sign in sign up
<<
Home , Media conglomerate, Tokyo Disney Resort

Krause Fund Research

Fall 2019

Walt Disney Co. November 15, 2019 (NYSE: DIS) Stock Rating: BUY Communications-Media Analysts Target Price Range: $162-$178 DCF & EP Model: $170 Jake Grovert Colin Heimbach Relative Value Model: $120 [email protected] [email protected] Stock Performance Highlights Investment Thesis Current Price: $144.67 We recommend a buy rating for Co. because innovative and 52wk Range: $100.35- $150.63 forward thinking has aided Disney to mitigate the risk of consumers “cutting Beta Value: .879 the cord,” which is the biggest risk facing their current business model. On top of this they have positioned themselves favorably to become a key player Share Highlights in the popular streaming service industry. Drivers of Thesis: Market Cap (B) 246.81  Recently launched streaming services in the Consumer Products & Shares Outstanding (B) 1.80 Interactive Media segment resulting in estimates for revenue within Forward P/E 23.5x the segment to increase 55% during fiscal year 2020. EPS (2020E) $5.98  Competitive advantage against rivals in the streaming industry due to not having to spend large amounts on future original content. Company Performance:  Recent acquisition of gave Disney a historic market share in the Studio Entertainment industry to help continue growth ROA 6% going forward. This also boosts their streaming service portfolio as ROE 12% they were able to acquire full operational control of . Gross Profit Margin 1.57 Risks to Thesis: Payout Ratio 26%  Consumer trends of cutting the cord. This results in estimates for decaying revenue in the Media Networks segment, which is currently Company Description Disney’s highest producing segment of revenue.  Estimates for economy to possibly go into a recession due to a Founded in 1923, Walt Disney Co. (DIS) slowdown in Real GDP and decreased consumer confidence. This is a worldwide entertainment results in less spending on discretionary items, which make up the which operates through its majority of Disney’s products and services. four main segments Media Networks, 12 Month Performance Parks & Resorts, Studio Entertainment, and Consumer Products & Interactive Media.

1

Executive Summary Consumer spending makes up nearly 70% of U.S. Real GDP.2 The communications sector is directly impacted by this component as it is largely made up of discretionary We believe Walt Disney, Co. (NYSE: DIS) presents a goods. Therefore, we predict the short-term increase in BUY rating for the University of Iowa Krause Fund Real GDP will show a favorable increase to Disney’s Portfolio. In a world where consumers are “cutting the profits as their parks, streaming service, and entertainment cord” Disney has been innovative and forward thinking. segments all will be impacted by increased consumer Disney recently made a large splash in the up and coming spending on discretionary goods. streaming service industry with the highly anticipated release of Disney+. Upon release they saw over 10 million The U.S. has seen a 10-year bull run, which we see coming subscribers sign up in just 24 hours. This immediately to an end within the next 3 years. Because of this, in the made them a top player in the industry and further long run, we see U.S. Real GDP falling to a rate of 1.75% maintained their stake as one of the largest and most growth. With a lower increase in Real GDP growth, powerful companies in the Communications Services consumers will have less disposable income to spend on sector. On top of this, we anticipate continued growth of discretionary goods. Disney will see an impact because of Disney’s Parks & Resorts and Studio Entertainment this and may have to begin to decrease prices to keep segments, which is discussed in detail throughout the steady demand. report. In addition, our DCF and EP model produces an intrinsic value for Disney as of November 15, 2019 of U.S. Consumer Confidence Index $170 indicating the stock is currently undervalued. The Consumer Confidence Index (CCI) surveys consumer attitudes and buying intentions to give insight into current Economic Analysis and future economic conditions. The most recent survey at the end of October showed a slight decline from 126.3 to U.S Real Gross Domestic Product (GDP) 125.9. This was the third consecutive month that the index declined as in August the CCI dropped from 135.8 to Real Gross Domestic Product (GDP) is the market value of 134.2 and in September it dropped considerably from goods and services produced by a country in a specific 134.2 to 126.3.3 This decline shows that consumers are period. It evaluates the health of the economy through 4 less optimistic about business conditions going forward. main components, consumer spending, government spending, industry spending, and net exports. The federal reserve uses Real GDP to adjust monetary policy in order to maintain the health of the economy. Over the last 3 Federal Open Markets Committee meetings, they have decided to cut the Federal Funds Rate by 25 basis points (bps) each meeting. This moved rates from a 2.25%- 2.5% range to 2.0%-2.25% range in July 2019. The September meeting saw rates cut again to a range of 1.75%-2.0% and the October meeting followed with a cut to a range of 9 1.50%-1.75%. This cut is significant as it allows banks to (Figure 3: CEIC Data)3 lend money at a lower interest rate allowing firms and consumers to obtain more capital to invest in projects and Much of the economic strength that we have seen in recent spending to grow the economy. In the next 6 months we years has relied heavily on consumer spending and the on- estimate U.S. Real GDP growth will increase to 2.25% going trade war with China. Barring any changes in the with current monetary policy mitigating some of the status of the trade war or other political factors, we external threats to the U.S. economy (ongoing trade war estimate that over the upcoming 6 months there will be a with China and Global weakness in manufacturing). continuation of the decrease in CCI at a slow rate. Six months from now we anticipate the CCI to be approximately 120. Three years from now we project a continued decline of the index towards 105.5 as we see key global indicators from other countries point towards this slowdown. This lower CCI over time will affect the Communications sector as many of the firms produce goods that can easily be substituted for cheaper options in a recessionary period. This number is directly related to real GDP and as the economy begins to slow down, (Figure 1: BEA.gov Data)1 2 consumers are less likely to be as confident in the purchasing power of currency is falling.5 Inflation is economy and less willing to spend their money on commonly measured using the Consumer Price Index unnecessary goods and services. This directly affects (CPI). Over the past 3 years, from 2016 to 2019, we Disney as consumers are likely to spend less on vacations, have seen a decrease in this measure of inflation entertainment, and streaming services. (2.1% down to 1.7%). The decline in year over year U.S. Unemployment Rate inflation is good for Disney as it gives consumers higher confidence in the economy and encourages The US unemployment rate is a key indicator of the labor investment. Low inflation also makes it easier for market because families with unemployed workers have Disney to predict future expenses such as wages and lower income and the economy begins to slow as people product costs. As we predict that the Federal Reserve have less money to spend. In October of 2009, the will slowly begin to increase the Federal Funds rate, unemployment rate reached a record high at 10%. Since we will see inflation begin to rise. We estimate that then the rate has been declining and is near record lows. this will push inflation back up to where it normally This past September the US unemployment rate was stands at 2%. measured at 3.5%, which was the lowest rate in the last 50 years.8

(Figure 6: Bloomberg CPI Data)6

Overall Capital Markets Outlook (Figure 4: Bureau of Labor Stats Data)4

The most recent unemployment data from October 2019 In the short term we anticipate positive market conditions has the unemployment rate sitting slightly above the 50- for the communications sector. This is based off of our 6 year low at 3.6%.4 Over the next 6 months we are month estimates of 2.25% real GDP growth, continuation projecting US unemployment to remain low but of near record low unemployment numbers, and low inflation. Each of these factors have a positive influence on continue increasing minimally to around 3.9%. Going the sector as they result in more disposable income, which forward 3 years we believe the US unemployment results in higher consumer spending. The majority of the rate will keep increasing to approximately 4.5%. The products offered by Disney are considered to be low unemployment rates will continue to be a positive discretionary goods. Therefore, in the short term we see a factor for Disney and the communication sector as a positive outlook for Disney. Our longer term, 3-year whole because a higher proportion of employed estimates of a decline in Real GDP to a growth rate around people in the labor force with a steady income will 1.75% are due to the end of a bull run, the Federal Reserve make more purchases of discretionary items such as a raising interest rates in order to increase inflation, bundled streaming service ($12.99) rather than a consumer’s thoughts on the economy, and heading towards single platform one ($6.99), or taking an expensive a potential recession. These factors will decrease the vacation to one of Disney’s many theme parks or amount of money consumers are willing to spend as they instead turn their focus to saving their income. As a result, hotels. we believe there will be a decrease in discretionary spending, which in turn will create an unfavorable outlook Inflation for the communications sector as a whole. This will present challenges for Disney as the majority of their Inflation is the rate at which the general level of revenue streams come from consumers who feel that they prices for goods and services is rising while the currently have extra income in their pockets. 3

Company Analysis Business Segments and Products

With an annual fiscal year end of September 30th, Disney operates through the following four main segments: Media Networks, Parks & Resorts, Studio Entertainment, and Consumer Products & Interactive Media. A breakdown of revenue by segment for fiscal year 2019 can be seen in the below chart. (Figure 7: 2018 10k)23

This segment of Disney also operates a broadcasting business through ABC network, which has affiliation deals with 244 local domestic television stations and reaches nearly 100% of homes in the United States. Additionally, they own 8 local ABC television stations of their own. These include stations in , Los Angeles, Chicago, and Philadelphia. These cities combine to make up the top four nationally ranked TV markets.23

Revenue from the Media Networks segment can be attributed primarily to three main areas. The first is revenue from fees charged to TV providers for the right to

(Figure 6: 2019 10q)32 deliver Disney’s programs to their customers. The second revenue stream is attributed to ad-sales from commercials that air during their shows. The third is from TV Media Networks Streaming Video on Demand distribution licensing The Media Networks segment currently makes up the (TV/SVOD). As consumers cut the cord, this is the only largest portion of Disney’s total revenue at 39.18%. This area of the Media Networks segment that is seeing growth segment consists of cable networks, television production as services such as Sling TV and YouTube TV are paying and distribution operations, domestic television stations, Disney for the right to offer Disney owned channels in and networks. their TV/SVOD packages.

Disney owns three main cable networks ESPN, Disney, Interactive Media & Consumer Product and Freeform. The Disney network is the largest of the The Consumer Products sub-area of this segment licenses three and operates over 100 Disney branded television Disney’s trade names, characters and literary properties to channels in 164 countries that are aimed primarily towards several manufacturers, publishers and retailers worldwide, youth viewers. ESPN is the second largest and operates 8 as well as, distributes branded merchandise directly different 24-hour television sports channels in 61 through retail, online and wholesale businesses. This countries. Disney owns 80% of ESPN with the other 20% segment also develops and publishes games for mobile being owned by Hearst Corporation. Freeform is a solely platforms, books, and magazines. Revenues in this area are domestic TV channel of its own, which acquires heavily seasonal and as a result Disney annually sees large programming from third parties as well as airs content revenue spikes in the fourth and first quarters due to the from within Disney’s own theatrical library. holiday season.

The majority of revenue from Disney’s cable networks can The Interactive Media sub-area focuses on digital be attributed to the following 4 TV channels: distribution to -connected devices with the goal of giving consumers the content they want with more choices and ways of personalization. This sub-area is home to Disney’s three streaming services, Hulu, ESPN+, and Disney+. In the most recent earnings call on November 11th, 2019, CEO Robert Iger, said Disney+ launched with more than 500 movies and 7,000 episodes of TV shows. 4

Mr. Iger expects Disney+ to release 60 original series, In the Home Entertainment area, Disney sells and movies, and specials per year over the next 5 years.18 distributes physical DVDs and Blu-rays of theatrical productions to consumers within 3-6 months after their With the recent 21st Century Fox acquisition Disney release in theaters. Revenue in this area has decreased by acquired an additional 30% of Hulu and now owns 90% 25% over the last 4 years due to the trend of consumers no and has full operational control of the streaming service. longer purchasing physical copies of DVDs and Blu-rays. Disney also recently announced that all FX shows will stream exclusively on Hulu and Hulu customers will have Streaming Video on Demand (SVOD) Distribution is access to these shows the day after they air on the FX when Disney licenses their theatrical to video on cable network. demand providers for electronic delivery to customers for a specific rental period. This area has seen a growth rate Disney also launched ESPN+ in 2018. ESPN+ allows over the last 4 years of 5.8%. However, as we move users to watch live sporting events, on-demand shows, and forward this growth is expected to diminish and likely turn exclusive stories. It is separate from Disney’s ESPN cable negative as Disney plans to have all their titles available on networks as consumers still need a TV subscription to their Disney+ streaming service. view these channels.24 Disney has strategically priced their streaming products individually as well as in a bundle with Parks & Resorts Segment all three (Disney+, Hulu, ESPN+) to drive its subscriber The Parks & Resorts segment is the second most profitable growth in the early stages by offering lower prices than segment for Disney making up 30.36% of Disney’s total key competitors. This also allows Disney to be able to sales in 2019. This segment includes the 12 theme parks increase prices in the future to more closely align with and 52 resorts that Disney owns across the world, as well competitors, without hindering its subscriber count and as, their cruise line business. Major producers of revenue growth. The chart below provides a look into how for this segment come from theme park admission, in-park Disney’s pricing compares to their peers. food & beverage sales, retail sales of branded merchandise, vacations at Disney owned hotels/resorts, and merchandise sales/royalties.

In recent years, Disney has seen higher growth at their international parks. From 2016 to 2018 they saw a 13.66% growth in total visitors from 80.6 to 91 million annual visitors. The domestics parks had a growth of only 5.7% during those three years as total domestic visitors increased from 94.5 to 99.9 annually.

Over the last three years Disney has seen a 7.3% increase in average revenue per domestic guest and 32.5% increase per international guest. In 2018 the average revenue per domestic guest was $161.68 and the average revenue per (Figure 8: Bloomberg Terminal)6 international guest was $44.11. The low average revenue for international guests is skewed due to Disney only Studio Entertainment having partial ownership in most of the international parks. The Studio Entertainment segment is broken down into the Disney owns 47% portion of Hong Kong , and following three sub-areas: Theatrical Distribution, Home 57% of Shanghai Disney. The Paris Disneyland they just Entertainment, and TV/SVOD Distribution. recently acquired full ownership of in 2017 and the Disneyland they only receive royalties from. The Theatrical Distribution area produces and buys motion pictures, video content, musical recordings and live stage plays. In the theatrical market Disney has acquired well- known and established entertainment companies over the years including (2006), Marvel (2009), (2012), and most recently Twentieth Century Fox (2019). The theatrical distribution revenues fluctuate due to timing and performance of releases as well as depending on public tastes and preferences.23

5

Studio Entertainment segment.11 As the Media Networks M&A Activity segment continues to decay due to more and more people Over Disney’s lifespan they have experienced a multitude cutting the cord, this acquisition also allows for Disney to of acquisitions. Some key acquisitions they have made strategically build offerings for their streaming services. include the following:  ESPN, ABC, and Capital Cities in 1995 for $19 Parks and Resorts Competition billion, For Disney’s Parks and Resorts segment the major  Freeform in 2001 for $2.1 Billion competition comes from other domestic theme parks  Pixar in 2006 for $7.4 Billion owned by Six Flags Entertainment (SIX), Cedar Fair  Marvel in 2009 for $4 Billion (FUN), and (CMCSA) who owns Universal  Lucasfilms in 2012 for $4.06 Billion Studios. Disney is a clear cut leader in this area, but  BamTech in 2017 for $2.58 Billion Universal Studios has made a large push with their recent  21st Century Fox in 2019 for $74.1 Billion.21 opening of Harry Potter World.11 However, as you can see in the graph below, which shows park admissions for These acquisitions have assisted Disney into becoming the 2018, Disney clearly is still far ahead of its competition as massive media conglomerate that it is today. The recent 6 of the top 8 theme parks are owned by Disney. 21st Century Fox (21CF) acquisition will continue to support Disney’s growth going forward, especially in their Studio Entertainment and Consumer Products & Interactive Media segments.

Switch in Corporate Strategy We believe that Disney is in the midst of a transition from primarily being focused on Media Networks, which currently is their largest segment, towards focusing more on Interactive Media. This can be seen through the high M&A spending to acquire BamTech and 21CF. We believe this can be attributed to the trend of consumers (Figure 9: Statista: Theme Park Attendance)13 “cutting the cord” in favor of streaming services. It appears that the planning process for this has been in the works for Studio Entertainment Competition some time. The 2017 acquisition of BamTech, allowed for Competitors to Disney’s Studio Entertainment segment Disney to build the platform used to create ESPN+ and would include Time Warner, NBC-Universal, Columbia Disney+. Pictures, and . Disney is able to differentiate themselves in this segment with the large portfolio of film companies they have acquired. These Competition acquisitions include the studios of Pixar, Marvel, and the recent addition of Twentieth Century Since Disney has so many different streams of revenue, we Fox. In 2018 Disney had the largest share of the film have found that the best way to look at their competition is industry with a market share of 26%. Twentieth Century by taking a look at who their competitors are in each Fox had the 5th highest market share with 9.01%. The 2019 segment. acquisitions combined the two to give over a 35% market share, which is a historic Media Networks Competition: amount for the film industry.17 For Media Networks, Disney’s competition includes the four other major television firms of CBS Corporation Interactive Media Competition: (CBS), NBC (CMCSA), (VIAB) and Discovery The main competition for the Consumer Products & Inc. (DISCA). Competition has been tight for this segment Interactive Media segment comes from other companies due to high M&A activity that has taken place in recent with streaming services. The top competitor in this area is years as companies have raced to build the strongest Netflix as they are solely a streaming service and were the portfolio of networks. Reasoning for the high M&A first mover in this business. Other competition comes from activity in this area is due to a need for scale, acquisition Amazon Prime Video, CBS All Access, HBO Now, and of new content and diversification.12 One way in which Apple TV+ which just launched November 1st. This area Disney has been able to differentiate from its peers is that is extremely competitive right now as many households in early 2019 they were able to outbid Comcast and close turn to monthly-paid streaming options after cutting the on the major acquisition of 21CF, which was previously a cord. Due to cutting the cord, many large companies in the top competitor of theirs in this segment as well as their sector are rushing into the creation of their own streaming 6 services. For example, NBC-Universal is set to release a from what has already been created in other segments of streaming service of their own called Peacock in April of the company, they will be able to partially avoid the 2020 and HBO is set to release a second streaming service, extremely high cost of new content creation that is HBO Max, in May of 2020 .14 Disney has differentiated currently eating away at the margins of their competitors. themselves with their streaming services as they are able to create the bundle package of Disney+, Hulu, and ESPN+ SWOT Analysis for $12.99 per month. Strengths An effective way to compare streaming services is by their A leading brand valuation consulting firm out of subscriber count. Netflix currently has the largest London named Disney the most powerful brand in the subscriber count at ~61 million domestic users and ~80 world27. Walt Disney Co. is a brand that is family focused million international users. and is one of the most easily recognizable in the world. A brand is one of the most powerful assets to a company. In the case of Disney, consumers know, based off of their brand, they are getting a product or experience that will be of the best quality.

Disney has a growing portfolio of popular products and services fueling their business segments. Their continued investments and acquisitions throughout the years allows them to compete and continually grow each of their business segments.

Weakness: Disney has limited diversification based on their aim for synergy within their business segments. Since their segments are mostly all connected together, if one theme (Figure 10: Statista User Count) does not fit public preference then multiple revenue Far behind Netflix stands Hulu, owned by Disney, at 28 segments are at risk. For example, Wars has theatrical million users. However, on November 12th Disney+ was films, theme parks, and consumer products. Therefore, if able make a huge splash in this market by signing up over the next Star Wars film flops, then they will not only lose 10 million domestic users within just 24 hours of their out on their studio entertainment segment, but also their launch. While this is an enormous amount of initial sign parks, resorts and consumer product segments. ups, we will not know more about how this number grows until the end of Q1 2020 as Disney has said they will only Opportunities: release this information with their quarterly earnings As internet -connectedness grows worldwide, opportunity reports going forward. Disney+ plans to roll out their for Disney is to grow in developing markets. They are international streaming service in the first quarter of 2020, beginning to do this by releasing Disney+ internationally which is projected to also have great demand due to the in Q1 2020, but it will be important for them to continue to worldwide presence of their brand. invest heavily into his developing markets as it can yield a higher subscriber base resulting in higher revenue in the It was recently announced in Disney’s quarter 4 earnings future. call that Verizon Wireless will offer a free year subscription of Disney+ to all their customers who have an Threats: unlimited plan. This will help Disney to grow their Disney’s biggest threat is competition from the other large subscriber base as Verizon has around 20 million media companies who are also currently trying to get into customers with plans eligible for a free year of Disney+ on the streaming market. Also, they face competition from Verizon. Netflix has previously had a comparable deal firms creating movies intended to compete with Marvel, with T-Mobile where they saw about a 50% participation such as Time Warner’s DC Universe Superhero movies. rate from eligible T-Mobile customers.18 While they are new to the streaming service business, we Disney also faces the threat of digital content privacy believe that Disney is in a position for success. Evidence compressing margins by affecting potential revenue. This of this can be seen through the extremely high initial will become more impactful to Disney when they release demand of 10 million people signing up in the first 24 their streaming service internationally because other hours. Also, since the majority of their content will come countries may have weaker legal protection25. 7

that with their own streaming service up and running, they will pull all of their content from Netflix. This will take Industry Analysis place at the conclusion of their current licensing agreements. Other companies such as Comcast, who is developing a streaming service of their own, may still In 2018, the Global Industry Classification Standard license their content to Netflix, but will likely do so at a (GICS) reclassified it’s sectors by changing the higher cost. As a result, Netflix has found that they need to Telecommunications sector into the Communications significantly increase their spending on original content. In Services sector. When this new sector was created it added 2019 Netflix is expected to spend over $15 billion on their large firms such as Walt Disney Co., Facebook, Alphabet, own original content. This expense coupled with the fact and Netflix from the Consumer Discretionary and IT that other companies will be charging a higher cost for sectors and combined them with the telecommunication licensing their material will largely reduce Netflix’s firms. The Communication Services sector is comprised of margins. Other companies such as Apple (Apple TV+), two industries, Telecommunication Services and Media & Amazon (Prime Video), and AT&T (HBO) who are not Entertainment. Disney is classified as being under the already producing content for purposes outside of their Media & Entertainment industry. Within Media & streaming services will see similar effects. The chart below Entertainment, there are sub-industries which include shows a comparison of what these types of competitors are Advertising. Broadcasting, Cable & Satellite, , spending on original content in 2019 relative to what Movies & Entertainment, Interactive Home Entertainment, Disney announced they’ll spend on Disney+ in 2020. and Interactive Media & Services. Within these sub- industries Disney is classified under the Movies & Entertainment segment.

The change in the classification creates a way for media and entertainment companies, such as Disney, to be compared more distinctly as they are no longer in such a broad sector. The chart below shows how Disney (in orange) compares to the communication sector (in blue) in terms of % change in share price over the last 3 years. (Figure 12: Motley Fool)29

This plays favorably for Disney as the majority of their content comes from existing titles or titles that were already planned to be created. Because of this they will have the benefit of not having to spend nearly as much money on original content for their platform.

(Figure 11: Net Advantage)12 Increase in Home Video Spending The chart below shows us that from 2016 to 2019 research Disney had traded similarly to the sector until recently as it on total home video spending has seen consumers opting has began to see far higher growth. As consumers begin to for streaming services as opposed to the traditional cable cut the cord Disney has been able to innovatively shift its TV. This trend will yield a positive outlook for Disney as entertainment business to stay ahead of the trend by they developed and released their streaming service with developing a direct to consumer streaming service their own original and past content. platform. This platform was made possible through their 2017 acquisition of BamTech, who had previously created streaming platforms for the MLB, NHL and HBO. Disney’s innovative and forward thinking allows them to consistently compete with other large media firms in the communication sector.

Recent Development and Trends

Compressing Margins Netflix, who has always been the leader of the streaming industry is facing considerable pressure due to other large companies penetrating the market. Disney has announced (Figure 13: Bloomberg Terminal)6 8

area of opportunity for Disney to grow their subscriber The increase in spending by consumers on streaming base. services is partially offset by a decrease in DVD and Blu- ray sales, which will impact Disney’s Home Entertainment revenue stream. We see this trend continuing in a similar pattern as the estimates on the chart. This is due to consumers waiting for entertainment firms to move their content onto their streaming platforms rather than purchasing hard copies of Blu-rays or DVDs. As more and more content gets pushed onto streaming services we also will see a continuation of the trend of less people purchasing movies via pay-per view or video-on demand services. This will hinder Disney’s TV/SVOD distribution 6 revenue in the future. However, we believe that this will (Figure 15: Bloomberg Terminal) also be offset by an even larger increase in revenue coming According to Strategy Analytics over 450 million from the streaming services. 16 households are expected to pay for streaming services by 2022 up from 250 million in 2018. This offers significant Decrease in Traditional TV Subscribers opportunity for growth for companies in the industry and There has been an increase in consumers cutting the cord competition for new users will be highly competitive. For evident by major cable and satellite companies like Disney, this gives them a positive outlook as they have a Comcast and Dish suffering consecutive quarter over brand that is well established and popular worldwide. As a quarter losses in pay-tv subscribers. On the other side a la result, they will likely be trusted by new users in the carte TV options like Sling TV and YouTube TV are industry. Also, with the merger of 21CF they have seeing gains in subscribers. The tendency to cut the cord acquired 75 million streaming subscribers in India via the will initially happen slowly, but over time consumers will platform giving them a head start as they begin to begin to cut the cord at a rapid pace as the streaming fully launch Disney+ internationally in the Q services become more developed and widely used.

Studio Entertainment Industry

Adventure and action films have become the most popular genres in North America box offices and in 2019 were the top two movie genres in terms of box office revenue.20 Evidence of this can be seen in the chart below which gives a breakdown of box office revenue by genre.

(Figure 14: Bloomberg Terminal)6

We see this trend continuing and it will yield a positive outlook for Disney. With consumers cutting the cord, they will see an increase in the amount of subscribers looking for modern ways to watch TV. Disney has positioned themselves well in this competitive market as they are able to offer live TV via a streaming service platform with Hulu+Live TV.

International broadband Expansion As shown in the graph below, there has been an increasing number of global broadband households. These large increases in the number of broadband homes provide an (Figure 16 : Statista Box Office Revenues)20

9

presents a moderate differentiation between firms in the As a result, Disney is well positioned in the present and the industry meaning they present similar content and future as they currently own Marvel, the most well-known experiences to consumers. cast of action heroes. The recent purchase of 21CF added even more well-known action heroes, most notably X-men Bargaining Power of Suppliers: Low and Fantastic Four. This will allow Disney to create not Disney already has an extensive content library for their only independent films, but also combined films. Their streaming services and thanks to acquisitions of Marvel, latest installment of Avengers Endgame set the all-time Lucasfilm, and most recently 221CF they have further box office sales record.28 Because of this, Disney has an added to this list. Therefore, they have a large enough encouraging outlook in the Studio Entertainment industry. library where they do not have to spend nearly as much money on content creation and licensing as other firms, Theme Park Industry like Netflix. The theme park industry has seen growth in recent years as the number of retired baby boomers looking for leisure Bargaining Power of Buyers: High activities in their free time has increased19. Analysts within Each of Disney’s revenue segments brings upon the industry are projecting an 8.2% CAGR for the industry competitions, increasing the consumers bargaining power. as a whole. While the US is the largest current market for In terms of the Interactive Media segment, consumers now theme parks the largest growth market can be found in the have many alternative streaming services they can choose Asia-Pacific region. The CAGR for this region is from. At their initial launch Disney took on the strategy of estimated to be 12.2%.19 This can be seen on the following setting the starting price for Disney+ and their bundle low graph as 6 out of the top 8 year over year increases in park relative to other competition. These low prices will likely attendance come from the Asia-Pacific region. result in more people choosing Disney and also leave room for price increasing in the future. For their Parks & Resorts, there are a number of other theme parks to choose from. Therefore, if prices get to high then guests will resort to the cheaper park options. This occurrence recently took place for Disney. In 2019 Disney raised admission prices for their parks and in the 2019 Q3 earnings call management noted that they had fewer guests in the quarter than expected.

Threat of Substitutes: Low The recent trend of large media companies merging like AT&T and Time Warner and now recently Disney and

(Figure 17 : Statista Attendance at Theme Parks)31 21CF, has created for a low threat for substitutes. Potential substitutes are normally too small and end up getting The incorporation of technology such as virtual reality, acquired by large media companies. Therefore, the augmented reality and mobile applications to be used competition Disney faces should stay relatively similar in while in the park is a hot topic in the theme park in the the future. Consumers will have their choice between a industry. Disney is at the forefront of this technology, and few media companies, and we believe Disney has in July 2019 their R&D team received a patent for a pair of positioned themselves well in the future. augmented reality glasses that they created to be worn while in their parks. Threat of New Entrants: Low New entrants will face incredibly strong hardships as they Porter’s Five Forces begin to penetrate the industry. They will not be big enough to pull consumers away from large well- Competitive Rivalry: High established media companies. If they find success, these Although Disney is a massive media conglomerate, they new entrants will likely be acquired by one of the large still experience strong competition. This comes from well- and well-established companies. As a result, Disney established firms in each of their business segments. These should not have to worry about the threat of new entrants. established firms continue to show strong aggressive strategies in their segments. As a result, this ensures that Disney stays innovative and forward thinking, evident by their penetration in the streaming industry. Also, this 10

from 21CF. For future years we estimated growth will become negative for this area due to cutting the cord. As Valuation Analysis we discussed in the industry trends, cutting the cord will initially start slow and then decrease at a rapid pace. When Decomposition of Revenue forecasting this area, we applied similar decline rates. The negative growth rates we used for each year of our forecast Media Networks can be seen in the graph below. Revenue in the Media Network segment is broken down into three areas: Affiliate Fees, Advertising and TV/SVOD Distribution Licensing. When taking a closer look at the historical performance of the Affiliate Fees and Advertising areas we noticed a near perfect inverse relationship in terms of year over year change in revenue between these two areas. This can be seen in the graph below as when Advertising revenue increased Affiliate Fees revenue decreased by approximately the same amount, and vice-versa.

(Figure 20: Krause Fund Analysts Forecasts)

The TV/SVOD Distribution Licensing area of this segment we forecasted to grow at 4.25% each year going forward. This growth was determined based off of the recent positive growth in subscriber count that TV/SVOD platforms such as Sling TV and YouTube TV have seen recently.

Parks & Resorts

(Figure 18: 2018 10k)23 To forecast our Parks & Resorts revenue we used a For forecasting purposes, we chose to combine the two breakdown of the total number of guests and average areas into one due to the off-setting increase/decrease revenue spent by guests for both domestic and effect. The two areas combined grew at an average of international parks. As can be seen in the chart below, approximately 1.03% each year between 2012 and 2018. Parks & Resorts revenue historically has increased steadily This minimal growth can be seen between the years 2016 each year and therefore, we forecasted a steady rate for the and 2018 in the graph below which shows our forecasted years going forward. growth for Affiliate Fees and Advertising.

(Figure 21: Krause Fund Analysts Forecasts)

(Figure 19: 2019 10Q & Krause Fund Analysts Forecasts)32 The steady rate we used was calculated by taking the total The spike in revenue from 2018 to 2019 is due to revenue domestic Parks & Resorts revenue and dividing it by the added to the segment from the cable networks brought in total number of guests at each park and resort (given in 11 most recent 10-K) for a 3 year historical period. This gave us an average revenue growth rate per guest of 3.62%. We then took the total number of guests at each park and hotels of a historical 3 year period to get an average growth rate of guest attendance of 2.83%. Forecasted guest spending multiplied by forecasted guest attendance was used to obtain the yearly estimates for Parks & Resorts domestic revenue.

We did the same calculations with international parks and found an average revenue growth rate per guest of 9.48% and an average growth rate of guest attendance of 6.88%. The international averages are historically higher due to (Figure 22: Krause Fund Analysts Forecasts) Disney recently expanding their theme parks into this territory, so we should expect more buzz around the In terms of the TV/VSOD Distributing and Licensing attractions than domestically. A detailed version of this segment, we predict it will increase at a steady growth rate breakdown can be found on Park Assumptions page of 3%. VSOD allows consumers to rent or purchase located on page 21. movies early before they hit go onto the streaming services. This increase helps partially offset the loss Disney experiences in its home entertainment segment. Studio Entertainment Consumer Products & Interactive Media Revenue in the Studio Entertainment segment is mostly driven by theatrical distributions, which fluctuates due to In FY2019 Disney added the Interactive Media portion to the tastes and preferences of the public. When forecasted this segment when they acquired majority control of Hulu we looked at anticipated releases of films for the future and launched ESPN+. This led to a large increase in and compared those films to historical tastes and revenue for the segment of 93% year over year. Prior to preferences of the public as many of the films were 2019 the Consumer Products part of the segment had seen anticipated sequels. We also weighted Action and a decrease in revenue over each of the last 4 years. In our Adventure films more heavily since they have been the forecast for the segment we have separated these two areas best box office performers in recent years. For example, in and have the revenue attributable to Consumer Products 2020 we anticipate a very strong year for Studio decreasing at -2.88%. This is equivalent to the average Entertainment. This is because Star Wars Episode 9, decrease in revenue from the 4 years before they started Frozen 2, and Marvel’s Black Window expect to release, gaining revenue from streaming content. which historically have provided extremely favorable box office numbers. An estimated $7.88 billion of Studio For the Interactive Media area, we forecasted revenue by Entertainment’s revenue can be attributed to theatrical creating a breakdown of each of the 4 streaming packages distributions in 2020. 2024 is the lowest estimated year as offered by Disney in terms of the number of customers we project Disney to only bring in $6.65 billion from signed up. This breakdown can be found on page 20. theatrical distributions. This is due to their currently not Based off the 2019 Q4 earnings call on November 11, being any anticipated large releases planned. To calculate 2019 we know that at the end of FY2019 Hulu had 28.5 revenue for theatrical distributions in our CV year we took million customers signed up and ESPN+ had 3.4 million. the average of the average revenues from 2019-2025. We used these numbers as starting points for FY2020 and forecasted growth as a year over year percent increase in Home Entertainment revenue is declining due to the number of subscribers. consumers switching to streaming services opposed to purchasing physical DVDs and Blu-rays. As Disney ESPN+ Growth Assumptions focuses on moving its theatrical content to its new For ESPN+ we held growth at 2% each year with a CV streaming platform, we anticipate this decline to continue. growth rate in 2026 of 0.5%. The reasoning for this is Our future estimates have a rapid increase in negative because the ESPN+ service only attracts a niche group of growth for the area before eventually beginning to even consumers due to not offering marque games in major out as their will still be some small portion of consumers sports. Also, due to the cheap price point of the bundle that prefer DVDs and Blu-rays. This can be seen in the package many people will tend to buy the bundle package graph below which shows our negative growth rates for rather than solely ESPN+. Home Entertainment.

12

Hulu Growth Assumptions Estimated subscriber count for each service over our With Hulu our year over year growth rate varied. For forecasting period can be seen in the graph above. To FY2020 we believe that it will be small relative to there come up with yearly revenue for the streaming services we growth in prior years at 3%. This is because we believe multiplied the number of subscribers for the year by the that the launch of Disney+ will eat at their growth as more price per month of each plan and by 12 months. people opt to spend their money on the new offering in the market. We anticipate Hulu’s growth will bounce back in We knew that the price points of each plan would change 2021 with a 10% growth rate due the hype of Disney+ over time. Our projected price points are shown in the beginning to wear off and the new offering of all FX following chart: shows going exclusively to Hulu. By the CV year of 2026 we have growth for Hulu leveled off at a rate in line with the rate of inflation.

Disney+ and Bundle Growth Assumptions From an announcement made by Disney on November 13, 2019 we know that over 10 million people signed up for (Figure 25: Krause Fund Analysts Forecasts) Disney+ within 24 hours of their initial launch. We combined this data with estimates from management and Disney+ and the bundled package started out cheap other analysts to come up with an estimated number of relative to other options on the market as they were trying total sign ups in FY2020 to be 33.6m people for Disney+ to get people signed up. Because of this we projected price and 12m people for the bundle. increases as soon as year 2. As time goes on and yearly subscriber growth slows we projected that they will For the bundle of the 3 and Disney+ we wanted our increase the monthly cost in order to account for the forecast to represent rapid growth in terms of the number slowed growth. This follows what their top streaming of subscribers in the first and second year. Consumers competitor, Netflix, did when they saw subscriber growth interested in the services will by then have already slow. We anticipate that Hulu and ESPN+ will also see purchased it. We predict the growth rate to slow down and increases over time as subscriber growth slows. However, have smaller growth increase each year. The estimated they will have less frequent price increases due to growth in terms of number of subscribers for Disney+ and currently having a price point that mirrors their the bundled package is shown in the following graph. competition. A full breakdown of our streaming projections can be found page 20.

Other Assumptions:

Investments in Intangible Streaming Content, Net The Investments in Intangible Streaming Content line item on the balance sheet was created to reflect future spending on original content. In the 2019 Q4 earnings call on November 11, 2019 CEO detailed that Disney plans to spend $500 million in fiscal year 2020 on the creation of 45 new pieces of original content for Disney+. Mr. Iger then detailed that in the 5 years to follow, Disney will create 60 new pieces of original content per year. Since on average it will cost Disney $11,111,111 (500 million / 45) per piece of original content we forecasted that they will spend $667 million per year on this content for the next 5 years. We then grew this number by our rate of inflation each year.

Amortization Expenses To reflect the amortization associated with Investments in Intangible Streaming Content we have created a separate expense account on the income statement which is labeled (Figure 23 & 24: Krause Fund Analysts Forecasts) “Amortization Expense (Streaming Content, Net).” This was created because the original content created for the

13 streaming service will be amortized at a faster rate than factor for their future because although they are choosing that of other intangibles. Disney has not yet provided to sacrifice some cash in the short-term to develop and details on how they will amortize their original content, so implement their direct to consumer streaming service, it we modeled our amortization after that of Netflix who will end up having a positive effect on their FCF in the amortizes their original content using a double declining long-term. method of accelerated amortization. This is done to amortize the content at a faster rate because they believe Dividend Discount Model the majority of viewers will watch the content within a certain short-term period of it being uploaded. Using the Dividend Discount Model, we calculated an intrinsic value for Disney, as of November 15, 2019, to be Income Taxes $100.84. We do not think this is a great valuation method We forecasted Income taxes using Disney’s marginal tax to determine the stock price. We believe Disney plans to rate from their 2018 10-k multiplied by their EBIT. The reinvest a higher proportion of their proceeds than they marginal tax rate is calculated using their tax expense from historically have in order to continue to develop their federal, state, and foreign and dividing the sum over the streaming services in what is a highly competitive direct- tax expense from the income statement. This yields a rate to-consumer industry. of 22.02%, which becomes more accurate as the recent tax cut (went into effect at the end of 2017) combined with the Relative Valuation old tax rate skewed Disney’s effective tax rate. Since Disney primarily faces a different set of competitors Weighted Average Cost of Capital (WACC) in each of its segments, we pulled top competitors from We calculated Disney’s WACC to be 6.089%. The WACC each area and used a weighted average to create our is a key component in the Discounted Cash Flow (DCF) relative valuation. Since we were finding the one-year and Economic Profit (EP) calculations used to determine forward P/E ratio the weights used in calculating this the intrinsic value of Disney. average were equal to the estimated percent of total revenue for each segment in 2020. This breakdown of Cost of Equity: weights can be seen on page 32. Using this method for Risk Free Rate: 1.93% comparisons we calculated Disney’s relative valuation to Beta: 0.87925 be $120. This was done by multiplying the average Expected Market Risk Premium: 5.44% forward P/E ratio of the competition (19.57) by Disney’s Cost of Equity: 6.7131% forecasted EPS ($6.16).

In order to calculate the cost of equity we used the Capital We believe that this does not accurately represent the Asset Pricing Model (CAPM). For the risk-free rate, we value of Disney as the average forward P/E ratio is used the current rate of the 10-year US Treasury note. We weighed down by the competitors in the Media and Studio calculated the beta using the average of the 1yr, 2yr, 3yr, Entertainment industries. The majority of Disney’s and 4yr betas. We excluded the 5yr beta, as we believed it competition in these industries trade at a significantly to be considered an outlier from the other years. We lower P/E ratio than Disney does. We believe that this is modeled the expected market risk premium using because Disney, with a $260 billion market cap, is a Damodaran’s TTM cash yield. significantly larger firm than these competitors and has more diverse streams of revenue. Also, in 2020 the Media Cost of Debt segment still makes up the largest portion of estimated To calculate Disney pre-tax cost of debt we used the yield revenue by segment, so it has the heaviest weight. of a 30-year bond that Disney currently has outstanding. The 30-year bond has a YTM of 3.538%. Our marginal tax By breaking competition down into each industry and rate was 22.02%. using a weighted average we tried to paint the most accurate picture of how Disney is made up. However, Discounted Cash Flow (DCF)/ Economic Profit (EP) since Disney has such a wide variety of products there is Using the DCF/EP method we calculated the intrinsic no other company that it can closely be compared to. This value for Disney, as of November 15, 2019, to be $171.46 is another reason that we believe relative valuation is not a We believe this is the most accurate representation that we good method for valuing Disney. have of Disney’s true value as it encompasses all of the important factors that drive Disney’s bottom-line including revenues, expenses, key balance sheet accounts, and free cash flows. Disney’s free cash flows are an important 14

Sensitivity Analysis

Beta vs Equity Risk Premium Analyzing the Beta and Expected Market Risk premium allows us to better understand how market volatility can affect Disney’s intrinsic value. Beta is a measure of systematic risk of a stock compared to the market as a Marginal Tax Rate vs Risk Free Rate whole. Disney has a low beta of 0.8792 because they are a Marginal Tax Rate is a key metric to find the ROIC of media conglomerate and a mature firm, so they do not Disney, which is used to determine the intrinsic value. The possess as much risk due to sheer size. That being said, tax rate has the potential to shift, due to the possibility of a with its recent penetration into the direct-to-consumer change in presidency in 2020. Because of this we believe it market it will be important to look at the change in beta as is important to see how the affect could alter Disney’s it potentially could expose them to risk as they are entering intrinsic value. A 1% increase in the marginal tax rate a market that is new to them. For example, Netflix is the declined Disney’s intrinsic value by around $2.50. With leader in this area and has a beta is much higher at 1.36. the future election nearing this is good for Disney as they

know that even if we see a tax reform from a new cabinet it will not have a large affect the overall value of the company. Also, we believe it is important to test the changes in the risk-free rate because it has fluctuated historically.

WACC vs CV Growth CV growth is a key metric in the calculation of DCF/EP, which ultimately gives us the intrinsic value. A 0.20% decrease has about a $10 decline in Disney’s stock price. The CV growth shows the rate we estimate Disney will grow steadily at in the future. This rate, projected 7 years in the future, could experience some volatility due to Receivables vs CV ROIC external factors from the industry and economy, which is A 3% increase in accounts receivables yields about a $1.50 out of Disney’s control. Also, we decided to test the effects increase in Disney’s intrinsic value. Receivables is one of of WACC and saw a 0.3% increase resulted in a stock Disney’s largest current assets on the balance sheet. price decline of around $13. This shows that Disney has Receivables are forecasted using an average historical potentially higher risk associated to its capital possibly due percentage of sales multiplied by current year sales. Since to its investments in their new direct to consumer receivables make up the majority of Disney’s current streaming services. assets, we wanted to sensitivity test the percent of sales used for the forecast to see what effect it would have on our price if a different percent of sales were used. For example, we believe there could be a recession in the future and in recessionary times firms have increased receivables so we wanted to see what affect this may have if it were to take place. Also, by testing the CV ROIC we CV Growth vs Pre-Tax Cost of Debt wanted to see how sensitive the intrinsic value is if Disney The CV growth is an important metric used in both the did not see as high of a return on their invested capital as DCF and EP models because a large proportion of the originally predicted. value is determined in the CV year. The chart shows a 0.2% increase has a about a $4 increase on the intrinsic value. Also, increasing the pre-tax cost of debt by 0.3% has a very small impact on Disney’s stock price. Since we predict the Federal Reserve to increase interest rates, we believe the pre-tax cost of debt could increase. With such a small decrease in Disney’s intrinsic value this should not affect Disney much in the future. 15

Important Disclaimer

This report was created by students enrolled in the Security Analysis (6F:112) class at the University of Iowa. The report was originally created to offer an internal investment recommendation for the University of Iowa Krause Fund and its advisory board. The report also provides potential employers and other interested parties an example of the students’ skills, knowledge and abilities. Members of the Krause Fund are not registered investment advisors, brokers or officially licensed financial professionals. The investment advice contained in this report does not represent an offer or solicitation to buy or sell any of the securities mentioned. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Krause Fund may hold a financial interest in the companies mentioned in this report.

16

nce-at-theme-and-amusement-parks-in-north- america-since-2010/. References 14. Alexander, J. (2019, September 18). NBCUniversal's new streaming service could spell trouble for Hulu. Retrieved from https://www.theverge.com/2019/9/18/20870783/n 1. Gross Domestic Product. (n.d.). Retrieved from bcuniversal-peacock-streaming-wars-hulu-netflix- https://www.bea.gov/data/gdp/gross-domestic- office-parks-and-recreation-snl-exlcusives. product. 15. Netflix EBITDA 2006-2019: NFLX. (n.d.). 2. Amadeo, K. (2019, July 10). Four Critical Retrieved from Components of America's Economic Growth. https://www.macrotrends.net/stocks/charts/NFLX/ Retrieved from netflix/ebitda. https://www.thebalance.com/components-of-gdp- 16. Whitten, S. (2019, August 6). Nearly 25% of explanation-formula-and-chart-3306015. households will ditch traditional TV by 2022. 3. United States: Consumer Confidence Index: Retrieved from Economic Indicators: CEIC. (2019, October 1). https://www.cnbc.com/2019/08/06/nearly- Retrieved from 25percent-of-households-will-ditch-traditional-tv- https://www.ceicdata.com/en/united- by-2022.html. states/consumer-confidence-index/consumer- 17. Sims, D. (2019, March 21). Hollywood Makes confidence-index. Way for the Disney-Fox Behemoth. Retrieved 4. Bureau of Labor Statistics Data. (n.d.). Retrieved from from https://www.theatlantic.com/entertainment/archive https://data.bls.gov/timeseries/LNS14000000. /2019/03/disney-fox-merger-and-future- 5. Chen, J. (2019, October 7). Inflation Definition. hollywood/585481/. Retrieved from 18. Disney, Co. Earnings Call Q4 2019, 2019. Web. 7 https://www.investopedia.com/terms/i/inflation.as November 2019. p. 19. By. (2019, September 19). Global Amusement 6. Bloomberg Terminal. (n.d) Park Market Overview 2019-2023: Segmented by 7. 10 Year Treasury Rate - 54 Year Historical Chart. Geography Trends and Opportunities growing (n.d.). Retrieved from with CAGR of 8%. Retrieved from https://www.macrotrends.net/2016/10-year- https://www.marketwatch.com/press- treasury-bond-rate-yield-chart. release/global-amusement-park-market-overview- 8. United States Unemployment Rate. (n.d.). 2019-2023-segmented-by-geography-trends-and- Retrieved from opportunities-growing-with-cagr-of-8-2019-09-19. https://tradingeconomics.com/united- 20. Movie genres by total box office revenue in North states/unemployment-rate. America 2019. (n.d.). Retrieved from 9. (n.d.). Retrieved from https://www.statista.com/statistics/188658/movie- https://www.federalreserve.gov/monetarypolicy/op genres-in-north-america-by-box-office-revenue- enmarket.htm. since-1995/. 10. Log In: S&P Capital IQ. (n.d.). Retrieved from 21. Smith, C. (2019, April 15). Important Disney https://www.capitaliq.com/CIQDotNet/Charting4/ Acquisitions Over Time: Disney History. ModernBuilder.aspx?CompanyId=2671444&from Retrieved from https://disneynews.us/important- C3=1&fromC2=1. disney-acquisitions-time-disney-history/. 11. Segal, T. (2019, November 13). Who are Walt 22. Amobi, T. N. (2019, October 7). Industry Survey: Disney's Main Competitors? Retrieved from Global Media & Communications. Retrieved from https://www.investopedia.com/ask/answers/05211 https://www-capitaliq- 5/who-are-disneys-dis-main-competitors.asp. com.proxy.lib.uiowa.edu/CIQDotNet/Research/Do 12. S&P 500 Communications Services Sector. (2019, cumentViewer.aspx?documentViewerDocumentId November 19). Retrieved from https://www- =42652903. capitaliq- 23. Disney, Co. Form 10k 2018, 2019. Web. 29 com.proxy.lib.uiowa.edu/CIQDotNet/Index/Index September 2019. WidgetTearsheet.aspx?companyId=2671444. 24. Hastings, N. (2019, November 2). ESPN : 13. Amusement and theme park attendance in North Everything you need to know about ESPN's America 2018. (n.d.). Retrieved from streaming service. Retrieved from https://www.statista.com/statistics/194269/attenda https://www.businessinsider.com/what-is-espn- plus. 17

25. Brown, L. (2017, December 17). Walt Disney Company SWOT Analysis & Recommendations. Retrieved from http://panmore.com/walt-disney- company-swot-analysis-recommendations. 26. Here Are All the Movies Disney Is Releasing for the Next 8 Years. (2019, May 22). Retrieved from https://redtri.com/disney-movies-through-2027/. 27. Disney Named World's Most Powerful Brand. (2018, February 6). Retrieved from https://www.thewaltdisneycompany.com/disney- named-worlds-most-powerful-brand/. 28. Top Lifetime Grosses. (n.d.). Retrieved from https://www.boxofficemojo.com/chart/top_lifetim e_gross/?area=XWW&landingModalImageUrl=ht tps://m.media- amazon.com/images/G/01/IMDbPro/images/home /welcomeToBomojov2._CB1571421611_.png. 29. Lovely, S. (2019, September 8). How Much Are the Streaming Giants Spending on Content? Retrieved from https://www.fool.com/investing/2019/09/08/how- much-are-streaming-giants-spending-on- content.aspx. 30. Disney, Co. Earnings Call Q3 2019, 2019. Web. 6 August 2019. 31. Rising / declining attendance at theme parks worldwide 2017-2018. (n.d.). Retrieved from https://www.statista.com/statistics/194286/percent age-change-in-attendance-at-amusement-parks- worldwide-2009-2010/. 32. Disney, Co. Form 10Q 2019, 2019. Web. 7 November 2019.

18 Walt Disney Company Revenue Decomposition

Fiscal Year Ending September 30th 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E CV 2026E

Total Revenue 55,137 59,434 72,650 79,320 84,771 89,750 93,664 95,043 97,285 100,210 YoY Growth ‐0.89% 7.79% 22.24% 9.18% 6.87% 5.87% 4.36% 1.47% 2.36% 3.01% Revenue Decomposition by Segment: Media Networks Affiliate Fees & Advertising 20,788 21,042 24,887 24,576 24,207 23,723 23,011 21,976 20,657 19,005 TV/SVOD Distributing Licensing 2,722 3,458 3,605 3,758 3,918 4,084 4,258 4,439 4,628 4,824 Total Revenue for Media Networks 23,510 24,500 28,492 28,334 28,125 27,808 27,269 26,415 25,285 23,829 YoY Growth ‐0.76% 4.21% 16.29% ‐0.55% ‐0.74% ‐1.13% ‐1.94% ‐3.13% ‐4.28% ‐5.76%

Parks & Resorts Total Guests @ domestic parks/hotels 97 100 103 106 109 112 115 118 121 125 Average Revenue per Visitor Domestic 153 162 168 174 180 186 193 200 207 215 Total Domestic Revenue 14,812 16,161 17,219 18,346 19,547 20,827 22,190 23,643 25,191 26,840

Total Guests @ International parks/hotels 89 94 100 107 114 122 131 140 149 160 Average Revenue per Visitor International 40 44 48 53 58 60 61 63 65 67 Total International Revenue 3,603 4,135 4,838 5,661 6,624 7,280 8,001 8,793 9,663 10,619 Total Revenue for Parks & Resorts Revenue 18,415 20,296 22,057 24,008 26,172 28,107 30,191 32,436 34,854 37,459 YoY Growth 8.49% 10.21% 8.68% 8.84% 9.01% 7.39% 7.41% 7.43% 7.46% 7.48%

Studio Entertainment Theatrical Distribition 2,903 4,303 7,640 7,881 7,022 7,465 7,008 6,652 7,097 7,429 Home Entertainment 1,798 1,750 1,575 1,260 932 662 450 302 199 129 SVOD distribution and other 3,678 3,934 3,875 3,817 3,760 3,703 3,648 3,593 3,539 3,486 Total Revenue for Studio Entertainment 8,379 9,987 13,090 12,958 11,714 11,830 11,106 10,547 10,835 11,044 YoY Growth ‐11.25% 19.19% 31.07% ‐1.01% ‐9.59% 0.99% ‐6.12% ‐5.03% 2.74% 1.93%

Consumer Products & Interactive Media Total Revenue for CP & IM 4,833 4,651 9,011 14,020 18,760 22,005 25,097 25,646 26,310 27,877 YoY Growth ‐12.57% ‐3.77% 93.74% 55.59% 33.81% 17.30% 14.05% 2.18% 2.59% 5.95% ‐2.88% Revenue Decomposition for Streaming Services Portion of CP&IM Rev attributed to streaming services # of users 2019A 2020E 2021E 2022E 2023E 2024E 2025E CV 2026E Hulu 28.50 29.36 32.29 34.23 35.25 35.96 36.32 36.68 Dis+ 33.60 57.12 62.83 65.97 67.95 69.31 70.00 ESPN+ 3.40 3.47 3.54 3.61 3.68 3.75 3.83 3.85 Bundle 12.00 21.00 23.10 24.26 24.98 25.48 25.86

Revenue Hulu (assuming 11.99/month) 341.72 351.97 387.16 410.39 457.96 467.12 471.79 513.19 Dis+ (assuming 6.99/month) 234.86 456.39 627.69 791.02 814.75 831.05 909.36 ESPN+ (assuming 4.99/month) 16.97 17.31 17.65 18.00 22.04 22.49 22.94 26.90 Bundle of all three (15.99/month) 155.88 293.79 369.37 412.09 424.46 458.43 465.30 Total Revenue from streaming services for year 4,304.17 9,120.19 13,859.92 17,105.50 20,197.44 20,745.76 21,410.41 22,977.08

Price Point Assumptions for streaming services: 2019A 2020E 2021E 2022E 2023E 2024E 2025E CV 2026E Hulu 11.99 11.99 11.99 11.99 12.99 12.99 12.99 13.99 Dis+ 6.99 7.99 9.99 11.99 11.99 11.99 12.99 ESPN+ 4.99 4.99 4.99 4.99 5.99 5.99 5.99 6.99 Bundle of all 3 12.99 13.99 15.99 16.99 16.99 17.99 17.99

Revenue from streaming services flow into the Consumer Products and Interactive Media Segment's revenue

Subscriber Count Over Time Estimated Subscriber Count 2020‐2026 80 80.00 70 70.00 60 60.00 50 50.00 40 40.00 30 30.00 20 20.00 10 10.00 0 0.00 2019 2020 2021 2022 2023 2024 2025 2026 2019A 2020E 2021E 2022E 2023E 2024E 2025E CV 2026E

Dis+ Bundle Hulu Dis+ ESPN+ Bundle Assumptions used for Parks & Resorts Revenue Calculation Parks and Resorts 2016 2017 2018 Hotels Domestic 2016 2017 2018 Domestic Revenue 14,242.00 14,812.00 16,161.00 Available Room Nights (in Millions) 10.38 10.21 10.05 Occupancy 0.89 0.88 0.88 # of vistors per year 20.40 20.45 20.86 Per Room Guest Spending 305.00 317.00 345.00 Average Rev per vistor Total Domestic Visitors 9.24 8.98 8.84 Total Rev from Domestic Hotels $ 2,818.19 $ 2,846.79 $ 3,049.66 # of vistors per year 11.70 12.20 12.44 Average Rev per vistor Hotels International 2016 2017 2018 Disney's Animal Kingdom Available Room Nights 2.60 3.02 3.18 # of vistors per year 10.80 12.50 13.75 Occupancy 0.78 0.80 0.86 Average Rev per vistor Per Room Guest Spending 278.00 289.00 297.00 Disney's Hollywood Studios Total International Visitors 2.03 2.42 2.73 # of vistors per year 10.80 10.72 11.26 Total Rev from International Hotels $ 563.78 $ 698.69 $ 811.98 Average Rev per vistor Blizzard Beach Growth # of vistors per year 2.10 1.95 2.00 Growth rat Average Rev per vistor Domestic 2016->2017 2017->2018 Typhoon Lagoon Growth Rate for Total # of Guests 2.4269% 3.2232% # of vistors per year 2.30 2.16 2.27 Average Growth for Total # of Guests 2.83% Average Rev per vistor Growth Rate of Rev per Guest 1.5380% 5.7005% Disneyland Average Growth for Rev per Guest 3.62% # of vistors per year 17.90 18.30 18.67 Average Rev per vistor International 2016->2017 2017->2018 Disneyland California Adventure Growth Rate for Total # of Guests 8.9290% 4.8283% # of vistors per year 9.30 9.57 9.86 Average Growth for Total # of Guests 6.88% Average Rev per vistor Growth Rate of Rev per Guest 21.07% 9.48% Total Domestic Vistors 85.30 87.85 91.12 Average Growth for Rev per Guest 9.48% * Thought the 21.07% was not sustainable and # of Domestic Hotel Guests 9.24 8.98 8.84 the 9.48% was more realistic going forward Total Guests @ domestic parks/hotels 94.54 96.83 99.96 so did not use average Average Revenue per Visitor Domestic $ 150.65 $ 152.96 $ 161.68 Total Domestic Revenue 14,242 14,812 16,161 Total Visitors (Millions) International Revenue 2,732.00 3,603.00 4,135.00 2016 2017 Domestic Parks 94.54 96.83 # of vistors per year 30.00 30.10 30.10 YoY Growth 0.024269309 Average Rev per vistor International Parks 80.06 87 YoY Growth 0.086684986 # of vistors per year 16.50 16.60 17.91 Average Rev per vistor Tokyo DisneySea # of vistors per year 13.46 13.50 14.65 Average Rev per vistor Growth rate for avg revenue per international visitor # of vistors per year 8.40 9.60 9.84 Average Rev per vistor *using the 9% for # of vistors per year 6.10 6.20 6.70 Average growth Average Rev per vistor Growth rate of total guests @ international parks # of vistors per year 5.60 11.00 11.80 0.089289543 0.048282888 Average Rev per vistor Total International Vistors 80.06 87.00 91.00 Average growth 6.88% # of International Hotel Guests 2.03 2.42 2.73 Total Guests @ International parks/hotels 82.09 89.42 93.73 *Significantly lower on average because DIS is not majority owner in international parks Average Revenue per Visitor International $ 33.28 $ 40.29 $ 44.11 Total International Revenue $ 2,732.00 $ 3,603.00 $ 4,135.00 Walt Disney Company Income Statement

Fiscal Year Ending September 30th 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E Revenue By Segment: Media Networks 23,510 24,500 28,492 28,334 28,125 27,808 27,269 26,415 25,285 23,829 Parks & Resorts 18,415 20,296 22,057 24,008 26,172 28,107 30,191 32,436 34,854 37,459 Studio Entertainment 8,379 9,987 13,090 12,958 11,714 11,830 11,106 10,547 10,835 11,044 Consumer Products & Interactive Media 4,833 4,651 9,011 14,020 18,760 22,005 25,097 25,646 26,310 27,877 Total revenues 55,137 59,434 72,650 79,320 84,771 89,750 93,664 95,043 97,285 100,210

Costs & Expenses Cost of Products and Services (30,306) (32,726) (41,047) (44,855) (47,938) (50,754) (52,967) (53,747) (55,014) (56,669) Selling, General, Administrative & Other Expenses (8,176) (8,860) (11,261) (12,295) (13,140) (13,911) (14,518) (14,732) (15,079) (15,533) Depreciation Expense (2,586) (2,758) (2,774) (2,968) (3,068) (3,183) (3,313) (3,457) (3,617) (3,792) Amortization Expense (Net Intangibles) (196) (253) (233) (793) (766) (739) (714) (690) (666) (644) Amortization Expense (Net Streaming Content Intangibles) - - - ‐ (85) (165) (231) (286) (331) (369) Total Costs & Expenses (41,264) (44,597) (55,315) (60,910) (64,997) (68,752) (71,743) (72,911) (74,708) (77,006)

Restructuring & Impairment Charges (98) (33) (1,183) (232) (248) (262) (274) (278) (284) (293) Other Income (expense), Net 78 601 - ‐ ‐ ‐ ‐ ‐ ‐ ‐ Interest Income (expense), Net (385) (574) (978) (1,496) (1,453) (1,401) (1,336) (1,244) (1,176) (1,090) Equity in the Income (loss) of Investees, Net 320 (102) (103) 503 503 503 503 503 503 503 Income Before Income Taxes 13,788 14,729 15,072 17,185 18,577 19,837 20,814 21,113 21,619 22,324 Income Taxes (4,422) (1,663) (3,319) (3,784) (4,091) (4,368) (4,583) (4,649) (4,760) (4,916) Net Income 9,366 13,066 11,753 13,401 14,486 15,469 16,231 16,464 16,858 17,408 Less: Net Loss (income) Attributable to Noncontrolling Interests (386) (468) (683) (746) (797) (844) (880) (893) (914) (942) Net Income Attributable to (Dis) $8,980 $12,598 $11,070 $12,655 $13,689 $14,625 $15,350 $15,571 $15,944 $16,466

Earnings per share attributable to Disney Basic 5.73$ 8.40$ 6.71 6.16 5.97 6.47 6.89 7.08 7.35 7.69

Weighted average number of commmon & common equivalent shares outstanding Total Shares Outstanding 1,507 1498 1,800 2,311 2,276 2,243 2,213 2,184 2,155 2,128 Weighted average 1,568 1,499 1649 2056 2294 2260 2228 2198 2170 2141

Dividends declared per share 1.56$ 1.56$ 1.68$ 1.76 1.76 1.76 1.80 1.80 1.85 1.89 1.96 Walt Disney Company Balance Sheet

Fiscal Year Ending September 30th 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E ASSETS Current Assets Cash & Cash Equivalents 4,017 4,150 5,418 2,851 5,919 10,215 14,757 21,631 27,374 33,423 Receivables 8,633 9,334 15,481 15,283 16,333 17,292 18,047 18,312 18,744 19,308 Inventories 1,373 1,392 1,649 2,459 2,628 2,782 2,903 2,946 3,016 3,106 Television Costs & Advances 1,278 1,314 4,597 3,538 3,781 4,003 4,178 4,239 4,339 4,470 Other Current Assets 143 159 979 756 808 856 893 906 928 955 Total current assets 15,889 16,825 28,124 24,886 29,469 35,149 40,778 48,035 54,401 61,262

Film & Television Costs 7,481 7,888 22,810 24,904 26,616 28,179 29,408 29,841 30,544 31,463 Investments 3,202 2,899 3,224 3,286 3,350 3,414 3,480 3,547 3,616 3,686 Parks, Resorts, and Other Property Gross Attractions, Buildings, Equipment & Land 57,443 60,304 64,018 68,056 72,349 76,913 81,764 86,920 92,401 98,228 Accumulated Depreciation (29,037) (30,764) (32,415) (35,383) (38,451) (41,634) (44,947) (48,404) (52,021) (55,813) Attractions,Buildings, Equipment & Land, net 28,406 29,540 31,603 32,674 33,898 35,279 36,817 38,516 40,380 42,415 Investments in Intangible Streaming Content, net - - - 500 969 1,358 1,680 1,948 2,171 2,355 Intangible Assets, net 6,995 6,812 23,215 22,422 21,657 20,917 20,203 19,513 18,847 18,203 Goodwill 31,426 31,269 80,293 80,293 80,293 80,293 80,293 80,293 80,293 80,293 Other Assets 2,390 3,365 4,715 4,306 4,602 4,872 5,084 5,159 5,281 5,440 Total assets 95,789 98,598 193,984 193,271 200,853 209,460 217,743 226,853 235,533 245,117

LIABILITIES AND STOCKHOLDER'S EQUITY LIABILITIES Curremt Liabilities Accounts Payable & Other Accrued Liabilities 8,855 9,479 17,942 16,435 17,565 18,597 19,408 19,693 20,158 20,764 Current Portion of Borrowings 6,172 3,790 8,857 7,500 6,606 6,410 5,536 6,871 6,871 6,871 Deferred Revenue & Other Current Liabilities 4,568 4,591 4,722 5,164 5,519 5,843 6,098 6,188 6,334 6,524 Total Current Liabilities 19,595 17,860 31,521 29,100 29,690 30,850 31,042 32,752 33,363 34,159 Borrowings 19,119 17,084 38,129 36,918 38,050 38,793 39,571 40,115 40,847 41,736 Deferred Income Taxes 4,480 3,109 7,902 8,225 8,575 8,948 9,340 9,737 10,144 10,564 Other Long-term Liabilities 6,443 6,590 13,580 12,647 13,516 14,310 14,934 15,154 15,511 15,977 Redeemable Noncontrolling Interests 1,148 1,123 8,963 8,575 8,683 8,782 8,860 8,887 8,932 8,990 Total Liabilities 50,785 45,766 100,095 95,465 98,514 101,684 103,746 106,645 108,796 111,426 STOCHOLDER'S EQUITY Common Stock ($0.01 par value) 36,248 36,779 53,907 54,102 54,296 54,491 54,685 54,707 54,707 54,707 Retained Earnings (accumulated deficit) 72,606 82,679 42,494 51,531 61,184 71,742 83,082 94,585 106,429 118,698 Accumulated Other Comprehensive Income (loss) (3,528) (3,097) (6,617) (6,617) (6,617) (6,617) (6,617) (6,617) (6,617) (6,617) Stockholders' Equity Subtotal 105,326 116,361 89,784 99,016 108,863 119,615 131,150 142,675 154,518 166,787 Treasury Stock, at cost 64,011 67,588 907 6,221 11,536 16,850 22,165 27,479 32,794 38,108 Total Disney Shareholders' equity 41,315 48,773 88,877 92,794 97,327 102,765 108,985 115,196 121,725 128,679 Noncontrolling Interests 3,689 4,059 5,012 5,012 5,012 5,012 5,012 5,012 5,012 5,012 Total Equity 45,004 52,832 93,889 97,806 102,339 107,777 113,997 120,208 126,737 133,691 Total Liabilities and Equity 95,789 98,598 193,984 193,271 200,853 209,460 217,743 226,853 235,533 245,117 Walt Disney Company Cash Flow Statement

Fiscal Year Ending September 30th 2017 2018 2019 Operating Activities Net income (loss) 9,366 13,066 11,070 Depreciation & amortization 2,782 3,011 3,007 Gain on acquisitions & dispositions (289) (560) 4,794 Deferred income taxes 334 (1,573) 117 Equity in the loss (income) of investees (320) 102 103 Cash distributions received from equity investees 788 775 754 Net change in film & television costs & advances (1,075) (523) (542) Equity-based compensation 364 393 711 Other adjustments 503 441 206 Changes in operating assests and liabilities Receivables 107 (720) 55 Inventories (5) (17) (223) Other assets (52) (927) 932 Accounts payable & other accrued liabilities (368) 235 191 Income taxes 208 592 (6,599) Net cash flows from operating activities 12,343 14,295 5,984

Investing Activities Investments in parks, resorts & other property (3,623) (4,465) 4,876 Sales of investments or proceeds from dispositions - - Business Acquisitions (Goodwill) (417) (1,581) (9,901) Other investing activities (71) 710 (319) Net cash flows from investing activities (4,111) (5,336) (5,344)

Financing Activities Commercial paper borrowings (payments), net 1,247 (1,768) 4,318 Borrowings 4,820 1,056 38,240 Reduction of borrowings (2,364) (1,871) (38,881) Dividends (2,445) (2,515) (2,895) Repurchases of common stock (9,368) (3,577) - Proceeds from exercise of stock options 276 210 318 Contributions from noncontrolling interest holders 17 399 737 Acquisition of noncontrolling interests - - 1,430 Other financing activities (1,142) (777) (871) Net cash flows from financing actvities (8,959) (8,843) (464)

Impact of exchange rates on cash, cash equivalents & restricted cash 31 (25) (98)

Change in cash, cash equivalents & restricted cash (696) 91 1,300 Cash, cash equivalents & restricted cash, beginning of year 4,760 4,064 4,155 Cash, cash equivalents & restricted cash, end of year 4,064 4,155 5,455 Walt Disney Company Cash Flow Statement

Fiscal Year Ending September 30th 2020E 2021E 2022E 2023E 2024E 2025E 2026E Net Income 12,655 13,689 14,625 15,350 15,571 15,944 16,466 Adjust to reconcile Net Income Depreciation Expense 2,968 3,068 3,183 3,313 3,457 3,617 3,792 Amortization Expense (Net Intangibles) 793 766 739 714 690 666 644 Amortization Expense (Net Streaming Content Intangibles) ‐ 85 165 231 286 331 369 16,416 17,523 18,548 19,377 19,718 20,227 20,902 Change in Deferred Taxes 323 349 373 392 397 407 420

Changes in Working Capital Accounts Receivables 198 (1,050) (959) (754) (266) (432) (564) Inventories (810) (169) (154) (121) (43) (69) (91) Television costs & advances 1,059 (243) (222) (175) (62) (100) (130) Other Current Assets 223 (52) (47) (37) (13) (21) (28) Accounts payable & other accrued liabilities (1,507) 1,130 1,032 811 286 464 606 Deferred revenue & other current liabilities 442 355 324 255 90 146 190 Net Cash Provided by Operations-continueing Operations 16,345 17,843 18,894 19,748 20,107 20,621 21,306

Investing Activities (Increase)/Decrase in Film & television costs (2,094) (1,712) (1,563) (1,229) (433) (704) (918) (Increase)/Decrase in Investments (62) (63) (65) (66) (67) (68) (70) Capital Expenditures (4,038) (4,293) (4,563) (4,851) (5,156) (5,481) (5,827) Capital Expenditures in Intangible Streaming Assets (500) (469) (389) (323) (268) (222) (185) Business Acquisitions (Goodwill) ‐ ‐ ‐ ‐ ‐ ‐ ‐ (Incrase)/Decrease in other assets 409 (296) (270) (212) (75) (122) (159) Net Cash Provided by Investing Activities (6,285) (6,833) (6,850) (6,681) (6,000) (6,598) (7,158)

Financing Activities Change in Current portion of borrowings (1,357) (894) (196) (874) 1,335 ‐ ‐ Changes in Issuance (payments of borrowings) (1,211) 1,132 744 778 544 732 888 Payment of Dividends (3,618) (4,037) (4,067) (4,010) (4,067) (4,101) (4,197) Proceeds from Issuance of Common Stock 195 195 195 195 21 ‐ ‐ Noncontrolling Interest Liabilities (388) 108 99 78 27 45 58 Other long-term liabilities (933) 869 794 624 220 357 466 Repurchases of Common Stock (5,314) (5,314) (5,314) (5,314) (5,314) (5,314) (5,314) Net Cash Provided by Financing Activities (12,627) (7,942) (7,747) (8,525) (7,234) (8,281) (8,099)

Change in Cash (2,567) 3,068 4,296 4,542 6,874 5,743 6,049 Beginning Yr Cash 5,418 2,851 5,919 10,215 14,757 21,631 27,374 Ending Yr Cash 2,851 5,919 10,215 14,757 21,631 27,374 33,423 Walt Disney Company Common Size Income Statement Percent of sales Fiscal Year Ending September 30th 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E Revenues: Media Networks 42.64% 41.22% 39.22% 35.72% 33.18% 30.98% 29.11% 27.79% 25.99% 23.78% Parks & Resorts 33.40% 34.15% 30.36% 30.27% 30.87% 31.32% 32.23% 34.13% 35.83% 37.38% Studio Entertainment 15.20% 16.80% 18.02% 16.34% 13.82% 13.18% 11.86% 11.10% 11.14% 11.02% Consumer Products & Interactive Media 8.77% 7.83% 12.40% 17.68% 22.13% 24.52% 26.80% 26.98% 27.04% 27.82% Total revenues 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Costs & Expenses Cost of services and products 53.91% 54.96% 55.06% 56.50% 56.55% 56.55% 56.55% 56.55% 56.55% 56.55% Selling, general, administrative & other expenses 15.74% 14.83% 14.91% 15.50% 15.50% 15.50% 15.50% 15.50% 15.50% 15.50% Depreciation & amortization 4.17% 4.69% 4.64% 3.82% 3.74% 3.62% 3.55% 3.54% 3.64% 3.72% Total Costs & Expenses 74.19% 74.84% 75.04% 76.14% 76.79% 76.67% 76.60% 76.60% 76.71% 76.79%

Restructuring & impairment charges 0.18% 0.06% 1.63% 0.29% 0.29% 0.29% 0.29% 0.29% 0.29% 0.29% Interest income (expense), net -0.70% -0.97% -1.35% -1.89% -1.71% -1.56% -1.43% -1.31% -1.21% -1.09% Equity in the income (loss) of investees, net -0.58% 0.17% 0.14% -0.63% -0.59% -0.56% -0.54% -0.53% -0.52% -0.50% Income Before Income Taxes 25.01% 24.78% 20.75% 21.67% 21.91% 22.10% 22.22% 22.21% 22.22% 22.28% Income taxes -8.02% -2.80% -4.57% -4.77% -4.83% -4.87% -4.89% -4.89% -4.89% -4.91% Net Income 16.99% 21.98% 16.18% 16.89% 17.09% 17.24% 17.33% 17.32% 17.33% 17.37% Less: net loss (income) attributable to noncontrolling interests -0.70% -0.79% -0.94% -0.94% -0.94% -0.94% -0.94% -0.94% -0.94% -0.94% Net income attributable to The Walt Disney Company (Disney) 16.29% 21.20% 15.24% 15.95% 16.15% 16.30% 16.39% 16.38% 16.39% 16.43% Walt Disney Company Common Size Balance Sheet Percent of sales Fiscal Year Ending September 30th 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E ASSETS Current Assets Cash & cash equivalents 7.29% 6.98% 7.46% 3.59% 6.98% 11.38% 15.76% 22.76% 28.14% 33.35% Receivables 15.66% 15.70% 21.31% 19.27% 19.27% 19.27% 19.27% 19.27% 19.27% 19.27% Inventories 2.49% 2.34% 2.27% 3.10% 3.10% 3.10% 3.10% 3.10% 3.10% 3.10% Television costs & advances 2.32% 2.21% 6.33% 4.46% 4.46% 4.46% 4.46% 4.46% 4.46% 4.46% Other current assets 0.26% 0.27% 1.35% 0.95% 0.95% 0.95% 0.95% 0.95% 0.95% 0.95% Total current assets 28.82% 28.31% 38.71% 31.37% 34.76% 39.16% 43.54% 50.54% 55.92% 61.13% Film & television costs 13.57% 13.27% 31.40% 31.40% 31.40% 31.40% 31.40% 31.40% 31.40% 31.40% Investments 5.81% 4.88% 4.44% 4.14% 3.95% 3.80% 3.72% 3.73% 3.72% 3.68% Parks, resorts, and other property Gross Attractions, Buildings, Equipment & Land 104.18% 101.46% 88.12% 85.80% 85.35% 85.70% 87.29% 91.45% 94.98% 98.02% Accumulated depreciation -52.66% -51.76% -44.62% -44.61% -45.36% -46.39% -47.99% -50.93% -53.47% -55.70% Investments in Intangible Streaming Content, net 0.00% 0.00% 0.00% 0.63% 1.14% 1.51% 1.79% 2.05% 2.23% 2.35% Intangible assets, net 12.69% 11.46% 31.95% 28.27% 25.55% 23.31% 21.57% 20.53% 19.37% 18.17% Goodwill 57.00% 52.61% 110.52% 101.23% 94.72% 89.46% 85.72% 84.48% 82.53% 80.12% Other assets 4.33% 5.66% 6.49% 5.43% 5.43% 5.43% 5.43% 5.43% 5.43% 5.43% Total assets 173.73% 165.89% 267.01% 243.66% 236.94% 233.38% 232.47% 238.68% 242.11% 244.60%

LIABILITIES AND EQUITY LIABILITIES Curremt Liabilities Accounts payable & other accrued liabilities 16.06% 15.95% 24.70% 20.72% 20.72% 20.72% 20.72% 20.72% 20.72% 20.72% Current portion of borrowings 11.19% 6.38% 12.19% 9.46% 7.79% 7.14% 5.91% 7.23% 7.06% 6.86% Deferred revenue & other current liabilities 8.28% 7.72% 6.50% 6.51% 6.51% 6.51% 6.51% 6.51% 6.51% 6.51% Total current liabilities 35.54% 30.05% 43.39% 36.69% 35.02% 34.37% 33.14% 34.46% 34.29% 34.09% Borrowings 34.68% 28.74% 52.48% 46.54% 44.89% 43.22% 42.25% 42.21% 41.99% 41.65% Deferred income taxes 8.13% 5.23% 10.88% 10.37% 10.12% 9.97% 9.97% 10.24% 10.43% 10.54% Other long-term liabilities 11.69% 11.09% 18.69% 15.94% 15.94% 15.94% 15.94% 15.94% 15.94% 15.94% Redeemable noncontrolling interests 2.08% 1.89% 12.34% 10.81% 10.24% 9.79% 9.46% 9.35% 9.18% 8.97% Total Liabilities 92.11% 77.00% 137.78% 120.36% 116.21% 113.30% 110.76% 112.21% 111.83% 111.19% Equity Preferred stock Common stock 65.74% 61.88% 74.20% 68.21% 64.05% 60.71% 58.38% 57.56% 56.23% 54.59% Retained earnings (accumulated deficit) 131.68% 139.11% 58.49% 64.97% 72.17% 79.93% 88.70% 99.52% 109.40% 118.45% Accumulated other comprehensive income (loss) -6.40% -5.21% -9.11% -8.34% -7.81% -7.37% -7.06% -6.96% -6.80% -6.60% Stockholders' equity subtotal 191.03% 195.78% 123.58% 124.83% 128.42% 133.28% 140.02% 150.12% 158.83% 166.44% Treasury stock, at cost 116.09% 113.72% 1.25% 7.84% 13.61% 18.77% 23.66% 28.91% 33.71% 38.03% Total Disney Shareholders' equity 74.93% 82.06% 122.34% 116.99% 114.81% 114.50% 116.36% 121.20% 125.12% 128.41% Noncontrolling interests 6.69% 6.83% 6.90% 6.32% 5.91% 5.58% 5.35% 5.27% 5.15% 5.00% Total equity 81.62% 88.89% 129.23% 123.31% 120.72% 120.09% 121.71% 126.48% 130.27% 133.41% Total Liabilities and equity 173.73% 165.89% 267.01% 243.66% 236.94% 233.38% 232.47% 238.68% 242.11% 244.60% Walt Disney Company Value Driver Estimation

Fiscal Year Ending September 30th 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E CV NOPLAT Computation EBITA Net Sales 55,632 55,137 59,434 72,650 79,320 84,771 89,750 93,664 95,043 97,285 100,210 -Cost of services and products (29,993) (30,306) (32,726) (41,047) (44,855) (47,938) (50,754) (52,967) (53,747) (55,014) (56,669) -Selling, general, administrative & other expenses (8,754) (8,176) (8,860) (11,261) (12,295) (13,140) (13,911) (14,518) (14,732) (15,079) (15,533) -Depreciation & amortization (2,527) (2,782) (3,011) (3,007) (3,760) (3,919) (4,087) (4,258) (4,433) (4,614) (4,804) + Implied Interest on Operating Leases 100 94 103 112 116 120 125 131 137 143 150 EBITA 14,458 13,967 14,940 17,448 18,525 19,895 21,123 22,052 22,268 22,720 23,355 Less: Adjusted Taxes: Income Taxes 5,078 4,422 1,663 3,319 3,784 4,091 4,368 4,583 4,649 4,760 4,916 + Tax Shield on Interest Expense 57 85 126 215 329 320 309 294 274 259 240 +/‐ Shield or tax on Other income ‐ (17) (132) ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ + Shield for Restructuring & impairment charges 34 22 7 260 51 55 58 60 61 63 65 +/- Shield or taxes on Equity in the income (loss) of investee (204) (70) 22 23 (111) (111) (111) (111) (111) (111) (111) + Tax Shield on Implied Lease Interest 22 21 23 25 26 26 28 29 30 32 33 Adjusted Taxes 4988 4462 1710 3842 4,079 4,381 4,651 4,856 4,903 5,003 5,143

Plus: Change in Deferred Tax Liabilities Deferred Income Tax Liability 3,679 4,480 3,109 7,902 8,225 8,575 8,948 9,340 9,737 10,144 10,564 Previous Year's Deferred Income Tax Liability 4,051 3,679 4,480 3,109 7,902 8,225 8,575 8,948 9,340 9,737 10,144 (372) 801 (1,371) 4,793 323 349 373 392 397 407 420

NOPLAT (EBITA‐Adj Taxes + Change in DT) 9,098 10,307 11,860 18,399 14,769 15,864 16,845 17,588 17,762 18,124 18,632

Invested Capital Computation Operating Current Assets: Normal Cash 2,471 2,620 2,597 2,799 3,422 3,736 3,993 4,227 4,412 4,477 4,582 Accounts Receivable 9,065 8,633 9,334 15,481 15,283 16,333 17,292 18,047 18,312 18,744 19,308 Inventory 1,390 1,373 1,392 1,649 2,459 2,628 2,782 2,903 2,946 3,016 3,106 Television costs & advances 1,208 1,278 1,314 4,597 3,538 3,781 4,003 4,178 4,239 4,339 4,470 Other current assets 244 143 159 979 756 808 856 893 906 928 955 Operating Current Assets: 14,378 14,047 14,796 25,505 25,458 27,286 28,926 30,248 30,816 31,503 32,421

Operating Current Liabilities Accounts payable & other accrued liabilities 9,130 8,855 9,479 17,942 16,435 17,565 18,597 19,408 19,693 20,158 20,764 Deferred revenue & other current liabilities 4,025 4,568 4,591 4,722 5,164 5,519 5,843 6,098 6,188 6,334 6,524 Operating Current Liabilities 13,155 13,423 14,070 22,664 21,600 23,084 24,440 25,506 25,881 26,492 27,288

Net Working Capital 1,223 624 726 2,841 3,858 4,202 4,486 4,742 4,934 5,012 5,133

Net PPE 27,349 28,406 29,540 31,603 32,674 33,898 35,279 36,817 38,516 40,380 42,415

LT Operating Assets PV of Operating Leases 2,830 2,669 2,922 3,168 3,275 3,398 3,536 3,691 3,861 4,048 4,252 Intangible assets, net 6,949 6,995 6,812 23,215 22,422 21,657 20,917 20,203 19,513 18,847 18,203 Investments in DTC, net ‐ ‐ ‐ ‐ 500 969 1,358 1,680 1,948 2,171 2,355 Other LT Operating assets 2,340 2,390 3,365 4,715 4,306 4,602 4,872 5,084 5,159 5,281 5,440 Total 12,119 12,054 13,099 31,098 30,503 30,625 30,683 30,658 30,482 30,346 30,250

LT Operating Liabilities Other long-term liabilities 7,706 6,443 6,590 13,580 12,647 13,516 14,310 14,934 15,154 15,511 15,977 Total 7,706 6,443 6,590 13,580 12,647 13,516 14,310 14,934 15,154 15,511 15,977

Invested Capital 32,985 34,641 36,775 51,962 54,389 55,210 56,138 57,284 58,778 60,227 61,821

Value Drivers NOPLAT 9,098 10,307 11,860 18,399 14,769 15,864 16,845 17,588 17,762 18,124 18,632 Ending IC 32,985 34,641 36,775 51,962 54,389 55,210 56,138 57,284 58,778 60,227 61,821

ROIC (NOPLAT / Beg. IC) 27.53% 31.25% 34.24% 50.03% 28.42% 29.17% 30.51% 31.33% 31.01% 30.83% 30.94% EP (Beg. IC * (ROIC ‐ WACC) 7,091 8,303 9,756 16,165 11,613 12,560 13,491 14,177 14,282 14,553 14,973 FCF (NOPLAT ‐ Change in IC) 9,158 8,650 9,727 3,211 12,343 15,042 15,916 16,442 16,268 16,675 17,038 Walt Disney Company Weighted Average Cost of Capital (WACC) Estimation

CAPM Risk free rate 1.93%

Market Risk Premium 5.44%

Beta 1y 0.874 2y 0.845 3y 0.895 4y 0.903 Average of last 4 years 0.87925 0.87925

CAPM 6.7131%

Estimate Cost of Debt YTM 30 y maturity 3.538% Number is from firms curve on BB Marginal Tax Rate 22.02% 30y from B

Capital Structure Equity Market Value 260,406 Debt Value 50,154 Current Portion of borrowings + B Total 310,560

Capital Structure Weights Equity 83.85% Debt 16.15%

Cost of Capital Estimation (WACC) Equity Component 5.629% Debt Component 0.446% WACC 6.075% Walt Disney Company Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth 1.90% CV ROIC 30.94% WACC 6.07% Cost of Equity 6.71%

DCF Model Fiscal Years Ending 0.019 2020E 2021E 2022E 2023E 2024E 2025E CV 2026E For Discounting: Number of periods: 123456 6 WACC Discount Rate 1.061 1.125 1.194 1.266 1.343 1.425 1.425

Continuing Value

Numerator 2026 NOPLAT 18,632 1‐(g/ROIC) x 94% 17,487.61 Denominator Wacc ‐ g 4.17%

DCF CV 418,911.25

Free Cash Flow 12,343 15,042 15,916 16,442 16,268 16,675 418,911 WACC discount rate 1.061 1.125 1.194 1.266 1.343 1.425 1.425 PV of FCF Discounted by WACC 11,636.26 13,368.77 13,335.50 12,987.28 12,113.44 11,705.50 294,072.99

PV of Operating Assets 369,220 Plus: Excess Cash 1,996 Investment 3,224 Less: PV of Operating Leases 3,168 Borrowings 46,986 ESOPs 1,059 Noncontrolling Interest 13,975 Underfunded Pensions 2,650

Value of Equity 306,601.53

Shares Outstanding 1,800.00 Price Per Share $ 170.33 Partial Year Adjustment $ 171.46

EP Model Fiscal Year Ending 2020E 2021E 2022E 2023E 2024E 2025E CV 2026E Continuing Value

EP 2026 / WACC 246,495

Plus:

Numerator: 2026 NOPLAT 18,632 (g/ROIC) 6.14% (ROIC ‐ WACC) 24.86% 284.49 Denominator: WACC*(WACC‐g) 0.25%

EP CV 358,684

Economic Profit 11,613 12,560 13,491 14,177 14,282 14,553 358,684 WACC discount rate 1.061 1.125 1.194 1.266 1.343 1.425 1.425 PV of EP Discounted by WACC 10,947.84 11,162.37 11,303.53 11,198.31 10,635.19 10,216.28 251,793.91 Plus: Beginning IC 51,962 PV of Operating Assets 369,220

PV of Operating Assets 369,220

Plus: Excess Cash: 1,996 Investments 3,224 Less: PV of Operating Leases 3,168 Borrowings 46,986 ESOPs 1,059 Redeemable Noncontrolling Interest 13,975 Underfunded Pensions 2,650

Value of Equity 306,601.53

Shares Outstanding 1,800.00 Price Per Share $ 170.33 Partial Year Adjustment $ 171.46 Walt Disney Company Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending 2020E 2021E 2022E 2023E 2024E 2025E CV 2026E

Key Assumptions CV growth 1.90% CV ROE 12.32% Cost of Equity 6.71%

EPS 6.16 5.97 6.47 6.89 7.08 7.35 7.69

Future Cash Flows P/E Multiple (CV Year) 17.57 EPS (CV Year) 7.69 Future Stock Price 135.12

Dividends Per Share 1.76 1.76 1.80 1.80 1.85 1.89 1.96 Future Cash Flows 1.76 1.76 1.80 1.80 1.85 1.89 135.12 Discount Periods 1234566 Discounted Cash Flows 1.649 1.546 1.481 1.388 1.337 1.280 91.496

Intrinsic Value $ 100.18 Adjusted Stock Price $ 100.84 Walt Disney Company Relative Valuation Models EPS EPS Est. 5yr Market Cap (billions) 2020E 2021E P/E 20 P/E 21 EPS gr. PEG 20 PEG 21 DIS Walt Disney Company 260.65 $144.67 $6.16 $5.97 23.5 24.2 1.08 21.8 22.5 Implied Relative Value: Media Companies P/E (EPS20)$ 120 Market Cap (billions) EPS EPS Est. 5yr P/E (EPS21)$ 98 Ticker Company Price 2020E 2021E P/E 20 P/E 21 EPS gr. PEG 20 PEG 21 PEG (EPS20)$ 43 CBS CBS Corp Class B 13.94 $38.57 $5.33 $6.23 7.24 6.19 1.5 4.83 4.13 PEG (EPS21)$ 36 CMCSA Comcast A 200.55 $44.75 $3.38 $3.50 13.22 12.79 7.9 1.67 1.62 CHTR Charter Communications Inc 117.21 $475.60 $13.47 $20.06 35.30 23.71 1.4 25.22 16.93 Weight Applied to Each Area FOXA Fox Corporation 21.09 $34.27 $2.30 $2.73 14.88 12.55 8.6 1.73 1.46 Media 35.72% T AT&T 286.06 $39.29 $3.67 $3.80 10.71 10.33 5.8 1.85 1.78 Parks 30.27% VIAB Viacom 9.05 $21.99 $4.13 $4.25 5.32 5.17 ‐1.3 ‐ ‐ Studio 16.34% DISCA Discovery A 14.07 $27.26 $3.91 $4.03 6.98 6.76 13.8 0.51 0.49 Streaming 17.68% Average 13.380 11.072 5.967 4.402 ‐ Parks, Resorts, & Other Leisure Activities Market Cap (billions) EPS EPS Est. 5yr Ticker Company Price 2020E 2021E P/E 20 P/E 21 EPS gr. PEG 20 PEG 21 SIX Six Flags Entertainment 3.69 $43.77 $2.87 $3.12 15.26 14.01 5.7 2.68 2.46 FUN Cedar Fair LP 3.122 $55.10 $3.51 $3.64 15.68 15.14 3.5 4.48 4.32 RCL Royal Carribian Cruises 24.81 $117.89 $4.31 $4.63 27.35 25.46 3.6 7.60 7.07 CHH Choice Hotels International 5.15 $92.42 $4.37 $4.70 21.15 19.66 7.5 2.82 2.62 MAR Marriot International, Inc 44.60 $135.52 $6.60 $7.07 20.54 19.17 10.2 2.01 1.88 MGM MGM Resorts International 16.09 $31.18 $1.50 $1.73 20.81 18.02 3.7 5.63 4.87 Average 20.133 18.578 4.202 3.871

Studio Entertainment Market Cap (billions) EPS EPS Est. 5yr Ticker Company Price 2020E 2021E P/E 20 P/E 21 EPS gr. PEG 20 PEG 21 LGF.A Lions Gate 2.02 9.66 0.805 0.902 12.00 10.71 7.9 1.52 1.36 CMCSA Comcast A 200.55 $44.75 $3.38 $3.50 13.22 12.79 7.9 1.67 1.62 SNE 75.48 62.06 3.92 4.04 15.83 15.36 0.2 79.16 76.81 *Excluded In PEG average due to abnormally high ratio CNK Cinemark Holdings 3.997 34.12 2.278 2.526 14.98 13.51 3.7 4.05 3.65 Average 14.008 13.091 2.414 2.208

Streaming/Tech Companies Market Cap (billions) EPS EPS Est. 5yr Ticker Company Price 2020E 2021E P/E 20 P/E 21 EPS gr. PEG 20 PEG 21 AMZN Amazon 861.17$ 1,739.49 $39.12 $56.91 44.47 30.57 25.6 1.74 1.19 AAPL Apple 1,200.00 $ 265.76 $14.82 $15.76 17.93 16.86 7.2 2.49 2.34 NFLX Netflix 127.58$ 290.94 $6.28 $9.26 46.33 31.42 9.3 4.96 3.36 Average 36.24 26.28 3.06 2.30

Average across all segments: 19.57 16.36 6.52 5.52 Walt Disney Company Key Management Ratios

Fiscal Years Ending 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E

Liquidity Ratios Current Ratio 0.81 0.94 0.89 0.86 0.99 1.14 1.31 1.47 1.63 1.79 Quick Ratio 0.74 0.86 0.84 0.77 0.90 1.05 1.22 1.38 1.54 1.70 Cash Ratio 0.21 0.23 0.17 0.10 0.20 0.33 0.48 0.66 0.82 0.98

Activity or Asset‐Management Ratios Inventory Turnover 21.94 23.67 27.00 21.84 18.85 18.76 18.63 18.38 18.46 18.51 Receivable Turnover 13.73 14.32 13.41 27.83 14.32 8.79 6.35 4.39 3.55 3.00 Asset Turnover 0.58 0.60 0.37 0.41 0.42 0.43 0.43 0.42 0.41 0.41 Capital Turnover ‐14.88 ‐57.42 ‐21.39 ‐18.83 ‐383.63 20.88 9.62 6.22 4.62 3.70

Financial Leverage Ratios Debt Ratio 0.26 0.21 0.24 0.23 0.22 0.22 0.21 0.21 0.20 0.20 Debt‐to‐equity Ratio 0.56 0.40 0.50 0.45 0.44 0.42 0.40 0.39 0.38 0.36 Interest Coverage Ratio ‐35.81 ‐25.66 ‐15.41 ‐11.49 ‐12.78 ‐14.16 ‐15.58 ‐16.97 ‐18.38 ‐20.48

Profitability Ratios Gross Profit Margin 1.55 1.55 1.57 1.57 1.57 1.57 1.57 1.57 1.57 1.57 Return on Assets 0.09 0.13 0.06 0.07 0.07 0.07 0.07 0.07 0.07 0.07 Return on Equity 0.20 0.24 0.12 0.13 0.13 0.14 0.13 0.13 0.13 0.12

Payout Policy Ratios Payout Ratio 0.27 0.20 0.26 0.29 0.29 0.28 0.26 0.26 0.26 0.25

Ratio Definitions: Current Ratio Total Current Assets / Total Current Liabilities Quick Ratio Current Assets ‐ inventory / Current Liabilities Cash Ratio Cash / Total Current Liabilities Inventory Turnover COGS / Average Inventory Receivable Turnover Sales / Total Accounts Receivable Asset Turnover Sales / Total Assets Capital Turnover Sales / Working Capital Debt Ratio Total Liabilities / Total Assets Debt‐to‐equity Ratio Total Liabilities / Total Equity Interest Coverage Ratio EBIT / Interest Expense Gross Profit Margin (Sales ‐ COGS) / Sales Return on Assets Net Income / Total Assets Return on Equity Net Income / Total Stockholders' Equity Payout Ratio Dividends Declared / Basic EPS Present Value of Operating Lease Obligations (2018) Present Value of Operating Lease Obligations (2017) Present Value of Operating Lease Obligations (2016)

Operating Operating Operating Fiscal Years Ending 43738 Leases Fiscal Years Ending 43738 Leases #REF! Leases 2019 681 2018 580 2017 477 2020 571 2019 472 2018 376 2021 470 2020 401 2019 329 2022 381 2021 324 2020 278 2023 261 2022 244 2021 227 Thereafter 1220 Thereafter 1327 Thereafter 1419 Total Minimum Payments 3584 Total Minimum Payments 3348 Total Minimum Payments 3106 Less: Interest 416 Less: Interest 426 Less: Interest 437 PV of Minimum Payments 3168 PV of Minimum Payments 2922 PV of Minimum Payments 2669

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre‐Tax Cost of Debt 2.95% Pre‐Tax Cost of Debt 2.95% Pre‐Tax Cost of Debt 2.95% Number Years Implied by Year 6 Payment 4.7 Number Years Implied by Year 6 Payment 5.4 Number Years Implied by Year 6 Payment 6.3

Lease PV Lease Lease PV Lease Lease PV Lease Year Commitment Payment Year Commitment Payment Year Commitment Payment 1 681 661.5 1 580 563.4 1 477 463.3 2 571 538.7 2 472 445.3 2 376 354.8 3 470 430.7 3 401 367.5 3 329 301.5 4 381 339.2 4 324 288.4 4 278 247.5 5 261 225.7 5 244 211.0 5 227 196.3 6 & beyond 261 972.1 6 & beyond 244 1046.0 6 & beyond 227 1105.7 PV of Minimum Payments 3168.0 PV of Minimum Payments 2921.6 PV of Minimum Payments 2669.1

Forcasted end PV of Op leases 2019E 2020E 2021E 2022E 2023E 2024E 2025E CV 2026E 3167.96 3275.30 3398.07 3536.42 3690.59 3860.93 4047.83 4251.79 Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 14 Average Time to Maturity (years): 5.11 Expected Annual Number of Options Exercised: 3

Current Average Strike Price:$ 71.07 Cost of Equity: 6.71% Current Stock Price: $131.10

2019E 2020E 2021E 2022E 2023E 2024E 2025E CV 2026E Increase in Shares Outstanding: 333330 Average Strike Price: $ 71.07 $ 71.07 $ 71.07 $ 71.07 $ 71.07 $ 71.07 Increase in Common Stock Account: 195 195 195 195 195 21 ‐ ‐

Change in Treasury Stock ‐66,681 5,314 5,314 5,314 5,314 5,314 5,314 5,314 Expected Price of Repurchased Shares: $ 131.10 $ 139.90 $ 149.29 $ 159.31 $ 170.01 $ 181.42 $ 193.60 $ 206.60 Number of Shares Repurchased: (509) 38 36 33 31 29 27 26

Shares Outstanding (beginning of the year) 1,800 2,311 2,276 2,243 2,213 2,184 2,155 2,128 Plus: Shares Issued Through ESOP 33333000 Less: Shares Repurchased in Treasury (509) 38 36 33 31 29 27 26 Shares Outstanding (end of the year) 2,311 2,276 2,243 2,213 2,184 2,155 2,128 2,102 VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol DIS Current Stock Price $144.67 Risk Free Rate 1.93% Current Dividend Yield 1.36% Annualized St. Dev. of Stock Returns 23.84%

Average Average B‐S Value Range of Number Exercise Remaining Option of Options Outstanding Options of Shares Price Life (yrs) Price Granted Range 1 3 38.13 2.80$ 103.14 $ 309 Range 2 3 50.74 4.20$ 90.04 $ 270 Range 3 3 72.94 5.20$ 71.02 $ 213 Range 4 5 101.92 7.00$ 53.36 $ 267 Total 14$ 71.07 5.11$ 81.69 $ 1,059 Disney Sensitivity Tables

Equity Market Risk Premium $ 171.46 5.14% 5.24% 5.34% 5.44% 5.54% 5.64% 5.74% 0.57925 289.85 284.00 278.35 272.90 267.63 262.55 257.62 0.67925 244.34 239.26 234.36 229.63 225.07 220.65 216.39 0.77925 209.98 205.49 201.16 196.98 192.95 189.05 185.29 Beta 0.87925 183.10 179.08 175.20 171.46 167.85 164.37 161.00 0.97925 161.51 157.87 154.36 150.97 147.70 144.55 141.50 1.07925 143.78 140.45 137.25 134.15 131.17 128.29 125.50 1.17925 128.96 125.90 122.95 120.10 117.36 114.71 112.14

CV Growth $ 171.46 1.30% 1.50% 1.70% 1.90% 2.10% 2.30% 2.50% 5.150% 200.13 209.27 219.48 230.94 243.90 258.69 275.71 5.450% 182.82 190.43 198.86 208.24 218.74 230.57 244.01 5.750% 167.84 174.26 181.30 189.08 197.72 207.35 218.17 WACC 6.050% 154.76 160.22 166.17 172.70 179.89 187.84 196.70 6.350% 143.24 147.92 152.99 158.52 164.58 171.23 178.57 6.650% 133.02 137.05 141.41 146.14 151.29 156.90 163.06 6.950% 123.88 127.39 131.16 135.23 139.64 144.43 149.64

Pre‐Tax Cost of Debt $ 171.46 2.79% 2.89% 2.99% 3.09% 3.19% 3.29% 3.39% 1.60% 161.83 161.85 161.88 161.91 161.93 161.96 161.98 1.70% 164.83 164.85 164.88 164.91 164.93 164.96 164.99 1.80% 167.97 167.99 168.02 168.05 168.08 168.10 168.13 CV Growth 1.90% 171.26 171.29 171.31 171.34 171.37 171.39 171.42 2.00% 174.71 174.74 174.77 174.79 174.82 174.85 174.88 2.10% 178.34 178.36 178.39 178.42 178.45 178.48 178.51 2.20% 182.15 182.18 182.21 182.24 182.26 182.29 182.32

Risk Free Rate $ 171.46 1.33% 1.53% 1.73% 1.93% 2.13% 2.33% 2.53% 19.02% 207.53 196.91 187.18 178.22 169.96 162.30 155.19 20.02% 205.02 194.50 184.85 175.98 167.79 160.20 153.16 21.02% 202.51 192.07 182.52 173.72 165.61 158.10 151.12 Marginal 22.02% 199.98 189.64 180.17 171.46 163.42 155.98 149.08 Tax Rate 23.02% 197.44 187.20 177.82 169.20 161.23 153.87 147.03 24.02% 194.90 184.76 175.47 166.92 159.04 151.74 144.97 25.02% 192.35 182.30 173.10 164.64 156.84 149.61 142.91

Disney + User Count Growth in CV year 2026 $ 171.46 0.70% 0.80% 0.90% 1.00% 1.30% 1.60% 1.00% 1.60% 161.96 161.98 162.00 162.02 162.08 162.15 162.02 1.70% 164.96 164.98 165.00 165.02 165.09 165.15 165.02 1.80% 168.10 168.12 168.15 168.17 168.23 168.30 168.17 CV Growth 1.90% 171.39 171.42 171.44 171.46 171.53 171.60 171.46 2.00% 174.85 174.87 174.90 174.92 174.99 175.06 174.92 2.10% 178.48 178.50 178.52 178.55 178.62 178.69 178.55 2.20% 182.29 182.32 182.34 182.37 182.44 182.51 182.37

CV ROIC $ 171.46 15.94% 20.94% 25.94% 30.94% 35.94% 40.94% 45.94% 10.27% 165.88 170.86 173.93 176.00 177.50 178.63 179.52 13.27% 164.36 169.35 172.42 174.49 175.99 177.12 178.00 16.27% 162.85 167.84 170.90 172.98 174.47 175.60 176.49 Receivables 19.27% 161.34 166.32 169.39 171.46 172.96 174.09 174.98 22.27% 159.82 164.81 167.88 169.95 171.45 172.58 173.46 25.27% 158.31 163.30 166.36 168.44 169.93 171.06 171.95 28.27% 156.80 161.78 164.85 166.92 168.42 169.55 170.43