ESPN Leads the Charge for Disney's Media Network Profit Growth

By Trefis Team,

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Disney ( DIS ) competes with other media and broadcasting companies like Time Warner ( TWX ), News Corp ( NWS ), CBS ( CBS ) and Viacom ( VIA ) in the media and entertainment business. The company recently released its fiscal Q1 2011 earnings and, given improvements observed in its media networks segment, we have updated our price estimate for Disney's stock to $45.20. Our estimate stands at a roughly 5% premium to market price.

Given improvement across media networks as well as parks & resorts, Disney seems to be emerging strongly from the economic recession.

Improvements Led by ESPN

While media networks revenue grew by about 11%, operating margin growth was up 47% compared to the same period last year. Media networks profit margin (EBITDA margin) for the recent quarter was about 24% compared to roughly 19% for fiscal Q1 2010.

Factors that contributed towards this improvement included the following…

1) ESPN ad revenues showed significant gain, rising 34% year-over-year (YOY) in fiscal Q1 2011. Disney commented that strong demand for NFL programming (and corresponding ratings growth) was one notable aspect contributing towards the increase. When ratings go up, networks have greater bargaining power and tend to charge higher prices for ads.

See our full analysis and $45.20 price estimate for Disney

ESPN is Disney's most valuable product segment, by our estimates, accounting for an estimated 28% of the company's stock value. Thus, any improvement in this segment has a greater relative affect on company value than any other product line.

The interactive chart above showcases the independent affect of ESPN's EBITDA margin improvement on Disney's stock value.

2) Beyond cable networks like ESPN, Disney's broadcasting network also saw significant improvement in ad revenue with growth from owned TV stations at 20% YOY in fiscal Q1 2011. This result was partially driven by higher political advertising demand. The company noted that the momentum of ad revenue growth has continued into fiscal Q2 as well.

The interactive chat below illustrates the affect of ABC broadcasting ad pricing on Disney's stock value.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets
Referenced Stocks: CBS , DIS , NWS , TWX , VIA

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