This paper will discuss the financial analysis comparison of Walt Disney versus Viacom. Both multinational media conglomerates, and both a part of film industries and animation as well as public properties and theme parks. Discussion will include financial statements and financial performance from the last several years for both companies, as well as ratios and written trend analysis. Investment opportunities will be shared at the end of the paper as the following analysis will offer an overview of both companies. All financial information was retrieved from Yahoo!Finance.
Walt Disney History
Mickey Mouse graced us with his presence in 1928. The creator and voice of Mickey, Walter Disney, started his debut and gained worldwide recognition. Over the years Disney collaborated and/or acquired many companies such as, Lucas films, Pixar, ABC, The Muppets, Marvel, and 21st Century Fox.
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From Broadway and 450 Disney stores worldwide to Disneyland and Walt Disney World, locations in the United States, Japan, Hong Kong and Paris, this is a company with unstoppable force. They have expanded internationally by acquiring larger companies such as, Pixar and Marvel, building properties worldwide. Because of Disney’s strong brand recognition, it is the most well-known company. Theme parks and resorts all over the world give them a competitive advantage with unparalleled profit potential.
For Disney, innovation has been a focus by constantly looking for new ideas and how to strengthen existing conditions. Instead of competition, Disney just acquires them. Introducing Harry Potter theme parks in both Florida and California is just one small example of such innovation. Fox TV was another strong competitor but in March 2019, Disney purchased FOX for $71.3 billion, making Disney the largest media powerhouse on the planet (Segal, 2019). Disney purchased Pixar for 7.4 billion in 2006 and as of July 2019, its feature films have nearly earned $14 billion (Wikipedia, 2019). The growth strategy is driven by expansion. By acquiring the competition, Disney will simply monopolize.
Beginning as CBS Films in 1952 the conglomerate became Viacom in 1970 and now currently known as ViacomCBS since 2019 (Wikipedia, 2019). Introducing Nickelodeon in 1985, it beat Disney to cable as the first children’s channel on cable TV. Originally owned by Warner Cable, Nickelodeon now belongs to Viacom along with MTV and VH1.
The channel is broadcasted across the United States to approximately 88 million homes. It is home to such characters as SpongeBob SquarePants and Teenage Mutant ninja Turtles, becoming a mass media company (Wikipedia, 2019). There are several resorts and a Nickelodeon themed cruise. The parent company, Viacom, also owns Paramount Pictures, CBS Entertainment, BET, Comedy Central, CMT and the Smithsonian Channel. ViacomCBS delivers content to platforms worldwide.
Ratios and Written Trend Analysis
– Disney – could include dividend payout ratio or P/E price and earning ratio.
From fiscal 2015 to 2019, the total assets of the company was constant incline. Substantial growth happened in 2019 with total assets almost doubling with a 96.74% increase from $98,598 to $193,984 due to the acquisition of 21st Century Fox, Inc. There was a 0.89% decline in annual revenue from 2016 to 2017. The amount of capital also climbed the same as assets. Revenue for 2018 was $59.434 and 2017 was $55.137.
- WEEK ANALYSIS
The closing price for December 6, 2019 is 147.66. The 52-week high stock price is 153.41, which is 3.9% above the current share price. The 52-week low is 110.35 which is 32% below the current share price. The average 52 weeks is 128.48. Over the last 3 years there has been an increase in shareholder equity. In 2017, shareholder equity was $45 and in 2019 it increased to $93.889, a 77% increase from 2018. In November 2019, Disney reported a net worth of $244 Billion. (Yahoo!Finance, 2019).
- PROFIT MARGIN
Profit Margin is a profitability ratio that represents how well/poorly a company makes money. It is found by dividing net income by sales (Profit Margin = net income/sales). In 2016, Disney reported a profit margin of 16.29%, in 2017 at 19.61% and slightly dropping to 18.46% in 2018, results above the industry average of 10.7%.
Ratios and Written Trend Analysis – ViacomCBS
From 2016 to 2019, ViacomCBS maintained small increases year-to-year. From 2015 to 2016 there was an annual revenue increase of 3.9% and 2018 to 2019 a 6% increase. Total assets for 2018 were 21.8, a 4.8% increase from 2017. In 2019 the total assets increased to $24,476 a 16% growth.
- WEEK ANALYSIS
The closing stock price for December 6, 2019 is 43.61. The 52-week high stock price is 45, which is 3.2% above the current share price. The 52-week low is 42 at 3.7% below the current share price. The average 52 weeks is 44.06. In 2019, the shareholder equity increased 100.95% due to the acquisition of Viacom and CBS. Currently the net worth of ViacomCBS is $26 Billion. (Yahoo!Finance, 2019).
- PROFIT MARGIN
The profitability ratio for Viacom shows a recent steady incline in profits. Although the profit ratio in 2016 was 9.58% and 2017 reported 2.61%, well below the industry average at 10.7%, it increased to 13.50% in 2018. The company has the ability to maintain operations if cuts need to be made but the ratio needs to remain above the average.
Industry and Market Conditions – Comparison
Although Viacom shows promise in growth, it is no comparison to Walt Disney. In comparison to properties that is owned, Viacom is a second-rate competitor, Viacom has had a decrease in stocks over the 6 months and Disney has had an increase. As of December 4, Viacom stocks were 23.47 and Disney was 148.58. ViacomCBS has a worth of approximately $26 billion where Disney is upwards of $274 billion. Future moves by ViacomCBS will determine its growth. The company hopes to acquire large companies like, Starz, Lions Gate and Sony Pictures (Forbes, 2019).
- CURRENT RATIO
A current ratio shows the ability to pay back short-term obligations. Current ratio is computed by:
Current Assets/Current Liabilities = Current Ratio
A higher number for current ratio is preferred because the it shows that the company is able to pay its debt. Disney’s current ratio is 0.90 over the last 3 months, while ViacomCBS’s current ratio is 1.52. ViacomCBS shows to be more financially secure than that of Disney to repay short-term debt. Over the last 3 years, Disney has remained consistent with low debt to equity ratios while ViacomCBS has increased over the last two years and gradually decreasing in 2019. At the end of the 3rd quarter, Disney reported a debt to equity ratio of 0.41 and ViacomCBS is at 2.04.
- CASH FLOW ANALYSIS
A cash flow analysis shows how a company generates cash over the fiscal year. It represents the overall financial health. The chart below illustrates CFFO for both companies.
(Figures from Yahoo!Finance)
2018 2017 2016
ViacomCBS $1,426 $887 $1,685
Disney $14,295 $12,343 $13,136
Disney generates higher amounts of cash through operations. Both companies decreased in 2017 while ViacomCBS nearly doubled from 2017 to 2018. Both companies show growth and they are a good investment and are able to generate cash.
After the current merger with CBS, investors should see a steady growth in Viacom CBS. And, Disney has just introduced Disney+, a streaming service, which is expected to increase stocks substantially. Robert A. Iger, Chairman and CEO of the Walt Disney Company stated, “We’ve spent the last few years completely transforming The Walt Disney Company to focus the resources and immense creativity across the entire company on delivering an extraordinary direct-to-consumer experience, and we’re expected for the launch of Disney+ on November 12.” (Disney Reports, Nov. 2019).
Walt Disney leads the industry because of smart marketing tactics and innovativeness. Over the Thanksgiving weekend, Disney broke a record with the launch of Frozen 2 making over $123 million in 5 days (Yahoo).
Shares are estimated low for Viacom at $5 per share but with the recent acquisition of CBS, investors will realize the opportunity in potential value. In 2020, the expected revenue is $28 billion, the highest viewership for content. (Hawkinvest, 2019).
- DEBT-TO-EQUITY RATIO
The debt-to-equity ratio is calculated by: Total liability/shareholder equity (D/E). The amounts can be found on the company’s balance sheet (Yahoo!Finance, 2019). This ratio tells investors if the company can handle their debt if there is a downturn in business.
Disney’s debt-to-equity ratio
2016 2017 2018
Long-Term Debt $16.48B $19.12B $17.08B
Equity $47.32 $45.00 $52.83
Ratio .35% .43% .32%
ViacomCBS debt-to-equity ratio
2016 2017 2018
Long-Term Debt $8.90B $9.08B $9.47B
Equity $5.35 $2.99 $2.51
Ratio 1.67% 3.03% 3.77%
Disney has smaller ratios which shows there is a smaller financial burden than its competition. ViacomCBS shows that over the last three years there has been a gradual increase in the debt-to-equity that implies growing debt financing and can lead to bankruptcy if the market takes a downward turn.
Fund-Raising Potential – Disney
Disney has the ability to acquire cash for future investments. Currently the company shows a Return on Equity (ROE) of 12% over the last 12 months. The formula for ROE is:
Return on Equity = Net Profit / Shareholders’ Equity
This tells us that for every $1 it generated $0.12 in profit. Over the last 10 years, the highest ROE was 28% and the lowest was 11% (GuruFocus, 2019).
Both Disney and Viacom have been investing in their capital as well as acquisitions.
Investment Opportunities into Disney
Acquiring five film makers has allowed Disney to benefit from all of the characters and monetize through many outlets, such as, theme parks, figurines and movies (D23). In 2018, the Walt Disney Company held assets worth a total over $98 billion dollars (D23). Because Disney can also generate cash, that money can be used for future additional acquisitions.
Long-term investments are possible due to the consistently increasing ROI. For 2019, Disney will be opening the new Toy Story Land at Shanghai Disneyland as well as Star Wars Land at the Walt Disney and Disneyland locations. The Parks and Resorts will have long-term growth due to the additions and renovations. This segment’s growth of operating income increased from 10% to 18% in 2018. (Forbes, 2019). Disney is placed in the Top 30 of the Dow Jones Industrial Average and is a popular company for investors.
By far, Disney is the has topped the other industry competitors. They have built a loyal customer base that will forever be dedicated to Disney. Every genre has experienced and retained Disney memories. From movies, to characters, and theme parks, everyone’s inner-child has been affected.
Before making any financial choices about a company make sure to look into the annyal reports. Locating the companies 10-K will give an indepth look at how the company is managed and what it’s future might hold.
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