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The Walt Disney Company (DIS Free Disney Stock Report) had something of a feel-good year. Not only did its shares reach all-time highs, but the company experienced resounding cross-platform success with its Frozen franchise, spurred excitement for the forthcoming sequels to the original Star Wars trilogy, and readied the opening of the new Shanghai Disney Resort. Furthermore, the media conglomerate continues to perform at a high level, despite facing constant pressure in its film and broadcasting holdings.

Still, coming off a strong fiscal 2014 (years end September 30th), is there still room for the stock to deliver long-term growth to new investors? Has the company adequately prepared for the constant shift toward digital media platforms? Who do these shares appeal to? In this article, we will attempt to address these questions by taking a brief look at Disney’s business and performing an easy-to-follow SWOT analysis of the company, evaluating its Strengths, Weaknesses, Opportunities, and Threats.

Business

Disney creates, develops, produces, markets, and distributes content through an unmatched breadth of media platforms. The company derives its revenues from five operating segments. Media Networks (43% of companywide business in fiscal 2014) includes ESPN, ABC, Disney Channel, among others, and generates sales from affiliate fees, ad sales, and the distribution of television programs. Parks and Resorts (31%) operates the company’s internationally prominent theme park and resorts holdings, such as Disneyworld, Disneyland, and a number of international sites. Studio Entertainment (15%) produces and acquires films for international distribution through Walt Disney Pictures, Pixar, Marvel, and Lucasfilm, among others. Consumer Products (8%) licenses Disney’s intellectual property to retailers, promoters, and publishers around the globe, and also includes the company’s Disney Store brand. Finally, Interactive (3%) creates branded entertainment across media platforms and develops online services. 

Strengths

Content Integration

Producing quality branded content is at the crux of all of Disney’s entertainment conquests. The company is adept at leveraging its popular characters and brands for use across its operating segments. Case in point, Disney struck gold with Frozen, a 2013 animated feature about a proudly independent princess. Not only did the film rake in $1.3 billion at the box office, but it also inspired a television crossover (on ABC’s Once Upon a Time), a Broadway musical, and a theme park attraction (opens in early 2016). Demand for Frozen merchandise was higher than any Disney film in recent memory, with about 3 million Elsa costumes sold in North America alone. This type of cross-platform integration is unmatched by any mass media company on the planet.

Cash Surplus

The company generates a healthy surplus of cash through its operations, affording it considerable flexibility when it comes to adapting to ever-shifting consumer preferences and expanding its operations. The past decade alone has seen Disney absorb some of pop culture’s most beloved (and profitable) brands into its own operations. It purchased Pixar in 2006 for $7.4 billion, spent more than $4.6 billion for Marvel in 2009, and created shockwaves in late 2012 with its $4 billion acquisition of Lucasfilm. Not only does the company now own and operate dozens of highly lucrative film properties through these deals, but it also attained full licensing and marketing rights.

Weaknesses

Broadcasting Trends

Over the past several years, the emerging popularity of streaming options has impacted ad revenues across the television industry. Disney has recently made moves into the digital space, via acquisitions as well as making ABC, ABC Family, and Disney Channel programs available online, but still needs to invest in greater change. Though live sports and election coverage still drive high ratings, the company will eventually need to compensate for what will likely be stagnant growth down the road in the Media Networks unit, its largest operating segment.

High Cost of Doing Business

Because live sporting events drive viewership and, consequently, ad revenues, Disney invests a lot of money in purchasing the broadcasting rights for several sports. Its television contract with the National Basketball Association (NBA) was recently extended by 9 years and $24 billion. While movie theaters struggle to maintain attendance growth, Disney too finds itself operating in an increasingly tumultuous environment. Volatility at the box office can sometimes result in major write-offs from companywide results. The company incurred a $200 million dollar loss for the ill-fated, poorly marketed John Carter in 2012. One major flop can swing profitability in the wrong direction.

Opportunities

International

Although many of its brands and characters are essential slices of Americana, Disney is an unmistakable global behemoth. It either owns or licenses theme parks and resorts in Europe (Disneyland Paris) and Asia (Hong Kong Disneyland, Tokyo Disneyland and the soon-to-open Shanghai Disney Resort), with room for sustained international growth. Studio Entertainment has driven the company’s foreign appeal in recent years, notably its Marvel and Frozen franchises, the latter of which generated one-fifth of its global gross in Japan.

Threats

Digital Alternatives

The shift to digitally-distributed media has pressured entertainment conglomerates to shift their business models and make investments into upstart technologies. Even though Disney made some waves last year when it purchased Maker Studios, an online network of comedians, performers, and educators, for $500 million. Not only does the move offer slate of popular online content, but it also gives Disney a recognized built-in distribution model. Still, management has admitted that more needs to be done to establish Disney’s role online. At the recent International Consumer Electronics Show (CES), CFO Jay Rasulo hinted that the company could be readying a larger splash into the digital distribution market.

Mounting Competition

In addition to increased challenges in the increasingly lucrative digital fold, Disney is facing more formidable competition in most of its operating segments. With upstart networks chipping away at ESPN’s stranglehold on the cable sports audience, the already-competitive fight over sports licensing rights has been more congested. Elsewhere, the company’s film production unit is constantly fighting for a larger slice of the shrinking domestic box office pie. As one of the biggest and most revered entertainment companies in the world, Disney is constantly engaged in competition with local, national, and international mass media outfits at all times.

Conclusion

Disney’s ability to create, market, and profit from its intellectual property is supported by a century of widely-embraced characters and internationally popular franchises. Recent success through its acquired brands (Marvel, Lucasfilm) will likely position many of its segments for long-term success, but softness in domestic movie attendance and the shift in consumer preference moving towards streaming platforms threatens Disney’s foothold in traditional media distribution. All told, we believe the company’s strengths and growth opportunities far outweigh the threats it faces. So while the company is as rock-solid financially as they come in the industry, its yearlong ascent to all-time highs suggests that a large portion of long-term optimism has already been priced into its market value. We encourage interested subscribers to consult our quarterly reports on The Walt Disney Company before making any investment decisions.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.