To summarize, Steven says Disney's a buy because:
- It has a good film library.
- Its Lost and Desperate Housewives franchises are doing well on broadcast TV, and ESPN remains in demand on cable.
- Parks revenue is up strongly, even if operating profits remain anemic.
- And -- there it is -- the Pixar argument.
Well, I can't argue with the film library. Steven's right on the money there. Disney's library will continue to produce high-margin revenues for the foreseeable future.
I half agree here, and half don't. ABC certainly has some high-quality programming on the air. But I'm not so sure about ESPN. On one hand, the franchise has proven adept at extorting huge fees from the likes of Comcast
Steven's made my argument for me here. Revenue up. Profits up much less. 'Nuff said.
Steven sees the Pixar deal as "delivering value for a long time." I disagree. Yes, if Pixar can grow at 50%, then it will indeed produce value for Disney shareholders -- but the odds are against it. In a 1999 report, accounting firm KPMG opined that of the 700 biggest acquisitions it examined between 1996 and 1998, only 17% "created value," 30% were "value neutral," and 53% "destroyed value." (Prof. Aswath Damodaran cited these figures in his 2004 text, Investment Fables.)
Statistically speaking, then, Pixar's chances of "delivering value" for Disney shareholders are less than one in five. If you like those odds, buy Disney. As for me, I don't, and won't.
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