Is ESPN In Trouble (cord-cutter)

[ChicosBailBonds]

Somewhat halfhearted here, but .. I think we can all agree that average America's financial acumen isn't high. 

Imagine the cable or phone industry, if they had to quote prices in annual numbers.   Your cable bill isn't $135, it's $1,620.  That's real money.

Your kid wants a cell phone?  You gripe about a $60/month fee but you say hell no to $720 a year.

Everything is affordable if you boil it down to a daily figure, eh. 

For just $25 a day, you too can drive a Jaguar!  That's pennies a minute!  You can find that in your couch.

Sure, including your house.  How much will you actually pay for your house when all is said and done?  $750K?  $1M?

But doesn't the inverse work as well?  Perhaps your monthly check is $7K....but annually it is $84K.   Don't get me wrong, there are plenty of people out there that can't handle their finances.  For that reason, there are credit checks for houses, cars, and yes....satellite TV and even by some of the phone companies.

[Tugg Speedman]

Interesting article ..

https://www.techdirt.com/articles/20160114/06532833339/56-would-drop-espn-heartbeat-if-it-meant-saving-8-month-cable.shtml

Wish we'd pass a law .. no quoting of anything in monthly periods.

$8 a month is squat.  If they phrased it $96/year, that 56% would be 86%.

What it says is 56% of the cable subscribers don't watch ESPN and are fine with ditching it.

This is what is killing Disney, ESPN cost $8/month (far and away the most expensive channel on your cable bill) and Wall Street fears they are going to lose half their subscribers.  The issue is not if but how/when.  And what does ESPN do when they lose half their subs?  They pay $6 billion a year in broadcasting rights.  How do they pay this when half go away?  What happens to sports leagues (college conferences) when they get half?

Do they charge us hard core watchers $16 month?  Then does ESPN2, FS1, FS2, NBSsi, CBSsp all double their fees as well (because they are suffering from the same thing)?  What about the local and regional stations (like FSN Wisconsin) do they also lose half their subs (or more) and have to double or triple their fees so we can watch baseball?  Are you ready to pay $300 to $400/year for sports?

The entire sports model was built of getting the majority of their revenue from people that do not watch their product.  This model is blowing up and going forward people are only going to pay for what they watch, and nothing else.  In the parlance of the industry, "linear TV" is dead, we are just arguing what date to write on the death certificate.

Disney's stock lost one-quarter of its value in the last six months on the mere talk this will happen.  And this stock dive happened when they were making $2 billion from Star Wars.  So not even the highest grossing film in human history could save Disney's stock from the death star known as ESPN. 

I understand my next statement is like desecrating a religion ... Disney's stock is done.  It's going  down for years.  What did a long-term investors in Disney get until this summer?  Answer, profits.  What will a long-term investor get going forward ... losses?  Or see what IBM did until 5 years ago, and in the last five years.  You're looking at Disney's stock 5 years into the future.

[ChicosBailBonds]

Disney briefly traded under $100 today.  Down 15% since Star Wars was released.

The movie release is turning out to be a great sell signal.

The whole market is down considerably, how you can ignore this is silly.

[Tugg Speedman]

The whole market is down considerably, how you can ignore this is silly.

As I noted above Disney is down 3x the market's decline.  Rationalizing Disney losses because the overall market is done is to miss the larger issues with Disney.

Restated, Disney would be at $110 is it was merely following the market lower.  It closed under $97 yesterday.

[Tugg Speedman]

Disney reported record earnings and profits largely because of the monster money made off Star Wars.  Disney profits topped $1 billion in Q4 2015 for the first time ever.  Disney profits blew away analyst forecasts.

So what is the stock doing?  It is getting crushed!  Down 6% or $5 and under $87 for the first time since late 2014.  It is down more than 25% since November 20th.  Why?  The death star pull of ESPN is so great that not even a billion dollar quarter can stop it from crushing Disney.

Wall Street is so worried that the "game is over" for ESPN that not even a billion dollars from Star Wars can save Disney. 

More evidence the "Sports Bubble" has popped.  If so, it will not be pretty.

Disney Sinks as Lower ESPN Profit Overshadows `Star Wars'
Programming costs, subscriber losses, dollar hit sports network
Studio, consumer units post gains from latest film release

http://www.bloomberg.com/news/articles/2016-02-09/disney-profit-tops-estimates-as-star-wars-boosts-film-division

Walt Disney Co. shareholders overlooked a record quarter for sales and earnings and focused on flagging profits at ESPN sports network, a sign of how uneasy investors have become about the splintering of the cable-TV industry’s traditional business model.



Investors are watching to see if ESPN, Disney’s biggest profit contributor, can stem subscriber losses, which continued in the first quarter. Bob Iger, chairman and chief executive officer, tried to address those concerns on a call, saying the company saw an uptick after the quarter. Earnings at the unit that includes ESPN and ABC slid 6 percent, the result of higher program costs and fewer viewers, along with currency fluctuations. 

“It is clear that the market is still nervous about cord-cutting and its impact on the cable television business,” Paul Sweeney, a Bloomberg Intelligence analyst, said in an e-mail.

[ChicosBailBonds]

ESPN subs grew as I said they would last month.  Earnings way over expectations. 

Market over reacting, but nothing they can do about that.  Buying more DIS today. 

[ChicosBailBonds]

Plus you get the dividend, which as I get a little older, I'm investing more and more into great companies that provide a dividend.

[Tugg Speedman]

ESPN subs grew as I said they would last month.  Earnings way over expectations. 

Market over reacting, but nothing they can do about that.  Buying more DIS today.

Subs grew at DISH, since January 1st, because of the skinny bundle, a very narrow subset.  Further Iger refused to say whether those skinny bundles were getting the $6 to $7 per month or if they cut rates?  Wall Street fears if ESPN did cut rates on skinny bundles it means they ESPN is readying to compete on price, all of Disney's revenue growth assumptions are in trouble.

To understand Disney they need to change their ticker symbol from DIS to ESPN, everything about Disney's earnings report was good, they had Star Was too!  Yet none of that really matters as all Wall Street cares about is ESPN and they think it is a death star.

Dead money for years.

[ChicosBailBonds]

Disney Chair & CEO Bob Iger yesterday tried to "counter the arguments that ESPN’s business is in decline" following Disney's Q1 earnings report, claiming the cable net has "experienced an uptick in subscriber numbers in the past couple of months," according to Ben Fritz of the WALL STREET JOURNAL. Iger said, "The notion that the bundle is experiencing its demise or that ESPN is cratering in any way from a sub(scriber) perspective is just ridiculous." Fritz notes despite the recent growth, ESPN "lost subscribers in the quarter ended Jan. 2 at the same time that programming costs rose, due to costly deals for the rights to sports such as professional and college football." ESPN's costs also "rose thanks to the timing" of the CFP, which "occurred in the company's fiscal first quarter, ended Jan. 2 this year, but were in the fiscal second quarter a year earlier." Operating income for Disney's TV business "fell 6% in the quarter" to $1.41B, while revenue rose 8% to $6.33B. ESPN ad revenue "grew a robust 25% in the quarter." Disney CFO Christine McCarthy said that the growth rate "would have been 14%, excluding the timing" of the CFP and the absence this year of NASCAR. Iger said that much of the recent "modest uptick in ESPN subscribers came from so-called skinny packages that have fewer channels and are aimed at cost-conscious young consumers." He said that the company is "pushing aggressively to include ESPN and its other channels in similar offerings." However, Iger said that he "wasn't ready to predict that the recent positive trend in subscriber numbers would continue." Meanwhile, the earnings report came out the same day that ESPN and DraftKings announced they have ended their "exclusive advertising relationship" at DraftKings' behest (WALL STREET JOURNAL, 2/10).

INTEREST IN ESPN IS CLEAR: Iger said about 200 million Americans "consume ESPN on one platform or another" in any given month. He added that of the 95% of Americans who "watch sports in a given month, over 80% watch ESPN." Iger: "There's clearly an interest in ESPN, and that interest propelled some growth." He added the addition of some "light cable packages that had ESPN in those packages also probably helped." He said, "What we're seeing with Dish and the Sling package that they launched is they’re bringing some folks back who had cut the cord. They’re also bringing young people into the bundle, and ESPN is part of that. One of the reasons they’re seeing success with their light bundle is because ESPN is part of that." Iger noted the "prediction that there would be a rapid demise of the bundle is way too exaggerated" ("Closing Bell," CNBC, 2/9). He added, "We fully expect our media networks, including ESPN to continue to deliver bottom-line growth, which means ad revenue growth will continue to outpace spending" (REUTERS, 2/9). Edward Jones analyst Robin Diedrich, who has a "buy" rating on Disney stock, said that Iger's ESPN comments "helped stanch the bleeding." The AP's Ryan Nakashima noted that is in part "because its other segments from movies to theme parks are booming." Diedrich said, "Even considering some of the risk and slowdown we are seeing in media, we look at this as a really good buying opportunity" (AP, 2/9).

THE FORCE WAS WITH THEM: In N.Y., Richard Morgan wrote the ESPN news "ruined" Disney's party for its successful "Star Wars: The Force Awakens" in December that helped it "beat Wall Street profit and revenue expectations." Total revenue and operating income for the company increased 14% and 20% -- to $15.2B and $4.3B, respectively -- as the film propelled the company to record quarterly profits (N.Y. POST, 2/10).

[Tugg Speedman]

The Mouse No Longer Roars, But It Might Purr Soon
FEB 10, 2016 | 2:54 PM EST
Stock quotes in this article:  DIS

I placed Disney (DIS) on my Best Ideas List as a short last Nov. 27 at $116.25.

I remain short Disney despite its recent fall to $89 a share, but I am down to tag ends.

Pricing and margin challenges in its theme parks, continued cord-cutting and peak sports viewership represent the principle threats I see, which are likely to reduce the company's secular earnings-per-share growth rate from more than 20% annually over the last five years  to less than 10% over the next five years.

My price target remains at about $80, which would be 13x forward EPS. Given the slowdown in projected growth, a price/earnings to growth (PEG) ratio of 1.3x seems reasonable.

Here are some of my thoughts on DIS:
•   The Bear Case for Disney 
•   The Bear Case (Redux) -- Taking a Look at Theme Parks
•   Peak Sports VIewership 
•   Apple, DIsney and "The Big Short"
•   BTIG's Greenfield Chimes In

The positive at Disney was, not surprisingly, the "Star Wars" contribution, which was an important factor in the addition of almost $1 billion in cash flow during the quarter.

Debt to cash flow is now below 1x, which represents, in theory, an ability to retire stock through more leverage. I wouldn't be surprised to see a more aggressive buyback program as CEO Bob Iger studied this strategy at CCB under Tom Murphy.
Share count is already down by nearly 20% from peak levels; DIS has spent about $3.7 billion in buying stock over the last four to five months, even though stock was used as currency in a number of acquisitions, including Pixar.

Interestingly, there was a large (22%) rise in accounts receivables (are theatres slow payers?). This represents a gain of almost $2.2 billion, which will be finding its way onto the balance sheet in the year ahead. The company also benefited from a $332 million gain from an investment in "Vice," which was taken below the line and not included in operating income.

In other words, the quarter was conservatively stated.

Bottom line:

DIsney has been a terrific short. Though I have covered most of this short, I would not yet buy the shares.
DIS currently is trading at about 9.5x trailing 12-month EBITD, so the shares are starting to get cheaper given its core brand franchise, free cash flow and high level of overall profitability.

I am close to covering the balance of my short in Disney. It seems like $75 to $80 is a good buy entry point.

Position: Short DIS small
 
Douglas A. Kass
Seabreeze Partners Management Inc.

[mu03eng]

http://awfulannouncing.com/2016/disney-stock-takes-hit-despite-greatest-single-quarter-in-history-thanks-to-espn.html?utm_source=dlvr.it&utm_medium=twitter&utm_campaign=disney-stock-takes-hit-despite-greatest-single-quarter-in-history-thanks-to-espn

I think it's an industry bubble not just ESPN. Note that CBS has been down as well.

Costs can't keep going up while revenues flatten or decrease

[ChicosBailBonds]

http://awfulannouncing.com/2016/disney-stock-takes-hit-despite-greatest-single-quarter-in-history-thanks-to-espn.html?utm_source=dlvr.it&utm_medium=twitter&utm_campaign=disney-stock-takes-hit-despite-greatest-single-quarter-in-history-thanks-to-espn

I think it's an industry bubble not just ESPN. Note that CBS has been down as well.

Costs can't keep going up while revenues flatten or decrease

Revenues are actually up.  That's why the irrational stuff going on is funny to watch.  The whole market is on pace to lose double digits this year. 


Barrons just listed Disney as a BUY, as did a number of other analysts.  Great company, great assets, strong earnings, revenue up, dividend paying stock, etc.

[mu03eng]

Revenues are actually up.  That's why the irrational stuff going on is funny to watch.  The whole market is on pace to lose double digits this year. 


Barrons just listed Disney as a BUY, as did a number of other analysts.  Great company, great assets, strong earnings, revenue up, dividend paying stock, etc.

Disney's revenues are up, ESPNs are not. I'm not fighting you on Disney at all.

[ChicosBailBonds]

Disney's revenues are up, ESPNs are not. I'm not fighting you on Disney at all.

Unless the internal summary I got was wrong, ESPN revenues were up also...both on the Ad Sales side and subscription revenue because subs were up AND they go their jump in new payment terms.  ABC was the only network of their multiple networks that took a revenue decline.

Now, what is down is operating profit for ESPN, and that is due to their programming costs (they overpaid), but my summary shows their revenues are up for ESPN.

[MU82]

Recently from WSJ:

http://blogs.wsj.com/moneybeat/2016/02/25/media-stocks-just-how-bad-is-cord-cutting/?mod=yahoo_hs

[ChicosBailBonds]

Recently from WSJ:

http://blogs.wsj.com/moneybeat/2016/02/25/media-stocks-just-how-bad-is-cord-cutting/?mod=yahoo_hs

Yup

It's happening, but very very slowly and the reason is that it costs $$$$$$$ to create good content.  The money the studios, broadcasters get from cord cutting entities is really small.  Dimes compared to dollars.   And the dirty secret, none of the OTT services make any money from a profitability perspective, except for Netflix and they barely make any money. 

[Tugg Speedman]

Disney just reported earnings.  For the first time in 5 years they "missed" earnings reporting $1.36 where Wall Street was expecting $1.40.  They missed on Revenues too reporting $12.97B v a Wall Street expectation of $13.19B.

Stock getting crushed under $100, down 6%

Quick take away.  ESPN numbers sucked again, media revenue"miss" was most of the overall miss.  ESPN dragged down good movies and theme parks results.

Initial take is this is bad because they missed.  Disney is not the annuity that always beats as they "missed" even with Star Wars and other good movie releases.  ESPN is like a drowning man grabbing anything it can and will pull everyone down with them.

Dead money.  Yes you can buy under $100.  Buy why do it now.  Do it in three to five years when it is still under $100. 

The game ended on August 5, 2015 when they reported 7 million cord cutters.  It has not been able to recover from this.

[Silkk the Shaka]

Good call, Heisenberg

[ChicosBailBonds]

3 to 5 years you know what is going to happen to a stock?  Lol

[Tugg Speedman]

3 to 5 years you know what is going to happen to a stock?  Lol

No I do not, that is my opinion.  August 5, 2015 was the end of the ESPN era.  The stock has been in a down trend since (lower highs and lower lows), the company's Q4 2015 results crushed the stock in February (see about 10 posts above) and the Q1 2016 results crushed the stock today.

Old saying on Wall Street "never sh!t where you eat."  Chicos you are too close to the industry and this company.  You have an emotional involvement so you will not be able to see the problems that the stock price and consecutive reports are signalling.

Again, it is not getting killed from here.  I called it "dead money."  That means it not doing anything.

How does one get $10,000 of Disney's stock?  Buy $10,000 of Disney's stock today and wait three to five years.

[MU82]

Once markets opened this morning, DIS didn't even go down to 100 and it fairly quickly rebounded to 102.

So despite an earnings report seen as catastrophic by some, the price of DIS still sits about 15% higher than it was when Heisy's hedge fund guru suggested it was time to go short.

Again, I don't even own DIS. Not a single share. But I am leery of both outsized optimism and pessimism when it comes to any stock.

Mr. Market is a funny dude. A company like DIS posts some impressive profits but misses analysts' sky-high expectations by 4 cents a share, so it gets punished by traders. Another company can lose money big-time but because its loss is a penny less than analysts expected, its stock price soars.

Is DIS "dead money," as Heisy claims? Maybe. We won't know for years. Based on the moolah it is still raking in hand over fist, however, Disney looks like anything but a dead company to this objective observer.

[Tugg Speedman]

Once markets opened this morning, DIS didn't even go down to 100 and it fairly quickly rebounded to 102.

So despite an earnings report seen as catastrophic by some, the price of DIS still sits about 15% higher than it was when Heisy's hedge fund guru suggested it was time to go short.

Again, I don't even own DIS. Not a single share. But I am leery of both outsized optimism and pessimism when it comes to any stock.

Mr. Market is a funny dude. A company like DIS posts some impressive profits but misses analysts' sky-high expectations by 4 cents a share, so it gets punished by traders. Another company can lose money big-time but because its loss is a penny less than analysts expected, its stock price soars.

Is DIS "dead money," as Heisy claims? Maybe. We won't know for years. Based on the moolah it is still raking in hand over fist, however, Disney looks like anything but a dead company to this objective observer.

He sold it at $116

[MU82]

He sold it at $116

Hmmm ... he wrote in February that he was short at $89 but somehow mysteriously he ended up long and eventually sold for a profit. Interesting.

Either you felt compelled to report his short to us here at Scoop to support your thesis but then did not feel equally compelled to report him abandoning his short position and then going long ... or something is rotten in Hedge Land.

[Tugg Speedman]

Hmmm ... he wrote in February that he was short at $89 but somehow mysteriously he ended up long and eventually sold for a profit. Interesting.

Either you felt compelled to report his short to us here at Scoop to support your thesis but then did not feel equally compelled to report him abandoning his short position and then going long ... or something is rotten in Hedge Land.

see the first sentence

http://www.muscoop.com/index.php?topic=48239.msg803218#msg803218


I placed Disney (DIS) on my Best Ideas List as a short last Nov. 27 at $116.25.

and then see the next sentence

I remain short Disney despite its recent fall to $89 a share, but I am down to tag ends.

That means he cover most of his short at a big profit but still had a little left.

and his conclusion

Disney has been a terrific short. Though I have covered most of this short, I would not yet buy the shares.

DIS currently is trading at about 9.5x trailing 12-month EBITD, so the shares are starting to get cheaper given its core brand franchise, free cash flow and high level of overall profitability.

I am close to covering the balance of my short in Disney. It seems like $75 to $80 is a good buy entry point.

Here is his update today ....

The Mouse No Longer Roars
Doug Kass
MAY 11, 2016 | 10:15 AM EDT
Stock quotes in this article:  DIS

I placed Walt Disney Co. (DIS) on my "Best Short Ideas" list back on Nov. 27 at $116.25 a share -- which turns out to have been a good move, as the stock is tanking today and down to about $102 at last check.

Disney seemed almost universally endorsed by both the sell side and buy side not so long ago. The expression often used was "a long runway of growth."

But falling subscriptions at Disney's key ESPN subsidiary have been underscoring "cord-cutting" concerns, and the stock moved steadily lower in recent months until it made a roughly $86-a-share intraday bottom in February.

I covered most of my short position into that decline, but Disney seemed to recover over the past several weeks as part of the broad market's rebound. So, I built my DIS short up again -- particularly increasing my position over the past two weeks ahead of last night's earnings report (which was a miss).

The principal threats that I see Disney facing include:
•   Margin challenges in its theme parks.
•   Continued cord-cutting (and secular headwinds at cable networks).
•   Peak sports viewership.

These seem likely to reduce the company's secular earnings-per-share growth from more than 20% annually over the past five years to less than 10% over the next five years. To me, analysts' consensus projections of 13% annual EPS growth are far too generous.

I expect fiscal 2017 to be particularly challenging for Disney, with year-over-year EPS growth only coming in at about 5% -- well below consensus estimates.

My downside price target for the stock is about $75 to $80, which would represent 13.5x forward EPS. Given the slowdown that I expect in Disney's growth, a 1.3x to 1.4x price-to-earnings-to-growth ratio (or "P/E/G") seems reasonable to me.

Here are some previous columns that outlined my bear case for the stock:
•   Kass Katch of the Week: Short Disney (Nov. 30, 2015)
•   Apple, Disney and 'The Big Short' (Dec. 22, 2015)
•   More on My Disney Short (Jan. 5, 2016)
•   Peak Sports Viewership (Jan. 19, 2016)
•   Short Disney (Redux) (Feb. 1, 2016)

Walt Disney Co. (DIS) is tumbling today, and I reiterated my longstanding bear case for the stock.
Disney shares were down some 4% at last check, as the company yesterday reportedearnings per share after the bell that failed for the first time in five years to meet analysts' consensus expectations.

DIS fell by as much as about $5.50 a share in after-hours trading, taking about $8 billion out of the company's enterprise value. (I used the decline to add to my short position.)
Here's my take on last night's earnings report:

•   Revenues rose about 4%, but net income only grew by 2%.

•   Cable-network sales were lower, while EBITD increased just 3% -- a big disappointment given the flow-through from Star Wars: the Force Awakens profits.

•   Consumer-product profits were also lower year over year, suggesting continued significant problems in the interactive area. That's a business that Disney has never gotten right and that's now hidden from view, as DIS has discontinued its video-console unit.

•   Media-network results grew modestly in the quarter. This segment represents nearly half of the company's sales and more than 60% of the last quarter's net income.

•   Theme-park revenue disappointed, which is bad because it represents 30% of sales and 15% of net income. As I noted in my previous missive, problems with this business represent one of my major secular concerns for the company.

•   Disney has a strong backlog of film releases, but this is well-known and the company's sales-and-profits headwinds lie elsewhere. After all, studio entertainment and the consumer-products/interactive-media segments only represent about a fifth of Disney's sales and roughly 25% of profits.

Jim "El Capitan" Cramer addressed this last point in his opening missive today, writing:

"Nothing's more stark than the way that CEO Bob Iger ended his conference call: 'I want to add one thing, I am actually kind of surprised that after 45 minutes of questioning we didn't get one question about our studio. But I just want to reiterate that the studio's results were up tremendously for the quarter and up over 60% for the first two quarters of the year.'

Bob's right. The studios are on fire. However, if you judge things from the stock market prism, the way to play it isn't Disney; it's EA and Hasbro.

To me, it's more than just an oddity; it's a statement that Wall Street totally undervalues the studios and overvalues everything else. However, the judgment's been made: Hasbro (HAS) and Electronic Arts (EA) are the investible Disney stories ... at least for now."

-- Jim Cramer, Get Exposed to Disney Without Owning the Stock (May 11, 2016)

The Bottom Line

Disney repurchased about 25 million of its shares during the latest quarter, which helped generate a better EPS gain than the meager 2% increase in net income would have otherwise created.

However, these buybacks took Disney's share count down about 20% from its peak levels even though the firm has used stock as currency in a number of past acquisitions (including Pixar).
And after deducting minority interest in ESPN's cash flow, Disney now trades at about 11x twelve-month-trailing EBITD.

All told, I believe that last night's results fit into and complement my thesis of lower-than-expected EPS growth at Disney over the next five years.

Position: Short DIS

[ChicosBailBonds]

http://www.marketwatch.com/story/disney-earnings-let-wall-street-down-but-analysts-wont-let-go-2016-05-11?siteid=yhoof2