Former cartoon studio is now worth $240bn

INTERNATIONAL – Disney is a diversified international entertainment and media company. It was founded in the US in 1923 by brothers Walt and Roy Disney as a cartoon studio that initially created animated silent films.

The company’s ability to monetise its world-renowned characters and franchises across multiple platforms has seen it grow into a $240billion (R3.56trillion) conglomerate.

After establishing itself as a leader in the animation industry, Disney diversified into live-action film production, television and theme parks.

Disney’s film studio division houses Pixar, Marvel, Lucasfilm (Star Wars) and 20th Century Fox. It has a group of 14 theme parks around the world.

Disney reported better-than-expected quarterly results last week, which saw its share price appreciate by more than 5percent.

Its revenue soared 34percent, primarily as a result of the $71bn acquisition of 20th Century Fox assets last year.

Disney’s film studio continued its stellar performance with a 79percent leap in profit, following the success of Toy Story 4, Lion King and Aladdin.

Despite the company’s box-office riches, Disney is banking its future on its new streaming initiatives – a bold statement about the future of media and entertainment.

Disney is preparing a trio of streaming services to appeal to more than its core family demographic.

The company expects to get 60 to 90 million people to sign up for the service within five years, by which time it should turn profitable.

Disney+ will launch in Australia and New Zealand on November 19, after it goes live in the US, Canada and the Netherlands this week.

It will debut in Western European countries in March 2020.

Disney is producing hundreds of hours of programming not only for Disney+, but also its 19-month-old ESPN streaming service and Hulu, a third service that Disney now controls after its acquisition of 20th Century Fox.

Disney has ensured access to millions of online viewers after signing agreements to stream on Amazon, Apple, Samsung, LG and Roku devices.

All Disney+ programming will be family-friendly and episodes will premiere one at a time, similar to traditional broadcast television as opposed to Netflix’s binge-watching approach.

Hulu will host more mature shows and movies, while ESPN will stream sports content.

A bundled offering of all three streaming services will cost $12.99, although the services are available as standalone subscriptions as well.

Where Disney will be most competitive is its content offering and pricing.

Disney+ will cost less than Netflix and Amazon Prime and its bundled service will cost the same as Netflix’ most popular subscription tier.

Disney’s impressive operational performance, inimitable theme parks and pricing power in its media networks and branded businesses have contributed to its sustained growth.

A strong consumer response to Disney’s venture into streaming services is reflected in the current share price, which seems fully valued.

The new service will likely buoy its revenue, but at the cost of deteriorating profitability metrics. The longer-term industry dynamics of international streaming may prove to be more expensive than investors expect.

Frants Preis, chartered financial analyst, is a portfolio manager at Vega Asset Management based in Pretoria.


Activewear market is expected to grow by 8%

ADIDAS IS the largest sportswear group in Europe and second-largest in the world, after Nike. Its core brands include Adidas, Reebok and TaylorMade.

It manufactures footwear and apparel in sport segments such as football, tennis, golf and running. Adidas is the market leader in football apparel and official sponsor of top football leagues such as Manchester United and Real Madrid.

Adidas sprang to life in 1948 after the two Dassler brothers were unable to agree on the future of their family company, Gebrüder Dassler Schuhfabrik, which was founded in Germany in 1924.

Adolf “Adi” and Rudolf split up all the assets, each going on to create a new separate brand. Rudolf established business rival Puma in 1949.

The global activewear market is expected to grow at a rate of 8 percent per year over the next five years to reach $550 billion (R8.33 trillion) by 2024.

This is despite the headwinds the entire sporting goods sector faces due to higher tariffs in the US.

While global brands such as Nike, Adidas and Puma have already actively diversified their production across several Asian countries such as Vietnam and Indonesia, China still accounts for a quarter of total production capacity for these names.

North America accounts for approximately 20 percent of Adidas’ sales and for almost 15 percent of its operating profit.

It represents a key source of potential margin improvement for the group, being the only region where the company is still meaningfully under-performing its major global competitor Nike.

Adidas recently celebrated another successful quarter. Sales and earnings in their strategic growth areas of Greater China and e-commerce continued to increase at double-digit rates.

Growth has accelerated in the past three years, mainly through its lifestyle brand Originals, which was initially growing at more than 30 percent per annum.

To set itself apart from competitors, Adidas has been using its celebrity partnerships to make inroads with a broader demographic.

Adidas is doubling down on its partnerships with non-athletes such as Beyoncé, Kanye West and Pharrell Williams.

The group continues to show positive progression in terms of brand perception and preference in 2019, supported by its strong social media strategy.

Adidas has spent the last four years curbing ocean pollution by recycling plastic waste into shoes.

The company produced more than five million pairs of recycled plastic waste shoes in 2018 and they plan to incorporate the waste into at least 11 million this year.

With the stock up 45 percent yearto-date due to a re-rating, Adidas is on the expensive side with a forward price-to-earnings multiple of 27.

The market has been more than reflecting its positive long-term growth prospects.

The stock is trading at a significant premium to its own history, but its valuation is in line with peers. Share price weakness in future may present a buying opportunity.