An Attractive Entry Point for Wide-Moat Disney

Revenue improved 3% over last year to $13.3 billion, slightly below our estimate of $13.6 billion, as growth at media networks and parks and resorts more than offset the declines at the other two segments. Affiliate fee growth remains strong at 4% year over year despite slowing growth in pay television subscribers which was up 0.5% sequentially. While worrisome, we think that the inclusion of Disney channels in every OTT pay service that has launched demonstrates the strength of the firm’s overall channel package. EBITDA margin fell by 125 basis points due to higher content costs including the NBA but still came in ahead of our more conservative estimate.

The improvement at park and resorts was driven by the Shanghai resort and improved costs controls which offset inflation and wage increases. Shanghai is expect to reach 10 million visitors by this weekend, ahead of management's previous projection that it would occur around the one-year anniversary this June. Studio revenue was down 1% on a slightly weaker slate, which we expect for all of fiscal 2017. Revenue at consumer products fell 11% due to tough comps with high sales of Star Wars and Frozen last year. Overall EBITDA improved 12% to $4.4 billion, above our estimate, as the 1% decline at media networks was more than offset over 19% improvements at both the studio and parks and resorts segments.

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