INTRODUCTION:

DIS has 2 main revenue sources, Disney Media and Entertainment Distribution (DMED) and Disney Parks, Experiences and Products (DPEP).

DMED includes things like their Linear Network (Disney Channel, ESPN etc.) and Direct to Consumer(DTC) products like Disney+ and Hulu.DPEP includes things like their Theme Parks, Merchandising and Intellectual Property Licensing.

As per 2021's 10-K DMED takes up about 75% of revenue while DPEP takes up the remaining 25%.

REVENUE(DMED):

I forecast that DMED will continue taking the bulk of revenue based on Management's guidance from the 2021 Q4 earnings call. “We don't expect to see a substantial recovery in international attendance at our domestic parks until towards the end of fiscal 2022.” So because DPEP will only recover to a limited extent DMED will continue to grow faster than DPEP and continue occupying the majority of revenue.

DMED's revenue driver with the largest growth prospect seems to come from their DTC products especially Disney+ with Linear Network seeming to be a matured business. However, based on management's guidance “reaching between 230 and 260 million paid Disney+ subscribers globally by the end of fiscal year 2024, and with Disney+ achieving profitability that same year.” I'd assume that in the best case scenario Disney+ does not raise prices to continue attracting subscribers. So Y/Y growth is likely to be limited as Disney+ as of 2021 was only at about 118 million halfway of the forecasted subscribers needed by 2024.

Revenue(DPEP):

I forecast that DPEP should brighten up over time as covid-19 restrictions get lifted and they return back to full operational capability without any covid-19 restrictions. China's zero covid policy does have a negative impact on Shanghai Disneyland, however this impact on overall DPEP's revenue is limited as most of DPEP's revenue comes from the US.

Not much guidance was given for merchandising, but Walt Disney has always been a strong licensor of their IPs so it's safe to assume that merchandising is mostly unaffected.

EBIT:

DIS is expected to have higher operating expense in order to meet their subscriber goal by 2024. Things such as higher production cost as DIS has released 37 movies in 2022 compared to 21 in 2021. And higher advertising cost, advertising cost was increased by 17% in 2021 from 2020 mainly to advertise DIS DTC.

There is also expected to be higher labor cost to run Disneyland as covid restrictions get lifted. Seeing how DIS is perceived as a luxury good. With their competitor's Six Flags cheapest tickets being at $25 while DIS is at about $80. In this tougher inflationary environment, consumers are likely to be less willing to spend more on luxury good so revenue from DPEP is likely to take a hit and DIS does incur high fixed cost such as maintenance cost.

So overall, EBIT is likely to at the best case scenario maintain at 9% from last year's margin.

OVERALL:

Y/Y revenue growth for 2022 I'd assume it's going to increase from 3.10% in 2021 to about 5.75% in 2022. Revenue growth is likely to be driven mainly by higher subscribers but other than that, I'd expect not much growth.

For 2023-2025, under the assumption that the FED's interest path and goals are met it should be cheaper for DIS to utilise leverage to reinvest back into the firm and grow Disney+. However I'm conservative in expecting too much out of Disney+ as NFLX will be releasing ad supported plans by November 2022 but revenue growth should still be strong regardless. I forecast about 7.1% of Y/Y revenue for 2023 and 2024.

For 2025, once interest rates are substantially lowered it should be significantly cheaper for DIS to reinvest back into the firm and ramp up production. As DIS relies on “telling the world’s most original and enduring stories. Second, maximizing the synergy of our unique eco-system to deepen consumers’ connection to our characters and stories.” to maximize their revenue. The growing subscriber base for Disney+ and the higher production should increase the appeal of the disney brand, increasing both DPEP and DMED.

EBIT is likely to increase overtime as DIS gains more internal economies of scales from ramping up production for DTC products and overall improve efficiency as DIS seems to not be very efficiently run with margins being at 9% for 2021 compared to 17% for 2019 precovid.

ASSUMPTION:

1. Taxes are assumed to be at 30% of EBIT throughout my forecast period, this amount may be very high but DIS taxes have always been weird. As seen from here: https://imgur.com/a/BW4428X
2. D&A is more stable so I assumed it to be at constant 7% of revenue throughout my forecast period.
3. Deferred Taxes is assumed to be at constant 2% of EBIT. Deferred taxes have also always been weird my guess is because DIS changed how they recognized revenue a while ago so there isn't consistency in this. As seen from here: https://imgur.com/a/lRkmQ2a
4. Change in NWC is assumed to be constant at 1.5% of revenue. There was a trend of about 1%-3% of change in NWC for DIS so I took the middle ground.
5. CapEx is assumed to be 8% for 2022 and 2023 as DIS ramps up R&D to efficiently run Disney+ but drops back down to 7% in 2024 and 6% in 2025.
6. WACC and TGR are 8.2% and 3% respectively.

CONCLUSION:

Overall, my stock price for DIS is $78.68 which seems that current prices are way too expensive to jump in on DIS.

Areas of weakness I can identify for my DCF would be that I'm very uncertain of how Linear Network(DMED) and Merchandising(DPEP) are currently affected by current environment. WACC was also quite uncertain for me when I tried calculating it.

I'd love to hear some feedback or criticism for my thought processes and if I'm being too bearish on DIS.

Picture of my excel: https://imgur.com/a/48mOo6W