if long dis---must read this--now!!!!!!!!
Analyst: Adam Lowensteiner (11/25/98)
Is Walt Disney (NYSE: DIS) a buy?
Analysts are currently divided. However, if you value its Internet operations like most pure-play Internet companies, Disney's stock is a steal. Here's why.
For starters, Disney owns 43% of Infoseek (NASDAQ: SEEK). This stake alone is currently worth $447 million.
More importantly, Buena Vista Internet Group, Disney's Internet subsidiary, owns four of the most visited Web sites, according to Media Metrix: Disney.com, ABC.com, ABCNEWS.com and ESPN.com.
These four sites reached 14.7 million unique visitors in October, or 23.5% of the total Web audience, ranking Disney eighth among all Web properties. ESPN.com was the top sports site for the eighth month in a row. Altogether, Disney's family of web sites grew more than 93% over the comparable period last year versus a 44% increase for the Internet in general.
Keep in mind that none of these statistics includes the new portal, go.com, also known as the Go Network, which Disney is launching with Infoseek in several weeks. When it is launched, Go Network will have the third-largest unduplicated reach on the Internet in terms of unique visitors, which would rank it ahead of Microsoft (NASDAQ: MSFT) and Netscape (NASDAQ: NSCP) (before its merger with America Online (NYSE: AOL)), and only behind Yahoo (NASDAQ: YHOO) and AOL, predicts Relevant Knowledge. Not bad for a Mickey Mouse company.
What are Disney's revenues? Is it making money? Disney won't say. Buena Vista Internet Group, formed in 1997, hasn't released any hard numbers and analysts are not yet factoring in Internet revenue in their models, as it is tiny compared to Disney's core businesses, which in 1997 generated $22.5 billion in revenue.
A Comparison: Disney vs. Yahoo
So, we'll make a few assumptions. Take Yahoo, the number one visited site. Its trailing 12-months revenue is $150 million. Its 1999 revenue is projected to swell to $300 million. Amazon.com's trailing-12 months revenue are $423 million. Let's say Disney's revenue falls somewhere in the middle -- around $370 million -- given its sites' popularity and the fact that it not only sells advertising but sells a lot of Disney and ESPN stuff as well. That comes out to only about 1.5% of Disney's total 1997 revenue.
Now the Fun Begins
Yahoo currently has a market cap of around $20 billion, with 100% of its revenue derived from the Internet. As a result, it is trading at 66 times projected revenue. Amazon.com's market cap is around $11 billion, or 12.5 times projected revenue of $878 million.
With these valuations in mind, let's look at Buena Vista Internet. Its sites are more similar to Yahoo's since it's not strictly an on-line retailer. However, it also sells all of that Disney and ESPN videos and other merchandise like clothing. If we put Yahoo's multiple of 66 on our very conservative revenue projection of $370 million, you get a valuation of $22 billion. This works out to more than one-third of Disney's current market cap of $61 billion.
This is very conservative considering that Buena Vista has a large, well-financed company back-stopping it, which could fund losses for years. It also has the great Disney, ESPN and ABC brand names.
So, you know what? Let's knock down this valuation by 25% to $16 billion. Now, let's subtract the $16 billion from Disney's current market value of $61 billion. The result: The rest of Disney -- theme parks, movies, video distribution, network television, cable networks, new ventures like cruise ships, etc. -- is suddenly worth just $45 billion, or about $22.50 per share. And the company is expected to earn $0.94 in the September 1999 fiscal year. Suddenly, its p/e multiple drops from 32 to 24.
And if you give Buena Vista the same $20 billion value that startup Yahoo has, the rest of Disney is valued at $41 billion, or about $20.50 a share.
Bottom Line:
Either Disney is undervalued or Yahoo is overvalued.
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