Theme parks

Disneys (DIS) five separate operating segments can present a challenge for investors attempting to estimate a
valuation of the enterprise or forecast its operating performance. The division that most separates Disney from
media peers is certainly the companys cherished Parks & Resorts segment, which includes the Disney theme
parks, hotels, and cruise lines. Disney is a member of the PowerShares Dynamic Media Portfolio ETF (PBS),
which seeks to provide exposure to an index of media stocks.
Profit margins
Disneys theme parks generate attention primarily from their connection to the companys media productions.
However, the segments operating and financial profiles differ substantially from the companys core media
business. Different levels of profitability, margins, risk, and growth rates call for a different approach to analysis
and valuation.
The best way to evaluate the theme parks division is to compare performance and results with direct peers like
Six Flags (SIX) and Cedar Fair (FUN), the two largest domestic adventure and theme park operators. The chart
above compares the profit margins of the three peers over time using earnings before interest, taxes,
depreciation, and amortization, or EBITDA. This measure is useful because it strips out the items that result
from different taxations, capital structures, or asset depreciations in order to make results more comparable
across separate companies.
We should draw two interesting conclusions from the chart. First, Cedar Fair appears to be the best-in-class
operator with the highest profitability and has consistently delivered margins around 35%. Disney, on the other
hand, has greatly underperformed peers, generating EBITDA margins nearly a full 10 percentage points
beneath those of Cedar Fair. While Disney has certainly expanded margins in recent years, even the
improvement has lagged peers: Disneys EBITDA margin grew 12% from its lowest point in 2010, while Cedar
Fair and Six Flags grew 16.5% and 51%, respectively, from their lowest years.
Disneys lackluster performance in running its theme parks calls for a discounted valuation relative to peers. In
the next segment, we will address valuation metrics and compare across peers in order to determine what
Disneys theme parks division may be worth.
Comparable valuations
The best way to establish a value for Disneys theme park business is to understand how the market values other theme
park operators like Six Flags (SIX) and Cedar Fair (FUN). The chart above depicts the companies historical enterprise
value-to-EBITDA multiple (EV/EBITDA), which represents how much a potential acquirer would pay for the entire firm,
regardless of capital structure.
In Part 2 of this series, we saw how Disneys theme parks underperform peers, with lower profitability and slower margin
improvement. Given this result, its appropriate to apply a discounted valuation to the Disney division from that of its
peers. Over the past three years, Cedar Fair and Six Flags averaged 8.7x and 12x EV/EBITDA, respectively. With the
former being a far superior operator, a reasonable multiple for Disneys theme parks should be around 7.5x. Given the
segments EBITDA of $3.59 billion in the fiscal year ending September 30, 2013, the 7.5x multiple would value the theme
park business at nearly $27 billion. This represents roughly 20% of Disneys overall $137 billion enterprise value.
With an estimate of the Parks & Resort divisions value in hand, its now much simpler to evaluate the remaining
business, which is essentially a pure media company. In the following segments, well look at some of the value drivers
for Disneys media properties.
Affiliate fees
ESPN has been a central beneficiary of rising content values, as we discussed in the series Potential
consolidation for cable-TV providers. The network reportedly receives $5 per month for each subscriber that
receives the channelmore than any other non-premium network. Because its part of a basic cable bundle,
subscribers cant reduce their bill by opting out of receiving ESPN.
As content providers have renewed contracts with cable and satellite companies to distribute their
programming, theyve been able to garner heavy step-ups in pricing. Cable and satellite providers have had
little choice but to accept the increased fees or risk subscriber losses if they refuse to carry popular
programming. The result has been a rapid increase in the cost of content at a rate of as much as 20% to 24%
in two years.
The result, as depicted above, has been a rapid growth in ESPNs affiliate revenue, or the fees charged to
cable and satellite companies. ESPN accounts for 24% of Disneys overall revenue, highlighting the importance
of the segment. Its affiliate fees have grown 70% since the fiscal year ending in 2006. With the popularity of
sports programming at all-time highs, ESPN is able to generate revenue from a variety of sources, which well
examine in the next segment. To be sure, though, the networks popularity is likely to remain a key value driver
for Disney into the future.























COMPANY NAME TICKER SEGMENT NAME Rev. Y / Y Rev. SEQ.
WALT DISNEY COMPANY DIS Cable Networks 1.49 % 8.51 %
VIACOM INC. VIA Cable Networks 0.86 % 9.09 %
CBS CORPORATION CBS Cable Networks -0.39 % -3.91 %
DISCOVERY COMMUNICATIONS, INC. DISCA U.S. Networks -2.02 % 9.75 %
COMCAST CORPORATION CMCSA NBC Cable Networks 2.61 % 11.28 %
Twenty-First Century Fox, Inc. FOXA Cable Network Programming 13.34 % 6.19 %
APROX. MARKET SUBTOTAL 3.95 % 8.07 %
COMPANY NAME TICKER SEGMENT NAME Rev. Y / Y Rev. SEQ.
WALT DISNEY COMPANY DIS Consumer Products 16.39 % 1.92 %
Hasbro, Inc. HAS Total 8.21 % 22.3 %
MATTEL, INC. MAT Total -9.29 % 16.41 %
APROX. MARKET SUBTOTAL 2.89 % 12.87 %
COMPANY NAME TICKER SEGMENT NAME Rev. Y / Y Rev. SEQ.
WALT DISNEY COMPANY DIS Interactive Media 45.36 % -0.75 %
MICROSOFT CORPORATION MSFT Home & Entertainment - -
Twenty-First Century Fox, Inc. FOXA Other
103.31
%
73.24 %
MICROSOFT CORPORATION MSFT DC Other 20.28 % -3.59 %
MICROSOFT CORPORATION MSFT Computing and Gaming Hardware 23.48 % -26.96 %
APROX. MARKET SUBTOTAL 26.33 % -11.54 %
COMPANY NAME TICKER SEGMENT NAME Rev. Y / Y Rev. SEQ.
WALT DISNEY COMPANY DIS Interactive Media Advertising -3.13 % -11.43 %
E. W. SCRIPPS COMPANY SSP Online Newspaper -9.01 % 0.37 %
AOL Inc. AOL Total advertising 21.07 % 0.9 %
MONSTER WORLDWIDE, INC. MWW Internet Advertising Fees -13.04 % -0.24 %
SCRIPPS NETWORKS INTERACTIVE, INC. SNI Interactive Services -5.27 % 13.32 %
GANNETT CO., INC. GCI Digital 4.22 % 8.15 %
New York Times Company NYT About Group - -
eBay Inc. EBAY Advertising & other - -
Google Inc. GOOG Total advertising 19.05 % 3.56 %
EXPEDIA, INC. EXPE Advertising & Media 53.75 % 24.24 %
YAHOO INC. YHOO Marketing services -2.86 % -3.73 %
MICROSOFT CORPORATION MSFT Online Services Division - -
IAC INTERACTIVECORP IACI Search -7.42 % -0.58 %
FACEBOOK, INC. FB Advertising 67.35 % 18.15 %
ACTIVISION BLIZZARD, INC. ATVI Digital online channels 23 % 25.59 %
ELECTRONIC ARTS INC. EA Wireless or Internet & Advertising - -
Priceline Group Inc. PCLN Advertising 131.6 % 11.22 %
LinkedIn Corporation LNKD Marketing Solutions 24.4 % 4.61 %
MICROSOFT CORPORATION MSFT DC Other 20.28 % -3.59 %
LinkedIn Corporation LNKD Total 46.81 % 12.82 %
ELECTRONIC ARTS INC. EA Advertising -18.18 % 14.08 %
ELECTRONIC ARTS INC. EA Total Digital 11.2 % 9.16 %
APROX. MARKET SUBTOTAL 21.98 % 4.87 %
COMPANY NAME TICKER SEGMENT NAME Rev. Y / Y Rev. SEQ.
WALT DISNEY COMPANY DIS Media Networks 2.97 % 7.34 %
Time Warner TWX Networks - -
VIACOM INC. VIA Cable Networks 0.86 % 9.09 %
DIRECTV GROUP, INC. DTV Total 5.31 % 3.23 %
SCRIPPS NETWORKS INTERACTIVE, INC. SNI Food Network 6 % 8.69 %
SCRIPPS NETWORKS INTERACTIVE, INC. SNI HGTV 6.41 % 8.53 %
Graham Holdings GHC Television broadcasting -11.1 % 3.09 %
CBS CORPORATION CBS Entertainment -8.62 % -20.32 %
DISCOVERY COMMUNICATIONS, INC. DISCA U.S. Networks -2.02 % 9.75 %
CABLEVISION SYSTEMS CORP. CVC Rainbow - -
COMCAST CORPORATION CMCSA NBC Broadcast Television 4.85 % 19.71 %
Twenty-First Century Fox, Inc. FOXA Television -5.93 % -35.03 %
Time Warner TWX Home Box Office
188.12
%
17.38 %
Time Warner TWX Turner -25.58 % 7.93 %
APROX. MARKET SUBTOTAL 2.96 % 2.76 %
COMPANY NAME TICKER SEGMENT NAME Rev. Y / Y Rev. SEQ.
WALT DISNEY COMPANY DIS Media Networks Advertising 5.15 % 18.74 %
COMCAST CORPORATION CMCSA Advertising 7.35 % 15.41 %
VIACOM INC. VIA Advertising sales 2.38 % 11.12 %
DISCOVERY COMMUNICATIONS, INC. DISCA Advertising 12.68 % 22.5 %
Time Warner TWX Advertising -14.21 % -16.93 %
CBS CORPORATION CBS Advertising sales -21.72 % -24.19 %
SCRIPPS NETWORKS INTERACTIVE, INC. SNI Advertising 6.48 % 14.03 %
TIME WARNER CABLE INC. TWC Advertising - -
CABLEVISION SYSTEMS CORP. CVC Advertising 12.06 % 29.49 %
Twenty-First Century Fox, Inc. FOXA Advertising 1.13 % -18.31 %
Graham Holdings GHC Advertising -55.83 % 5.4 %
APROX. MARKET SUBTOTAL -4.14 % -4.01 %
COMPANY NAME TICKER SEGMENT NAME Rev. Y / Y Rev. SEQ.
WALT DISNEY COMPANY DIS Media Networks Affiliate Fees 1.25 % 6.51 %
CBS CORPORATION CBS Affiliate fees 6.74 % 3.35 %
SCRIPPS NETWORKS INTERACTIVE, INC. SNI Affiliate fees 3.07 % -1.4 %
VIACOM INC. VIA Affiliate fees -0.49 % 9.87 %
Twenty-First Century Fox, Inc. FOXA Affiliate Fees 16.88 % 4.77 %
APROX. MARKET SUBTOTAL 6.18 % 5.99 %
COMPANY NAME TICKER SEGMENT NAME Rev. Y / Y Rev. SEQ.
WALT DISNEY COMPANY DIS Parks & Resorts 8.21 % 11.73 %
COMCAST CORPORATION CMCSA Universal Theme Parks 12.64 % 33.12 %
Carnival Corp. CCL Cruise 4.4 % 0.75 %
APROX. MARKET SUBTOTAL 6.81 % 7.87 %
COMPANY NAME TICKER SEGMENT NAME Rev. Y / Y Rev. SEQ.
WALT DISNEY COMPANY DIS Studio Entertainment 13.65 % 0.39 %
Time Warner TWX Filmed Entertainment - -
VIACOM INC. VIA Entertainment -26.08 % 3.01 %
CBS CORPORATION CBS TV license fees -9.43 % -15.84 %
COMCAST CORPORATION CMCSA Universal Filmed Entertainment -15.27 % -3.29 %
Twenty-First Century Fox, Inc. FOXA Filmed Entertainment 37.74 % 22.99 %
Time Warner TWX Warner Bros 7.05 % -28.18 %
APROX. MARKET SUBTOTAL 5.75 % -6.97 %