Disney's Diversification: Why This Stock Is a Long-Term Winner

Strong diversification across five different sectors, as well as strong growth and value in most of those five, makes this company a long-term value with less risk.

Feb 9, 2014 at 7:18AM

Entertainment and media conglomerate The Walt Disney Company (NYSE:DIS) has much more than just animated films. One of Disney's main strengths is its diverse group of income streams. By creating highly diversified operating segments, the company has set itself up for growth and opportunities for years to come while facing less risk from a single segment declining.

The company's operations include five segments: media (involving movie production, ESPN Network, Disney Channel, ABC Family, and others), parks and resorts (including theme parks and the Disney cruise line), studio entertainment (such as live performances), consumer products (including licensing), and interactive (involving all gaming).

Of Disney's $45.05 billion global revenue in 2013, only half came from the company's most well-known segment, media. This revenue diversification means that Disney faces less risk because of an economic or competitive factor that decreases revenue for a single segment, and results in more chances to expand in multiple markets.

Disney Revenue

Analyzing the segments
Media accounts for 49% of Disney's operating portfolio, which has come in part from the company owning and growing diversified media networks. For instance, Disney purchased ESPN (the sports network, a big diversification from the classic Disney style of children and family entertainment) and Lucas Films in the last few years. With the purchase of Lucas Films, Disney is now taking advantage of the rights by creating a new TV series based on the popular Star Wars movies that is likely to bring a large revenue stream to the company over the next few years.

Parks and resorts is the next-largest segment for Disney, and one that has shown to be a great profit booster for the company. The company reported a 7% overall revenue increase for 2013 year-over-year, while the parks and resorts segment reported a 9% gain individually. Part of this success comes from the company's ability to keep bringing families to the Disneyland and Disneyworld resorts, both in the U.S. and abroad.

Another highlight is the company's cruise line segment. The cruise industry has seen massive growth over the last few years, with a market of 20.3 million cruisers in 2013 alone. Disney is taking part in this growth, and with travelers making arrangements sometimes as much as a year in advance just to get their preferred spots on Disney cruises, it's clear that demand is high. In the 2013 earnings release call, CEO Iger talked about this growing demand and said that, while the company isn't planning to build a new ship yet, it is continuing to increase routes and itineraries throughout the year to allow for more passengers.

Interactive is the one area in which Disney has not seen growth in 2013, and the only segment reporting a loss in 2013 at $87 million. The loss was steady throughout the year as few games were released, and the one sub-segment of growth came from Japanese mobile gaming. A little help came from the release of Disney Infinity, a console game, in August. However, the company is planning to release Fantasia: Music Evolved, another console game, this year. This should bring a revenue payoff after Disney incurred an expense in 2013 for developing the game. The interactive segment exemplifies how Disney's diversification works to decrease its risk. Even though this segment dropped in 2013, the company as a whole was not majorly affected thanks to its four other strong segments. Whether or not Disney is able to turn this segment around will be something to watch in 2014, but that should not turn investors away from this stock. 

Looking at the industry
Disney is by far the largest player in the industry by revenue and market cap, nearly twice as large as the next-largest company, Time Warner (NYSE:TWX). The other competitors in the industry include Twenty-First Century Fox (NASDAQ:FOXA), and DreamWorks Animation (NASDAQ:DWA).

Company Name

Revenues (ttm)

Market Cap.

P/E Multiple

Share Price

The Walt Disney Co.

$45.05 B

$127.6 B

21.48

$72.61

Time Warner

$29.39 B

$56.84 B

15.31

$62.83

Twenty-First Century Fox

$28.73 B

$72.16 B

12.11

$31.24

DreamWorks

$767.29 M

$2.83 B

N/A*

$33.74

*Dreamworks does not provide a trailing P/E due to negative earnings,
but a forward looking P/E multiple of 37.91 is provided by Yahoo! Finance.

While Disney may seem to be the highest priced option based on P/E multiples, consider the growth that accompanies this price. Disney was able to produce revenue growth of over 7% in 2013, which compares to 0.2% for Time Warner and -17% for Dreamworks. Or consider the broad amount of revenue streams this price buys investors. The risk that is mitigated for Disney with its five separate segments is something that Twenty-First Century Fox will not be able to replicate with only two distinct segments, media and satellite broadcasting (though the company does have plans to build its first theme park in Malaysia in the coming years). Should an economic shift happen within the media segment, such as competition from China perhaps, Twenty-First Century Fox will face a much more challenging landscape in regard to steady revenue.

Foolish conclusion
With a successful strategy of establishing different income streams, Disney has developed a business model that provides more value along with less risk. On top of this, the company has been able to maintain industry-beating revenue growth in 2013. These are reasons why Disney is an industry leader and it will continue to be. 

What about the Fool's top stock?
However, Disney is not the only stock out there that is making a name for itself for the year to come. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Bradley Seth McNew owns shares of Walt Disney. The Motley Fool recommends DreamWorks Animation and Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers