 Good day, fellow investors. We are a small value investing community here on YouTube. So it's great if we can share our work and help each other out. So I'm very, very happy to share Hemish Hodder's work here and his channel. So please check the link in the description below and subscribe to his channel for another value investor, a little bit more modern I think that I am. And he's going to show that by discussing a great company, a great business, Disney. So enjoy the video, subscribe to both channels and let's make value investing stronger here on YouTube. Hey everyone, my name is Hemish Hodder and a very big thank you to Sven for having me on the channel. Me and Sven have been in contact for quite some time now. Some of you may be aware that we actually had Sven on the Young Investors podcast a few months ago and we had a great conversation about a range of different topics relating to value investing. So I'm excited to do this collaboration with Sven once again and in today's video, I thought that I would do an individual stock analysis breakdown and go through my analysis process when it comes to the company, the Walt Disney company. So generally how I go through these analyses is I like to start by looking at the business itself. I like to look at the industry and what sort of components make up the business, what marks that they operate in and that sort of thing. Then what I like to do is I like to see if we can identify any types of competitive advantages. Is there anything about the Walt Disney company that separates it from its competition? That's going to give us confidence that the business can thrive over the long term and that we will have safety of our capital in the investment. Then what we like to do is we like to look at management and we look at management in three key ways. We start by looking at the integrity of management. Do we trust them? Are their values aligned with ours? Then we like to look at the return on invested capital to see how effectively they've been investing within the business. And finally, when it comes to management, we're looking for companies that have low levels of debt relative to other companies so that we're not going to be losing a lot of money in an investment. We certainly don't want to be making investments in companies that have a lot of debt and a high risk of going bankrupt. And then finally, to wrap it all together, I like to do an intrinsic valuation, which is where I'm essentially trying to come up with an estimate of how much cash we can get out of a business. We can reasonably expect to get out of a business over the next 10 years. And therefore put a price on how much we're willing to pay. So let's get started in this analysis by going through the business, its industry, and its competition. Now, the Walt Disney Company operates four major operating segments. They have studio entertainment, media networks, parks, experiences, and consumer products. And then they're direct to consumer and international segment. The media network segment includes all of the cable and broadcast television networks, such as the Disney Channel, ESPN, and ABC. Revenue from the cable network is primarily in the form of affiliate commissions received from cable television providers, whereas the revenue from broadcast networks, their free-to-air networks, is primarily in the form of ad sales, meaning they place advertisements during their programs. And in 2019, media networks was the second largest segment of their total business, representing 34.6% of their total revenue. The largest segment was their parks, experiences, and consumer products, which represented 36.6% of their total revenue. This segment is a consolidation of two prior segments, which was parks and resorts and then consumer products, and includes all of Disney's theme park experience offerings, resorts, cruise liners, and more, as well as generating revenue from consumers spending money at the parks of course, and licensing the company's trade names and characters to manufacturers, game developers, and publishers. The studio entertainment segment includes live action and animated motion pictures, musical recordings, and live stage plays, and most of the revenue in this segment is generated from the distribution of film and licensing, and this segment represented about 15.7% of their total revenue in 2019. And the final segment, which is direct to consumer and international, which represented 13% of their total revenue in 2019. And this is a new operating segment of Disney's business, and includes four major online streaming services, which are Disney Plus, ESPN Plus, Hulu, and Hotstar, with each providing a different offering for video consumption online, and generating recurring revenue with a subscription model. And even though direct to consumer is the smallest component of Disney's business at the current time, I think it is arguably the best and most exciting component of Disney's business going forward, particularly with the launch of Disney Plus just happening in November this year. The direct to consumer video market is growing at a 37% compounded annual growth rate, according to HISKagan, with an expected 810 million subscribers globally by 2020. And Disney is positioned very well to become a major player in the direct to consumer industry. In terms of the competition that Disney faces, of course, because they operate in four different operating segments, they're going to be facing competition from different competitors in each different market. But considering that the direct to consumer business is going to be a big part of the growth story of the Walt Disney Company going forward, it's very important to focus in on what the competition will look like in that particular segment. At the moment, Disney's biggest competitor is Netflix, which is very well established with already having 152 million global subscribers. The competition between Netflix and Disney will ultimately come down to three major factors, price, quality, and quantity of content. In terms of price, Disney has Netflix beat hands down with their launch price more than 50% cheaper than a subscription for Netflix. And then when it comes to the quality and quantity of content, that is up for debate. But Disney is certainly going to be launching with a huge library of content behind them from their Disney studios as well as their Fox studios that they were able to acquire as a result of the acquisition that they did earlier in the year. So let's move on and talk about competitive advantages because when we're making investments in the stock market, we want to be making investments in businesses that we are highly confident will be sustainable over the very long term. And the way I like to do this kind of analysis is in a qualitative sense and then in a quantitative sense. So I first like to look and see what I can see about the business that I like come up with an opinion. And then we look to the data, we look at the core numbers of their growth to see if the numbers tell us that they do in fact have some kind of competitive advantage. In a qualitative sense, the most obvious advantage that Disney has is their compelling and strong consumer brand. Disney has essentially built themselves into a conglomerate a group of very, very successful film studios that have a history of consistently producing high grossing films. And not only that, they have a very long reputation of doing this. And not only this one of the ways that I like to see if I can identify a competitive advantage a branding mode is to look at pricing power and we can look at pricing power for Disney in terms of their theme parks. And in 2018, they were able to raise their pricing at their theme parks by 6% while still seeing a 2% increase in their traffic. And essentially what that tells me is that people aren't considering the price as a major factor when they're going to these theme parks. They're going there because they know that they are great because Disney has something that the competition doesn't have, which means Disney can raise their prices and people are still going to be coming back. And to me that indicates that they do have some kind of compelling competitive advantage. And we can confirm that they do have some sort of competitive advantage by looking at their core growth in terms of sales earnings per share equity and free cash flow, which you can see has been growing very consistently and at a strong rate in many cases over the past 10 years. Moving on to the management section of our analysis, again, we need to look at management in three key ways. Their trustworthiness to shareholders, their ability to invest effectively within the business and their ability to manage debt to a low level. So let's start with the management and their trustworthiness to shareholders. The CEO at the current time is Bob Iger. He's a big shareholder and has been there at the company for a very long time, which is a great sign. However, he will be leaving Disney in 2021. So that means that whoever is leading the company beyond that, we don't really know anything about them and we will need to reassess management when that time does come. In terms of their ability to invest effectively within the business, they've been consistently generating a high return on invested capital. And not only that you can see that the return on invested capital has been growing consistently over time. This is exactly what we'd like to see. Not only are they being effective at their investments, but they are getting more effective over time, even though they are deploying more capital into their operations. And then finally looking at debt, this is probably my least favorite part about Disney's management is that they do have quite a high level of debt. And that is due to the fact that they just recently made a huge acquisition of the Fox Studios. And in terms of what management is doing about this debt, Bob Iger has actually suspended the share repurchase program in order to funnel money and cash back into paying down their debts. I think that's a good management decision. But in terms of the level of debt within the company, it is just a little bit too high for my level of risk tolerance. So that brings us to the final part of our analysis, which is to do intrinsic valuation. And essentially what I'm doing here is I'm coming up with an estimate of how much cash I think we can get out of this business and therefore put a price on how much we're willing to pay. Now, normally I will choose a number of models when I'm doing this so that I can get a range in which intrinsic value likely sits and a buy range that we can start investing at. But in the interest of time, I'm just going to be showing you one single model. And I'm going to be using the cash flow numbers from 2018 instead of 19, because their 2019 numbers have been changed a little bit around due to some discontinued operations and some one-off expenses, tax expenses, and that sort of thing. So in 2018, I calculated their cash flow for owners to be about $12 billion. So this is where we're going to start in our discounted cash flow. And then what I do is I come up with a range of growth rates that I think the company can hit over the next 10 years. And one of these growth rates that I had in my models was 13% per year over the next 10 years. And how I came to that was because it is their long term cash flow for owners growth rate over the past 10 years. I then used a 22% discount rate, which represents the 15% that I'm aiming for, plus a 50% margin of safety for errors in our valuation. And in this particular model, we get a buy price of about $70 per share. If I then change the discount rate to 12.5%, instead of 22%, you can see that the buy price is $130, which is approximately the current stock price. And what that shows us is that according to the model that we used, using a 13% growth rate, we could expect to get about a 12.5% return if investing at the current stock price with no margin of safety for any errors. So if Disney was able to go out and hit 13% growth per year compounded from this point onward, then the model suggests that we would make approximately 12.5% per year as an investment. So just to summarize here, I think Disney is no doubt a very great company over the very long term. But where and what price you're willing to start investing at will depend on a couple of things. What kind of return are you happy to receive out of Disney? And what do you think are their growth prospects in the future? Do you think that they can hit 13% per year or are they more likely to hit something like 6% to 8% and are you happy to accept a 6% to 8% return or are you going to be aiming for the 15% to 22% return like I am with all of my investments? Thanks again, Sven for having me on the channel. I very much appreciate it and I hope your audience got some value out of this. If you did and you want to see more content like this, then head over to my channel. I'm sure Sven will link it down in the description below and you can check out some of my other value investing and individual stock analysis content. But for now, thanks everyone and I'll see you later.