Disney Has Fertile Acquisition Grounds Ahead

The Walt Disney Company (DIS), the entertainment major, announced Q3 results yesterday, reporting a 9% rise in net income for the quarter.

Revenue for the quarter grew 2% annually and 6% sequentially to $9.2 billion, beating market expectations of $9.1 billion. EPS grew by 7% for the year and over the quarter to $0.62, compared with the Street’s expectations of $0.61.

Media revenue grew by 8% to $4.1 billion. Parks and resorts revenues grew by 5% to $3.0 billion, products grew by 20% to $0.6 billion while studio revenue fell by 19% to $1.4 billion on account of the dismal performance of Disney’s release The Chronicles of Narnia: Prince Caspian.

During the quarter they reacquired Disney Stores, sold off movies.com and repurchased 32 million shares at $1.0 billion.

Unlike in the earlier quarter, Disney did not manage to ward off economic challenges. They noticed weakness in advertising sales in the ESPN and ABC networks that was primarily driven by softness in the US auto, financial services and consumer electronics segments. However, given that advertising contributes only 20% of their revenues, they are better off than some of their peers.

The company is expecting better performance in the movies segment through the recent release of Wall-E. They continued to invest in content development for video games and have planned to spend $200 million in the current year in this area, going up to $350 million in the years to come. This is in line with Disney’s strategy of driving growth through high-quality branded content.

They are also using a pricing strategy to increase visitors to their parks. Seventy-four percent of hotel rooms in Orlando are either value priced or moderately priced, and they have launched family deal packages to make the experience more accessible.

They continue to believe in the Internet as a media of content distribution and have sold more than 5 million movies through iTunes since putting movies on the platform.

Online efforts at strengthening their presence in the children and family entertainment verticals have moved forward with acquisitions such as Club Penguin. With an abundance of virtual worlds and gaming portals all over the web, more may follow, and given the market conditions, many of these would be available at a much cheaper price than the $700 Million they paid for Club Penguin.

The stock fell $0.87 following the results release to $30.80 in the after-hours session.