evolving. We are taking a quick ad break for our sponsors, and we'll be right back to keep building up Maddie's Disney thesis. One thing I'm really curious about is that Disney is in a bit of a transformative spot at the moment in terms of its leadership, because you mentioned on our summer series, the Bob Iger book 

Maddy: [00:12:24] such a good run ride of a lifetime New York bestseller, which I said 

Sophie: [00:12:28] that I was going to write and I haven't yet, but I promise I will. But my question is, is that obviously we're moving over that to a new CEO because Bob is now retiring as CEO. So what do you think of the new leadership coming into the company? 

Maddy: [00:12:41] Yes, it's an interesting one because the previous you oversee for 15 years, which is like an incredibly long time slate, a company which I mean economy is like potential red flags. When he laid the first thing that I saw that really put my mind to rest in this context is that the new CEO, whose name is also Bob, which is hilarious as Bob Bain at the company for 27 years. So it's not like he's a new guy coming in who has no idea what's going on. He knows how Disney works. He recently sort of spoke to the media and outlined what his three strategic pillars for 2022 was. 

Sophie: [00:13:17] I love someone with gold. 

Maddy: [00:13:19] Got me very excited. The first one very relevant for us today is all about the storytelling experience and really embracing like the Disney magic, which I just love it. The next one is all about innovation, which I'm going to touch on a little bit next. And then the third one is a relentless focus on audience when he says We must evolve with our audience and not against them. Yeah. Which I guess is what we were just kind of talking about prior to the ad break with like what people want to say in Disney films now and how that's completely shifting from what it was five 10 years ago. 

Sophie: [00:13:53] So you're happy with the leadership at the moment because you think it's someone that's like really focussed on the audience and that are willing to innovate? 

Maddy: [00:14:00] Yeah, new bob is a big tick for me. 

Sophie: [00:14:02] You hear, Bob, what about Old Bob 

Maddy: [00:14:05] also a big tick? 

Sophie: [00:14:08] So turning the page from the past 

Maddy: [00:14:10] to the future, 

Sophie: [00:14:12] where is Disney headed? Can you build up more of this story of why you like it for a future investment? Yeah, for sure.

Maddy: [00:14:19] So I think the first one that comes to mind is box office, so we kind of coming out of lockdowns. Hopefully we are really putting Covid behind us for now, and we are able to stop making movies again, get back to cinemas. And I think there's a real potential upside. Yeah, box office revenue. 

Sophie: [00:14:37] I actually think that's really a thing as well, because going to the movies is so nice 

Maddy: [00:14:41] and I love it. 

Sophie: [00:14:42] Yeah, I feel like it's such a nice thing to do. 

Maddy: [00:14:44] I always forget how much I love it, and every time I go, I should do this more. 

Sophie: [00:14:48] Yeah, I hope that like goes back, you know, go on a date to the movies. 

Maddy: [00:14:51] And on the flip side, every time I go, I'm like, Wow, this gets more and more expensive, which I guess is maybe a good thing for Disney. Yeah, true. The other thing that's happening is they in parks and resorts reopening, we can get on planes again. It's all very exciting. And I think as people get more confident with travel, the theme parks are going to get busier and busier. 

Sophie: [00:15:12] Have you been to Disneyland before? 

Maddy: [00:15:15] I haven't. I always wanted to go so badly as a kid. I've never actually. I never even went to like the Queensland ones, the like waterpark. 

Sophie: [00:15:22] Yeah, have you? I was actually so lucky as a kid like shout out to mom and dad because I know you guys listen. My dad actually

Maddy: [00:15:31] had Tony

Sophie: [00:15:33] and they surprised us. We were, I think, like they took us on like a little family trip when I don't know how old I was, but they surprised us at the very end and I cannot tell you that feeling it is the coolest viewing Baz Bryce to go to Disneyland as a kid like my heart. I know, and I think when you talk about theme parks and like, that's one of the things that's never going to die because the Disney magic is legitimately a thing.

Maddy: [00:15:56] The new CEO was actually the previous head of the theme park segment, which is exciting, and I know that there's been a lot of focus on how they can kind of elevate the experience of theme parks recently. So Disney has introduced sorry, this is a bit actually, it's not really off topic, but it's just a really cool thing that I was writing. They've introduced this thing called a janee plus service. Yeah. And it's like this thing where you go on and you pay $15 a day and it completely like plans at your Disney experience, which in turn is leading to much more revenue for them as well. But it's also elevating the experience of everyone who visits the parks, 

Sophie: [00:16:28] and it's interesting to say that they're obviously trying to work out how they can use innovation or even like technology or automation to grow revenue within a, I guess, which segment of the business which is really traditional. 

Maddy: [00:16:40] So funny, you bring that up. Speaking of innovation, in the last couple of weeks, Disney has appointed an executive to a new role, and they are responsible for leading its next generation storytelling, a.k.a. the Metaverse strategy. 

Sophie: [00:16:55] Oh, I have read about Disney going into the Metaverse. Yes, it 

Maddy: [00:16:59] there's been a few things happening that actually patented the technology for a theme park metaverse. 

Sophie: [00:17:05] Before we jump into what's happening in the metaverse, can you quickly give me like what you think your definition is of the metaverse? 

Maddy: [00:17:13] To be honest, no. Yeah, it's not like I kind of get it, but I don't really. And the hard thing is is it doesn't exist yet. Yeah, it's a virtual world. 

Sophie: [00:17:23] Yeah, I think it's the easiest way to understand it for the moment is like virtual reality, I guess. 

Maddy: [00:17:28] Yes, a few things have been happening in this space in the context of Disney, which is pretty cool to say that such a lack like your kind of same for traditional company is really embracing this new thing. Hmm. Their patented the technology for a theme park metaverse, which is pretty cool. And I mean, like I was saying before, like, what a great opportunity to make the theme park experience more accessible for people like all over the world. 

Sophie: [00:17:52] Hmm. I think on the one hand here, I completely agree with what you're saying. But on the other hand, it makes me wonder. Playing devil's advocate here, you know, like you said, the metaverse is, you know, very much in its infancy, infancy, stages, and people really do like Disney because of that Disney magic, which is created because of like in-person experiences. So I wonder if putting its resources to something that might not even eventuate into, I guess, like a profit making area for them? 

Maddy: [00:18:19] It's true, but I like I get what you're saying, but I kind of disagree. 

Sophie: [00:18:24] Yeah, I think like it is. 

Maddy: [00:18:26] Yes, the theme parks are magical, and that's one way to experience Disney. But I think, you know, we experience it in the cinema as we experience it at home, watching the movies, the stories. And I think if you can make virtual reality and we can experience a theme park in our own home, like even better. 

Sophie: [00:18:41] Yeah, I'm just a sceptic of the metaverse at the moment. 

Maddy: [00:18:45] No, I appreciate that, and I kind of agree. But I think what I find that's impressive. Even if you take like the metaverse specifically out of it is that such an old traditional company that's been around for so long is actually able to be agile enough to embrace this kind of stuff. 

Sophie: [00:19:02] You make a very good point, and I can't argue with you much longer. 

Maddy: [00:19:06] So before we finish, I guess the final chapter of my pitch, if you will, is I want to describe to you how I say the moat for Disney because. 

Sophie: [00:19:16] And can you give us a quick recap of what a moat is? 

Maddy: [00:19:19] It's basically 

Sophie: [00:19:21] sorry. I'm asking you all the really hard questions. It's like a moat around a castle, because as a princess stuck in the coffin, 

Maddy: [00:19:29] I guess you think of a moat as like, what's its competitive advantage? Like, what is going to stop another company from just replicating what Disney does and being better at it? So we like 

Sophie: [00:19:38] to invest in things with a good moat. So what is Disney's moat? 

Maddy: [00:19:42] Well, recently I read something that described Disney's business as a waterfall. So you've got great movies which drive box up big box office and streaming subscribers, which then drives content for TV networks and eventually rides at theme parks and sales of consumer products like everything flows into everything, and it's kind of a system that just self advertises itself. It's quite incredible. 

Sophie: [00:20:04] So really, the business is making more business for itself just by going through its everyday kind of practises.

Maddy: [00:20:10] I think for me, it really all comes back to the franchises, like when I was writing them and listing them off before the stories that they have under the Disney umbrella are almost just impossible to compete with. 

Sophie: [00:20:22] So that raises a good question then in my mind, who if if we're talking about them having a competitive advantage? Who are Disney's competitors? I mean,

Maddy: [00:20:32] I actually kind of struggled to think of this, to be honest, but I guess maybe it's like you break it up into the segments like we talk about how they're such a diversified business. I guess, you know, Netflix are a competitor to Disney Plus. There's like Sony or WarnerMedia competitors for their franchise business, but there's not really anyone else that I can think of that can fully encompass what Disney offers. 

Sophie: [00:20:55] OK, so you've really carried this story for us? You know, it's got lots of different components. I am feeling a bit sold on Disney. 

Maddy: [00:21:02] Thank you, but not financial advice. Why? 

Sophie: [00:21:07] I guess my question is why now? And you know, when you do look at a share price and I think it's sitting at around like the $150 mark like, is that the peak it's going to go to and is that too expensive? Like, how do you see this going in the future and why you investing in it right now? 

Maddy: [00:21:23] I mean, you raise a very good point. And I think often in the past when I have looked at companies individual stocks to invest in. To be honest, I'm not really someone that like gets into the financials. Like, I don't look at that stuff. And I guess over the last couple of years that I have been investing, I've gotten away with that because the markets have been going up. Yeah. So like when people say companies are overvalued, it kind of hasn't really mattered because everything has gone just continued to go up regardless. 

Sophie: [00:21:50] So is it more important to you now to like even look at if the company is profitable? 

Maddy: [00:21:55] Definitely. I think I I'm kind of taking a step back at the moment and maybe thinking that I should consider the financial aspect of businesses more because something that is overvalued. Actually, now that we are in more of a bear market that has a lot more weighting to it than what it ever has. Obviously, in the time that I've been investing, 

Sophie: [00:22:15] I guess, considering all of that in mind, why do you think now is still a good time to be investing in Disney? 

Maddy: [00:22:20] So I think if we go back to the key points that we've discussed today, we've got a CEO who has a lot of theme park experience who's really focussing on this on the backdrop of a world that is opening back up again and travel is coming through. So we've got a lot of upside in theme park revenue. Yeah. Number two is we were just saying how we want to get back to cinemas and that is the perfect time to be driving box office revenue. Yeah. Number three, you've got Disney Plus, who is looking to overtake Netflix in the next few years, which is unbelievable growth. Do you have a Disney Plus membership? 

Sophie: [00:22:51] No, but Sam does bigger, and I watched Cruella de Vil on it. 

Maddy: [00:22:56] You've got Disney Plus, which is kicking goals and has really good prospects for the next few years. And then you've got this house of franchises that is really hard to compete with with stories that I mean, we've kind of joked about it a few times that a quite magical. And finally, we have a new CEO at the helm of this company who has a really clear and core vision for where he wants to take the company into this new world that we're entering at the moment. I really like 

Sophie: [00:23:23] how you built up the faces today. I think it is really important to have that story behind it. But on the same token, you've got to criticise the lack the good points, because otherwise you're going to have like all this happiness about the stock and not understand why it would go down. 

Maddy: [00:23:36] Definitely. So out of interest. Have I sold you? Are you thinking about investing in Disney? 

Sophie: [00:23:41] Well, this is a this is a really hard one, as is like, I love Disney and then you're like, I'm doing Disney and you've got to be against it. And I'm like, So yes, you've sold me nuts, and maybe we should do a little exercise. And like, you know, the end of the year, check in on Disney and so on us because it's on us. It's true it's gone down recently, but that's fine. Long term conviction, exactly. And see whose basis is holding strong 

Maddy: [00:24:06] on that note would love to hear if you guys have any thoughts about the thesis and if we have missed any like weaknesses or even strengths, happy for my thesis to get even 

Sophie: [00:24:14] better. Join our Facebook community at YIGC Investing Podcast Discussion Group. Because we're going to start a conversation about it in there. I actually love getting people's opinions about this stuff. 

Maddy: [00:24:25] Jump onto Instagram @yigcpodcast or across on Tik-tok. We're trying very hard. Also @yigcpodcast 

Sophie: [00:24:33] You will hear from us next week. Catch you then bye. [1368.5]