Disney stock problems? About This Page:

[Hayley]

I was having dinner with a few of my friends last night, and Disney stock prices came up (I have no idea how!). They said that the company is in shakey condition financially-wise, like how it was before Eisner signed on as CEO. Now, these guys are confirmed Disney-haters, and I don't put much stock in their opinions, but I was wondering if anyone else has heard about this and can ease my fears about Disney getting bought out and split into a thousand little pieces (or worse yet, being bought by Time-Warner!)

Were my friends trying to get a rise out of me? Did Tuesday's event contribute to Disney? Can I sleep at nights? Should I buy stock out of loyalty? HELP!!

[bfth]

Disney is in a shaky financial position. And yes 9/11 did have a BIG impact on the company. Think about cancelled trips (hotel revenue goes down, restaurant revenue goes down, park revenue goes down). Think about all the uninterrupted newscasts (no advertising revenue). Think about the un-released movies. Plus with the uncertainity retail is down too. Disney has it's hand in all of these things and hence is losing money.

Of course Disney wasn't so great financially before all this. Attendance was WAY down even before the tragic events.

Disney is ripe for a take over. Whether that happens or not remains to be seen.

However, I still feel that in the end Disney (and it's stock) will rise again. I wouldn't worry too much.

[HiddenMickey]

I think I had heard something about Disney trying to buy up its own stock....probably, in part, to keep a takeover from happening. -HiddenMickey

[MrsPotts]

I saw on CNN that two majority owners in Disney Stock from TX, VERY wealthy oilers, sold back hundreds of millions of dollars in Disney stock. I believe this was on the day the Stock Market opened back up.

In an effort to not lose more ground in the stock market, Disney bought up a large chunck, if not all of this sold back stock.

[Dave Marx]

I read a Reuters story today that also speculated on the possibility of a Disney takeover. This kind of talk happens whenever a stock's price falls (as have all media stocks following September 11, but Disney worse than others) and the economy is sagging. The gist of the Reuters story, though, was that despite all the indicators and reasons why such a thing could take place, it still seems very unlikely for other good reasons.

The Bass Brothers are those Texas investors. They bought their stock back when they helped Disney avoid a takeover in the '80's (when Michael Eisner was brought in). Unfortunately, they borrowed heavily against their Disney stock, so when the market dropped they were forced to sell their Disney stock to pay-down the loan.

All media stocks are depressed these days, and many of those stocks are seriously undervalued by the market. Most investors have a very short-term view of things, but media investors have to take a much longer-term view in order to reap the rewards. Traditionally, prices of media companies drop far below rational expectations when they're out of favor in the market (been there many times). Generally, you don't see acquisitions when media company prices are low, only when they're high, because that's the only time that outsiders perceive the value in media companies. They like to buy hits.

Take "Pearl Harbor" as an example. It bombed with the critics, and that drove down the price of Disney stock. However, if you look at the worldwide box office figures, the film has been profitable. Not a blockbuster, but it was profitable.

Sure, newspapers and TV lost a lot of advertising revenue for a week. That amounts to just 2% of their annual advertising revenues (all things being equal). Non-advertising revenues (such as subscriptions and newsstand sales) went up. But the real "hook" for media companies is that readership/viewership increase substantially for a long time following the events (and sometimes this leads to permanent shifts in audience interest). This audience increase is converted directly into long-term higher prices for advertising. Essentially, periods of low or no advertising during a major crisis are thought of as an investment by media companies, even if they call it a loss for tax purposes.

Of course, Disney's theme park division is also going through a slump. Any downward deviation from its record-high performance is a "slump." At the moment the slump is coming at what has traditionally been Disney's slowest time of year - probably the best time for this to happen. Long-term bookings are also down, but people are uncertain about the long-term future. If people start feeling more confident the situation can turn around very quickly. Let's see what Christmas and Spring Break looks like.

Unfortunately, in the world of investing, anything is possible. Personally, I think anyone who bought Disney would be foolish to split it into a lot of pieces. The company has done a fabulous job of making each unit contribute to the success of its other units. But foolish people do exist.

It's also foolish to buy stock simply out of loyalty. But if loyalty leads you to consider an investment that makes sense, that's another matter altogether. If you want to buy, look at the numbers, consider the risks, and if it looks good and you can afford the risk, go for it, especially if you're more familiar with the company than the typical investor. Over the years, I've found that to be a very rewarding strategy.

(Please note that I do not invest in Disney stock, as I feel that would interfere with my journalistic impartiality.)

[Teresa]

Thank you, Dave. We have been watching Disney stock, and a lot others. We are hanging in there, though, a we are long-term investors.
I wouldn't worry about the long-term attendance at the parks. I know a lot of people who thought they would cancel , and yet have decided to go. [img]images/icons/wink.gif[/img]

[Hayley]

Thanks Dave!!

That's exactly what I was trying to say to my friends, but I couldn't quite get them to understand my point. I had learned in Traditions that Disney had sucessfully defended a takeover in the mid-80's, and tried to tell my friend that, but he refused to understand. Anyway, thanks. I hope I didn't start a "Mary Poppins"-style bank run!

[MinnieMe2]

Oh, please... The thought of Bugs Bunny in front of Cinderella's Castle isn't terribly exciting....