Setting the pace and FY2018:

Disney (DIS) is fresh off reporting its first quarter for FY2018 and has set the stage for a strong year ahead. The studio segment is off to a great start with record breaking movie releases such as Thor: Ragnarok, Star Wars: The Last Jedi and Coco surpassing $854 million, $1.33 billion and $715 million in worldwide box office receipts, respectively. Black Panther entered the fray with a record breaking President’s Day weekend opening of $242 million in domestic box office sales. Disney has one of its biggest movie slates for FY2018 with Ant Man and The Wasp, The Avengers: Infinity War, Solo: A Star Wars Story, The Incredibles 2 and Mulan (live action film) around the corner.

Parks and Resorts are posting strong growth where revenues grew 13% year-over-year in Q1 and operating income now surpasses its Media Networks segment income, bringing in $1.35 billion vs. $1.19 billion, respectively. Disney is aggressively trying to shore up its stalling Media Networks segment with a confluence of growth catalysts via streaming with Hulu (30% stake and will likely be expanded to a majority 60% stake after the Fox acquisition), BAMTech, Sling, ESPN streaming service and a Disney branded service coming in 2019. Disney is evolving to address the deteriorating Media Networks business segment with major streaming initiatives. Disney offers a compelling long-term investment opportunity considering the growth, Fox acquisition, pipeline, Media Networks remediation plan, diversity of its portfolio, tax reform, share repurchase program and dividend growth.

Fox Assets:

Disney announced that it is acquiring 21st Century Fox’s assets to further drive growth for $52 billion. This acquisition brings in noteworthy studio assets such as more Marvel properties (X-Men, Fantastic 4 and Deadpool) and Avatar along with TV content, regional sports and a 60% majority stake in Hulu. Disney shelled out $52 billion to acquire many of Fox’s assets to drive future growth in regional sports, movies, TV programming and foreign market penetration. This is a transformative acquisition as Disney will take control of the movie studio and significant TV production assets and gain exposure to international markets through Fox’s networks via a 39% ownership of Sky (Figures 1). In addition to the movie studio, TV production and international assets such as Star and Sky, Disney will also add entertainment networks such as FX and National Geographic. Bob Iger highlighted the chance to expand Fox’s Avatar franchise particularly considering new theme park lands. In addition to expanding the Marvel Universe via X-Men, Fantastic Four and Deadpool, Disney will obtain Fox’s distribution rights to the first Star Wars film. Taking a majority stake in Hulu will further accelerate Disney’s streaming capabilities and compete directly with Netflix (NFLX). Taking majority control of Hulu is going to be beneficial and result in “flowing more content in Hulu’s direction,” and managing Hulu “becomes a little more clear, a little more effective.” Turning to sports, combining Fox’s sports content with Disney’s ESPN will be synergistic and a “perfect complement” to ESPN’s offerings, which are national in nature and will benefit from regional focus, Iger says.