Born in 1901, the late Walt Disney created one of the most well-known world franchises. Walt died in 1966 at only 65 years of age, succumbing to cancer. I loved Disney’s animated cartoons as a kid - Donald Duck and Mickey Mouse were then and still are cartoon icons. The Disney theme parks became a sought after destination for families.
Disney became a public company in the 1960’s and investors who bought into the company by 1973 had earned about 2,500% on their money, terrific by any measure. The company expanded from its roots in Florida to international sites in Europe and China, developed on the best libraries of content in existence, and was on a road that seemed certain to benefit from the advance of digital entertainment as the internet became ubiquitous. Disney stock kept investors happy and hit an all-time high north of $180 a shares in 2020 and won the support of many sell-side analysts and brokers as a blue chip investment for widows and orphans, paying a steady dividend. What could go wrong?
In the past three years, DIS has dropped from $180 a share to $80 a share, a loss in market value of somewhere around $200 billion. Why?
The answer demonstrated the importance of management. Just like post-Jack Welch GE couldn’t keep living off the Thomas Edison patents, Disney couldn’t keep living of the legacy of Walt Disney and management for some inexplicable reason became “woke”, more interested in ESG, equity, diversity, inclusion, gay rights, and climate change nonsense than earning a profit. While investors took a bath, they could take comfort in the knowledge that Disney leaders got their pronouns right.
The issue for investors is whether Disney is a “buy” today. The answer is that the jury is still out. Bringing back former CEO Bob Iger is seen as encouraging by some watchers, but until Disney gets out of the game of promoting “social justice” and reminds itself that it exists to earn profits for shareholders (a Milton Friedman concept the left wing of American politics seems to have forgotten) I would avoid the company. ESPN looked like a great buy when purchased by Disney and now seems up for sale as it languishes in a dispute that has seen 15 million viewers find other things to view. The company still commands a price at the market multiple or higher, trades well above book value (about 1.6 times) yet is losing support from major shareholders who have suffered lost value.
It is a sad story and despite the dramatic share price decline in only a couple of years, there is not much evidence to think a risk on Disney shares will pay off any time soon. It is a great example of how bad management can screw up a good thing.