Exerps From thestreet.com
Disney's Go Network Gives its Stock a Boost
By Alex Berenson
Senior Writer
1/12/99 2:40 PM ET
Suddenly, Disney (DIS:NYSE) is hot.
Since the start of 1999, The Mouse has risen more than 25%, adding close to $20 billion to its market cap in a matter of days. Disney is now closing in on its all-time high of 42 19/24, set in May 1998. It was trading at 37 7/16, up 2 3/16 today.
The surge comes as Disney unveils its Go Network, an Internet portal designed to compete with sites like Yahoo! (YHOO:Nasdaq) and AOL.com (AOL:NYSE). The service, at www.go.com, is a joint venture between Disney and Infoseek (SEEK:Nasdaq), a Net company in which Disney has a 43% stake. Go, which emphasizes content from Disney-owned sites like ABCnews.com and ESPN.com, has gotten generally good reviews for its comprehensiveness and ease of use, although to the untrained eye it doesn't look all that different from other portals. (ABCnews.com has an editorial partnership with TheStreet.com. Also, some of TSC's technology is hosted by Starwave, which is owned by Infoseek.)
Even so, Go's launch has apparently distracted Disney investors from the mundane concerns that left the Mouse's stock badly lagging its competitors last year. Disney's earnings, which fell in 1998, are expected to get no better this year, and the company's ABC television network faces maybe the toughest operating environment in its history. Disney isn't exactly cheap these days, either: It's trading at more than 40 times trailing earnings, not peanuts given the company's recent nonexistent growth.
For once, though, the Internet hype may be justified. Go again reveals the gap between Disney and its major competitors. Other big media companies like News Corp. (NWS:NYSE) and Time Warner (TWX:NYSE) talk vaguely about the Internet's potential, while lurching from one strategy to another. Meanwhile, Disney has actually built a competitive portal mixing its proprietary content with easy access to the vast troves of information available on the rest of the Net. Given the Mouse's family-friendly reputation and marketing power, Go appears likely to become an instant force on the Internet.
As a result, sell-side analysts are rushing to raise their ratings on Disney, despite the company's short-term problems. (It probably doesn't hurt that Disney's movie division, which had an expensive 1998, has had a string of hits in the last two months. Because of the time lag between a hit movie and when a studio recognizes revenue, the movies could give the company a small but noticeable boost through the year's first half, just when it most needs the help.) ...
Dixon estimates that the Net may eventually give Disney's cash flow, now close to $5 billion per year, an incremental boost of 3% to 5% annually over a period of several years. Those gains would help the company boost its long-term growth rate to better than 15% per year...
Regards
Neil |
