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Krause Fund Research Fall 2019

Walt Disney Co. (NYSE: DIS) Communications-Media

Jake Grovert Colin Heimbach jake-grovert@uiowa.edu colin-heimbach@uiowa.edu

We recommend a buy rating for Walt Disney Co. because innovative and forward thinking has aided Disney to mitigate the risk of consumers “cutting 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 in the now popular streaming service industry.

Drivers of Thesis:

Recently launched streaming services in the Consumer Products & Interactive Media segment resulting in estimates for revenue within the segment to increase 55% during fiscal year 2020.

Competitive advantage against rivals in the streaming industry due to not having to spend large amounts on future original content.

Recent acquisition of 21st Century Fox gave Disney a historic market share in the Studio Entertainment industry to help continue growth going forward. This also boosts their streaming service portfolio as they were able to acquire full operational control of Hulu.

Risks to Thesis: Consumer trends of cutting the cord. This results in estimates for

decaying revenue in the Media Networks segment, which is currently Disney’s highest producing segment of revenue.

Estimates for economy to possibly go into a recession due to a slowdown in Real GDP and decreased consumer confidence. This results in less spending on discretionary items, which make up the majority of Disney’s products and services.

12 Month Performance

Investment Thesis

Target Price Range: $162-$178 DCF & EP Model: $170 Relative Value Model: $120

Analysts

Stock Performance Highlights

Current Price: $144.67 52wk Range: $100.35- $150.63 Beta Value: .879

Share Highlights

Market Cap (B) 246.81 Shares Outstanding (B) 1.80 Forward P/E 23.5x EPS (2020E) $5.98

Company Description

Founded in 1923, Walt Disney Co. (DIS) is a worldwide entertainment conglomerate which operates through its four main segments Media Networks, Parks & Resorts, Studio Entertainment, and Consumer Products & Interactive Media.

Company Performance:

ROA 6% ROE 12% Gross Profit Margin 1.57 Payout Ratio 26%

November 15, 2019 Stock Rating: BUY

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We believe Walt Disney, Co. (NYSE: DIS) presents a BUY rating for the University of Iowa Krause Fund Portfolio. In a world where consumers are “cutting the cord” Disney has been innovative and forward thinking. Disney recently made a large splash in the up and coming streaming service industry with the highly anticipated release of Disney+. Upon release they saw over 10 million subscribers sign up in just 24 hours. This immediately made them a top player in the industry and further maintained their stake as one of the largest and most powerful companies in the Communications Services sector. On top of this, we anticipate continued growth of Disney’s Parks & Resorts and Studio Entertainment segments, which is discussed in detail throughout the report. In addition, our DCF and EP model produces an intrinsic value for Disney as of November 15, 2019 of $170 indicating the stock is currently undervalued.

U.S Real Gross Domestic Product (GDP)

Real Gross Domestic Product (GDP) is the market value of goods and services produced by a country in a specific period. It evaluates the health of the economy through 4 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 1.50%-1.75%.9 This cut is significant as it allows banks to lend money at a lower interest rate allowing firms and consumers to obtain more capital to invest in projects and spending to grow the economy. In the next 6 months we estimate U.S. Real GDP growth will increase to 2.25% with current monetary policy mitigating some of the external threats to the U.S. economy (ongoing trade war with China and Global weakness in manufacturing).

(Figure 1: BEA.gov Data)1

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 goods. Therefore, we predict the short-term increase in Real GDP will show a favorable increase to Disney’s profits as their parks, streaming service, and entertainment segments all will be impacted by increased consumer spending on discretionary goods.

The U.S. has seen a 10-year bull run, which we see coming to an end within the next 3 years. Because of this, in the long run, we see U.S. Real GDP falling to a rate of 1.75% growth. With a lower increase in Real GDP growth, consumers will have less disposable income to spend on discretionary goods. Disney will see an impact because of this and may have to begin to decrease prices to keep steady demand.

U.S. Consumer Confidence Index

The Consumer Confidence Index (CCI) surveys consumer attitudes and buying intentions to give insight into current and future economic conditions. The most recent survey at the end of October showed a slight decline from 126.3 to 125.9. This was the third consecutive month that the index declined as in August the CCI dropped from 135.8 to 134.2 and in September it dropped considerably from 134.2 to 126.3.3 This decline shows that consumers are less optimistic about business conditions going forward.

(Figure 3: CEIC Data)3

Much of the economic strength that we have seen in recent years has relied heavily on consumer spending and the on-going trade war with China. Barring any changes in the status of the trade war or other political factors, we estimate that over the upcoming 6 months there will be a 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,

Executive Summary

Economic Analysis

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consumers are less likely to be as confident in the economy and less willing to spend their money on unnecessary goods and services. This directly affects Disney as consumers are likely to spend less on vacations, entertainment, and streaming services.

U.S. Unemployment Rate

The US unemployment rate is a key indicator of the labor market because families with unemployed workers have lower income and the economy begins to slow as people have less money to spend. In October of 2009, the unemployment rate reached a record high at 10%. Since then the rate has been declining and is near record lows. This past September the US unemployment rate was measured at 3.5%, which was the lowest rate in the last 50 years.8

(Figure 4: Bureau of Labor Stats Data)4

The most recent unemployment data from October 2019 has the unemployment rate sitting slightly above the 50-year low at 3.6%.4 Over the next 6 months we are projecting US unemployment to remain low but continue increasing minimally to around 3.9%. Going forward 3 years we believe the US unemployment rate will keep increasing to approximately 4.5%. The low unemployment rates will continue to be a positive factor for Disney and the communication sector as a whole because a higher proportion of employed people in the labor force with a steady income will make more purchases of discretionary items such as a bundled streaming service ($12.99) rather than a single platform one ($6.99), or taking an expensive vacation to one of Disney’s many theme parks or hotels.

Inflation Inflation is the rate at which the general level of prices for goods and services is rising while the

purchasing power of currency is falling.5 Inflation is commonly measured using the Consumer Price Index (CPI). Over the past 3 years, from 2016 to 2019, we have seen a decrease in this measure of inflation (2.1% down to 1.7%). The decline in year over year inflation is good for Disney as it gives consumers higher confidence in the economy and encourages investment. Low inflation also makes it easier for Disney to predict future expenses such as wages and product costs. As we predict that the Federal Reserve will slowly begin to increase the Federal Funds rate, we will see inflation begin to rise. We estimate that this will push inflation back up to where it normally stands at 2%.

(Figure 6: Bloomberg CPI Data)6

Overall Capital Markets Outlook In the short term we anticipate positive market conditions for the communications sector. This is based off of our 6 month estimates of 2.25% real GDP growth, continuation of near record low unemployment numbers, and low inflation. Each of these factors have a positive influence on the sector as they result in more disposable income, which results in higher consumer spending. The majority of the products offered by Disney are considered to be discretionary goods. Therefore, in the short term we see a positive outlook for Disney. Our longer term, 3-year estimates of a decline in Real GDP to a growth rate around 1.75% are due to the end of a bull run, the Federal Reserve raising interest rates in order to increase inflation, consumer’s thoughts on the economy, and heading towards a potential recession. These factors will decrease the amount of money consumers are willing to spend as they instead turn their focus to saving their income. As a result, we believe there will be a decrease in discretionary spending, which in turn will create an unfavorable outlook for the communications sector as a whole. This will present challenges for Disney as the majority of their revenue streams come from consumers who feel that they currently have extra income in their pockets.

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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 6: 2019 10q)32

Media Networks The Media Networks segment currently makes up the largest portion of Disney’s total revenue at 39.18%. This segment consists of cable networks, television production and distribution operations, domestic television stations, and radio networks. Disney owns three main cable networks ESPN, Disney, and Freeform. The Disney network is the largest of the three and operates over 100 Disney branded television channels in 164 countries that are aimed primarily towards youth viewers. ESPN is the second largest and operates 8 different 24-hour television sports channels in 61 countries. Disney owns 80% of ESPN with the other 20% being owned by Hearst Corporation. Freeform is a solely domestic TV channel of its own, which acquires programming from third parties as well as airs content from within Disney’s own theatrical film library. The majority of revenue from Disney’s cable networks can be attributed to the following 4 TV channels:

(Figure 7: 2018 10k)23

This segment of Disney also operates a broadcasting business through ABC television 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 New York City, 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 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 Streaming Video on Demand distribution licensing (TV/SVOD). As consumers cut the cord, this is the only area of the Media Networks segment that is seeing growth as services such as Sling TV and YouTube TV are paying Disney for the right to offer Disney owned channels in their TV/SVOD packages. Interactive Media & Consumer Product The Consumer Products sub-area of this segment licenses Disney’s trade names, characters and literary properties to several manufacturers, publishers and retailers worldwide, as well as, distributes branded merchandise directly through retail, online and wholesale businesses. This segment also develops and publishes games for mobile platforms, books, and magazines. Revenues in this area are heavily seasonal and as a result Disney annually sees large revenue spikes in the fourth and first quarters due to the holiday season. The Interactive Media sub-area focuses on digital distribution to internet-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.

Company Analysis

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Mr. Iger expects Disney+ to release 60 original series, movies, and specials per year over the next 5 years.18 With the recent 21st Century Fox acquisition Disney acquired an additional 30% of Hulu and now owns 90% and has full operational control of the streaming service. Disney also recently announced that all FX shows will stream exclusively on Hulu and Hulu customers will have access to these shows the day after they air on the FX cable network. Disney also launched ESPN+ in 2018. ESPN+ allows users to watch live sporting events, on-demand shows, and exclusive stories. It is separate from Disney’s ESPN cable networks as consumers still need a TV subscription to view these channels.24 Disney has strategically priced their streaming products individually as well as in a bundle with all three (Disney+, Hulu, ESPN+) to drive its subscriber growth in the early stages by offering lower prices than key competitors. This also allows Disney to be able to increase prices in the future to more closely align with competitors, without hindering its subscriber count and growth. The chart below provides a look into how Disney’s pricing compares to their peers.

(Figure 8: Bloomberg Terminal)6

Studio Entertainment The Studio Entertainment segment is broken down into the following three sub-areas: Theatrical Distribution, Home Entertainment, and TV/SVOD Distribution. 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 Pixar (2006), Marvel (2009), Lucasfilms (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

In the Home Entertainment area, Disney sells and distributes physical DVDs and Blu-rays of theatrical productions to consumers within 3-6 months after their release in theaters. Revenue in this area has decreased by 25% over the last 4 years due to the trend of consumers no longer purchasing physical copies of DVDs and Blu-rays. Streaming Video on Demand (SVOD) Distribution is when Disney licenses their theatrical films to video on demand providers for electronic delivery to customers for a specific rental period. This area has seen a growth rate over the last 4 years of 5.8%. However, as we move forward this growth is expected to diminish and likely turn negative as Disney plans to have all their titles available on their Disney+ streaming service. Parks & Resorts Segment The Parks & Resorts segment is the second most profitable segment for Disney making up 30.36% of Disney’s total sales in 2019. This segment includes the 12 theme parks and 52 resorts that Disney owns across the world, as well as, their cruise line business. Major producers of revenue for this segment come from theme park admission, in-park 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 international guest was $44.11. The low average revenue for international guests is skewed due to Disney only having partial ownership in most of the international parks. Disney owns 47% portion of Hong Kong Disneyland, and 57% of Shanghai Disney. The Paris Disneyland they just recently acquired full ownership of in 2017 and the Tokyo Disneyland they only receive royalties from.

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M&A Activity Over Disney’s lifespan they have experienced a multitude of acquisitions. Some key acquisitions they have made include the following:

ESPN, ABC, and Capital Cities in 1995 for $19 billion,

Freeform in 2001 for $2.1 Billion Pixar in 2006 for $7.4 Billion Marvel in 2009 for $4 Billion Lucasfilms in 2012 for $4.06 Billion BamTech in 2017 for $2.58 Billion 21st Century Fox in 2019 for $74.1 Billion.21

These acquisitions have assisted Disney into becoming the massive media conglomerate that it is today. The recent 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 “cutting the cord” in favor of streaming services. It appears that the planning process for this has been in the works for some time. The 2017 acquisition of BamTech, allowed for Disney to build the platform used to create ESPN+ and Disney+. Competition Since Disney has so many different streams of revenue, we have found that the best way to look at their competition is by taking a look at who their competitors are in each segment. Media Networks Competition: For Media Networks, Disney’s competition includes the four other major television firms of CBS Corporation (CBS), NBC (CMCSA), Viacom (VIAB) and Discovery Inc. (DISCA). Competition has been tight for this segment due to high M&A activity that has taken place in recent years as companies have raced to build the strongest portfolio of networks. Reasoning for the high M&A activity in this area is due to a need for scale, acquisition of new content and diversification.12 One way in which Disney has been able to differentiate from its peers is that in early 2019 they were able to outbid Comcast and close on the major acquisition of 21CF, which was previously a top competitor of theirs in this segment as well as their

Studio Entertainment segment.11 As the Media Networks segment continues to decay due to more and more people cutting the cord, this acquisition also allows for Disney to strategically build offerings for their streaming services. Parks and Resorts Competition For Disney’s Parks and Resorts segment the major competition comes from other domestic theme parks owned by Six Flags Entertainment (SIX), Cedar Fair (FUN), and Comcast (CMCSA) who owns Universal Studios. Disney is a clear cut leader in this area, but Universal Studios has made a large push with their recent opening of Harry Potter World.11 However, as you can see in the graph below, which shows park admissions for 2018, Disney clearly is still far ahead of its competition as 6 of the top 8 theme parks are owned by Disney.

(Figure 9: Statista: Theme Park Attendance)13

Studio Entertainment Competition Competitors to Disney’s Studio Entertainment segment would include Time Warner, NBC-Universal, Columbia Pictures, and Paramount Pictures. Disney is able to differentiate themselves in this segment with the large portfolio of film companies they have acquired. These acquisitions include the studios of Pixar, Marvel, Lucasfilm and the recent addition of Twentieth Century Fox. In 2018 Disney had the largest share of the film industry with a market share of 26%. Twentieth Century Fox had the 5th highest market share with 9.01%. The 2019 acquisitions combined the two to give Walt Disney Pictures over a 35% market share, which is a historic amount for the film industry.17 Interactive Media Competition: The main competition for the Consumer Products & Interactive Media segment comes from other companies with streaming services. The top competitor in this area is Netflix as they are solely a streaming service and were the first mover in this business. Other competition comes from Amazon Prime Video, CBS All Access, HBO Now, and Apple TV+ which just launched November 1st. This area is extremely competitive right now as many households turn to monthly-paid streaming options after cutting the cord. Due to cutting the cord, many large companies in the sector are rushing into the creation of their own streaming

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services. For example, NBC-Universal is set to release a streaming service of their own called Peacock in April of 2020 and HBO is set to release a second streaming service, HBO Max, in May of 2020 .14 Disney has differentiated themselves with their streaming services as they are able to create the bundle package of Disney+, Hulu, and ESPN+ for $12.99 per month. An effective way to compare streaming services is by their subscriber count. Netflix currently has the largest subscriber count at ~61 million domestic users and ~80 million international users.

(Figure 10: Statista User Count)

Far behind Netflix stands Hulu, owned by Disney, at 28 million users. However, on November 12th Disney+ was able make a huge splash in this market by signing up over 10 million domestic users within just 24 hours of their launch. While this is an enormous amount of initial sign ups, we will not know more about how this number grows until the end of Q1 2020 as Disney has said they will only release this information with their quarterly earnings reports going forward. Disney+ plans to roll out their international streaming service in the first quarter of 2020, which is projected to also have great demand due to the worldwide presence of their brand. It was recently announced in Disney’s quarter 4 earnings call that Verizon Wireless will offer a free year subscription of Disney+ to all their customers who have an unlimited plan. This will help Disney to grow their subscriber base as Verizon has around 20 million customers with plans eligible for a free year of Disney+ on Verizon. Netflix has previously had a comparable deal with T-Mobile where they saw about a 50% participation rate from eligible T-Mobile customers.18 While they are new to the streaming service business, we believe that Disney is in a position for success. Evidence of this can be seen through the extremely high initial demand of 10 million people signing up in the first 24 hours. Also, since the majority of their content will come

from what has already been created in other segments of the company, they will be able to partially avoid the extremely high cost of new content creation that is currently eating away at the margins of their competitors. SWOT Analysis Strengths A leading brand valuation consulting firm out of London named Disney the most powerful brand in the world27. Walt Disney Co. is a brand that is family focused 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 does not fit public preference then multiple revenue segments are at risk. For example, Star Wars has theatrical films, theme parks, and consumer products. Therefore, if the next Star Wars film flops, then they will not only lose out on their studio entertainment segment, but also their parks, resorts and consumer product segments. Opportunities: As internet -connectedness grows worldwide, opportunity for Disney is to grow in developing markets. They are beginning to do this by releasing Disney+ internationally in Q1 2020, but it will be important for them to continue to invest heavily into his developing markets as it can yield a higher subscriber base resulting in higher revenue in the future. Threats: Disney’s biggest threat is competition from the other large media companies who are also currently trying to get into the streaming market. Also, they face competition from firms creating movies intended to compete with Marvel, such as Time Warner’s DC Universe Superhero movies. Disney also faces the threat of digital content privacy compressing margins by affecting potential revenue. This will become more impactful to Disney when they release their streaming service internationally because other countries may have weaker legal protection25.

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In 2018, the Global Industry Classification Standard (GICS) reclassified it’s sectors by changing the Telecommunications sector into the Communications Services sector. When this new sector was created it added large firms such as Walt Disney Co., Facebook, Alphabet, and Netflix from the Consumer Discretionary and IT sectors and combined them with the telecommunication firms. The Communication Services sector is comprised of two industries, Telecommunication Services and Media & Entertainment. Disney is classified as being under the Media & Entertainment industry. Within Media & Entertainment, there are sub-industries which include Advertising. Broadcasting, Cable & Satellite, Publishing, Movies & Entertainment, Interactive Home Entertainment, 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 11: Net Advantage)12

Disney had traded similarly to the sector until recently as it has began to see far higher growth. As consumers begin to cut the cord Disney has been able to innovatively shift its entertainment business to stay ahead of the trend by developing a direct to consumer streaming service 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

that with their own streaming service up and running, they will pull all of their content from Netflix. This will take 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 license their content to Netflix, but will likely do so at a higher cost. As a result, Netflix has found that they need to significantly increase their spending on original content. In 2019 Netflix is expected to spend over $15 billion on their own original content. This expense coupled with the fact that other companies will be charging a higher cost for licensing their material will largely reduce Netflix’s margins. Other companies such as Apple (Apple TV+), Amazon (Prime Video), and AT&T (HBO) who are not already producing content for purposes outside of their streaming services will see similar effects. The chart below shows a comparison of what these types of competitors are spending on original content in 2019 relative to what Disney announced they’ll spend on Disney+ in 2020.

(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. Increase in Home Video Spending The chart below shows us that from 2016 to 2019 research on total home video spending has seen consumers opting for streaming services as opposed to the traditional cable TV. This trend will yield a positive outlook for Disney as they developed and released their streaming service with their own original and past content.

(Figure 13: Bloomberg Terminal)6

Industry Analysis

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The increase in spending by consumers on streaming 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 revenue in the future. However, we believe that this will also be offset by an even larger increase in revenue coming from the streaming services. 16 Decrease in Traditional TV Subscribers There has been an increase in consumers cutting the cord evident by major cable and satellite companies like Comcast and Dish suffering consecutive quarter over quarter losses in pay-tv subscribers. On the other side a la carte TV options like Sling TV and YouTube TV are seeing gains in subscribers. The tendency to cut the cord will initially happen slowly, but over time consumers will begin to cut the cord at a rapid pace as the streaming services become more developed and widely used.

(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

area of opportunity for Disney to grow their subscriber base.

(Figure 15: Bloomberg Terminal)6

According to Strategy Analytics over 450 million households are expected to pay for streaming services by 2022 up from 250 million in 2018. This offers significant opportunity for growth for companies in the industry and competition for new users will be highly competitive. For Disney, this gives them a positive outlook as they have a brand that is well established and popular worldwide. As a result, they will likely be trusted by new users in the industry. Also, with the merger of 21CF they have acquired 75 million streaming subscribers in India via the Hotstar platform giving them a head start as they begin to fully launch Disney+ internationally in the Q 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 16 : Statista Box Office Revenues)20

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As a result, Disney is well positioned in the present and the future as they currently own Marvel, the most well-known cast of action heroes. The recent purchase of 21CF added even more well-known action heroes, most notably X-men and Fantastic Four. This will allow Disney to create not only independent films, but also combined films. Their latest installment of Avengers Endgame set the all-time box office sales record.28 Because of this, Disney has an encouraging outlook in the Studio Entertainment industry. Theme Park Industry The theme park industry has seen growth in recent years as the number of retired baby boomers looking for leisure activities in their free time has increased19. Analysts within the industry are projecting an 8.2% CAGR for the industry as a whole. While the US is the largest current market for theme parks the largest growth market can be found in the Asia-Pacific region. The CAGR for this region is estimated to be 12.2%.19 This can be seen on the following graph as 6 out of the top 8 year over year increases in park attendance come from the Asia-Pacific region.

(Figure 17 : Statista Attendance at Theme Parks)31

The incorporation of technology such as virtual reality, augmented reality and mobile applications to be used while in the park is a hot topic in the theme park in the industry. Disney is at the forefront of this technology, and in July 2019 their R&D team received a patent for a pair of augmented reality glasses that they created to be worn while in their parks. Porter’s Five Forces Competitive Rivalry: High Although Disney is a massive media conglomerate, they still experience strong competition. This comes from well-established firms in each of their business segments. These 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

presents a moderate differentiation between firms in the industry meaning they present similar content and experiences to consumers. Bargaining Power of Suppliers: Low Disney already has an extensive content library for their streaming services and thanks to acquisitions of Marvel, Lucasfilm, and most recently 221CF they have further added to this list. Therefore, they have a large enough library where they do not have to spend nearly as much money on content creation and licensing as other firms, like Netflix. Bargaining Power of Buyers: High Each of Disney’s revenue segments brings upon competitions, increasing the consumers bargaining power. In terms of the Interactive Media segment, consumers now have many alternative streaming services they can choose from. At their initial launch Disney took on the strategy of setting the starting price for Disney+ and their bundle low relative to other competition. These low prices will likely 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 21CF, has created for a low threat for substitutes. Potential substitutes are normally too small and end up getting acquired by large media companies. Therefore, the competition Disney faces should stay relatively similar in the future. Consumers will have their choice between a few media companies, and we believe Disney has positioned themselves well in the future. Threat of New Entrants: Low New entrants will face incredibly strong hardships as they begin to penetrate the industry. They will not be big enough to pull consumers away from large well-established media companies. If they find success, these new entrants will likely be acquired by one of the large and well-established companies. As a result, Disney should not have to worry about the threat of new entrants.

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Decomposition of Revenue Media Networks 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 18: 2018 10k)23

For forecasting purposes, we chose to combine the two areas into one due to the off-setting increase/decrease effect. The two areas combined grew at an average of approximately 1.03% each year between 2012 and 2018. This minimal growth can be seen between the years 2016 and 2018 in the graph below which shows our forecasted growth for Affiliate Fees and Advertising.

(Figure 19: 2019 10Q & Krause Fund Analysts Forecasts)32

The spike in revenue from 2018 to 2019 is due to revenue added to the segment from the cable networks brought in

from 21CF. For future years we estimated growth will become negative for this area due to cutting the cord. As we discussed in the industry trends, cutting the cord will initially start slow and then decrease at a rapid pace. When forecasting this area, we applied similar decline rates. The negative growth rates we used for each year of our forecast can be seen in the graph below.

(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 To forecast our Parks & Resorts revenue we used a breakdown of the total number of guests and average revenue spent by guests for both domestic and international parks. As can be seen in the chart below, Parks & Resorts revenue historically has increased steadily each year and therefore, we forecasted a steady rate for the years going forward.

(Figure 21: Krause Fund Analysts Forecasts)

The steady rate we used was calculated by taking the total domestic Parks & Resorts revenue and dividing it by the total number of guests at each park and resort (given in

Valuation Analysis

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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 Disney recently expanding their theme parks into this territory, so we should expect more buzz around the attractions than domestically. A detailed version of this breakdown can be found on Park Assumptions page located on page 21.

Studio Entertainment Revenue in the Studio Entertainment segment is mostly driven by theatrical distributions, which fluctuates due to the tastes and preferences of the public. When forecasted we looked at anticipated releases of films for the future and compared those films to historical tastes and preferences of the public as many of the films were anticipated sequels. We also weighted Action and Adventure films more heavily since they have been the best box office performers in recent years. For example, in 2020 we anticipate a very strong year for Studio Entertainment. This is because Star Wars Episode 9, Frozen 2, and Marvel’s Black Window expect to release, which historically have provided extremely favorable box office numbers. An estimated $7.88 billion of Studio Entertainment’s revenue can be attributed to theatrical distributions in 2020. 2024 is the lowest estimated year as we project Disney to only bring in $6.65 billion from theatrical distributions. This is due to their currently not being any anticipated large releases planned. To calculate revenue for theatrical distributions in our CV year we took the average of the average revenues from 2019-2025. Home Entertainment revenue is declining due to consumers switching to streaming services opposed to purchasing physical DVDs and Blu-rays. As Disney focuses on moving its theatrical content to its new streaming platform, we anticipate this decline to continue. Our future estimates have a rapid increase in negative growth for the area before eventually beginning to even out as their will still be some small portion of consumers that prefer DVDs and Blu-rays. This can be seen in the graph below which shows our negative growth rates for Home Entertainment.

(Figure 22: Krause Fund Analysts Forecasts)

In terms of the TV/VSOD Distributing and Licensing segment, we predict it will increase at a steady growth rate of 3%. VSOD allows consumers to rent or purchase movies early before they hit go onto the streaming services. This increase helps partially offset the loss Disney experiences in its home entertainment segment. Consumer Products & Interactive Media In FY2019 Disney added the Interactive Media portion to this segment when they acquired majority control of Hulu and launched ESPN+. This led to a large increase in revenue for the segment of 93% year over year. Prior to 2019 the Consumer Products part of the segment had seen a decrease in revenue over each of the last 4 years. In our forecast for the segment we have separated these two areas and have the revenue attributable to Consumer Products decreasing at -2.88%. This is equivalent to the average decrease in revenue from the 4 years before they started gaining revenue from streaming content. For the Interactive Media area, we forecasted revenue by creating a breakdown of each of the 4 streaming packages offered by Disney in terms of the number of customers signed up. This breakdown can be found on page 20. Based off the 2019 Q4 earnings call on November 11, 2019 we know that at the end of FY2019 Hulu had 28.5 million customers signed up and ESPN+ had 3.4 million. We used these numbers as starting points for FY2020 and forecasted growth as a year over year percent increase in the number of subscribers. ESPN+ Growth Assumptions For ESPN+ we held growth at 2% each year with a CV growth rate in 2026 of 0.5%. The reasoning for this is because the ESPN+ service only attracts a niche group of consumers due to not offering marque games in major sports. Also, due to the cheap price point of the bundle package many people will tend to buy the bundle package rather than solely ESPN+.

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Hulu Growth Assumptions With Hulu our year over year growth rate varied. For FY2020 we believe that it will be small relative to there growth in prior years at 3%. This is because we believe that the launch of Disney+ will eat at their growth as more people opt to spend their money on the new offering in the market. We anticipate Hulu’s growth will bounce back in 2021 with a 10% growth rate due the hype of Disney+ beginning to wear off and the new offering of all FX 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 Disney+ within 24 hours of their initial launch. We combined this data with estimates from management and other analysts to come up with an estimated number of total sign ups in FY2020 to be 33.6m people for Disney+ and 12m people for the bundle. For the bundle of the 3 and Disney+ we wanted our forecast to represent rapid growth in terms of the number of subscribers in the first and second year. Consumers interested in the services will by then have already purchased it. We predict the growth rate to slow down and have smaller growth increase each year. The estimated growth in terms of number of subscribers for Disney+ and the bundled package is shown in the following graph.

(Figure 23 & 24: Krause Fund Analysts Forecasts)

Estimated subscriber count for each service over our forecasting period can be seen in the graph above. To come up with yearly revenue for the streaming services we multiplied the number of subscribers for the year by the price per month of each plan and by 12 months. We knew that the price points of each plan would change over time. Our projected price points are shown in the following chart:

(Figure 25: Krause Fund Analysts Forecasts)

Disney+ and the bundled package started out cheap relative to other options on the market as they were trying to get people signed up. Because of this we projected price increases as soon as year 2. As time goes on and yearly subscriber growth slows we projected that they will increase the monthly cost in order to account for the slowed growth. This follows what their top streaming competitor, Netflix, did when they saw subscriber growth slow. We anticipate that Hulu and ESPN+ will also see increases over time as subscriber growth slows. However, they will have less frequent price increases due to currently having a price point that mirrors their 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 Bob Iger 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 “Amortization Expense (Streaming Content, Net).” This was created because the original content created for the

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streaming service will be amortized at a faster rate than that of other intangibles. Disney has not yet provided details on how they will amortize their original content, so we modeled our amortization after that of Netflix who amortizes their original content using a double declining method of accelerated amortization. This is done to amortize the content at a faster rate because they believe the majority of viewers will watch the content within a certain short-term period of it being uploaded. Income Taxes We forecasted Income taxes using Disney’s marginal tax rate from their 2018 10-k multiplied by their EBIT. The marginal tax rate is calculated using their tax expense from federal, state, and foreign and dividing the sum over the tax expense from the income statement. This yields a rate of 22.02%, which becomes more accurate as the recent tax cut (went into effect at the end of 2017) combined with the old tax rate skewed Disney’s effective tax rate. Weighted Average Cost of Capital (WACC) We calculated Disney’s WACC to be 6.089%. The WACC is a key component in the Discounted Cash Flow (DCF) and Economic Profit (EP) calculations used to determine the intrinsic value of Disney. Cost of Equity: Risk Free Rate: 1.93% Beta: 0.87925 Expected Market Risk Premium: 5.44% Cost of Equity: 6.7131% In order to calculate the cost of equity we used the Capital Asset Pricing Model (CAPM). For the risk-free rate, we used the current rate of the 10-year US Treasury note. We calculated the beta using the average of the 1yr, 2yr, 3yr, and 4yr betas. We excluded the 5yr beta, as we believed it to be considered an outlier from the other years. We modeled the expected market risk premium using Damodaran’s TTM cash yield. Cost of Debt To calculate Disney pre-tax cost of debt we used the yield of a 30-year bond that Disney currently has outstanding. The 30-year bond has a YTM of 3.538%. Our marginal tax rate was 22.02%. Discounted Cash Flow (DCF)/ Economic Profit (EP) Using the DCF/EP method we calculated the intrinsic value for Disney, as of November 15, 2019, to be $171.46 We believe this is the most accurate representation that we 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

factor for their future because although they are choosing to sacrifice some cash in the short-term to develop and implement their direct to consumer streaming service, it will end up having a positive effect on their FCF in the long-term. Dividend Discount Model Using the Dividend Discount Model, we calculated an intrinsic value for Disney, as of November 15, 2019, to be $100.84. We do not think this is a great valuation method to determine the stock price. We believe Disney plans to reinvest a higher proportion of their proceeds than they historically have in order to continue to develop their streaming services in what is a highly competitive direct-to-consumer industry. Relative Valuation Since Disney primarily faces a different set of competitors in each of its segments, we pulled top competitors from each area and used a weighted average to create our relative valuation. Since we were finding the one-year forward P/E ratio the weights used in calculating this average were equal to the estimated percent of total revenue for each segment in 2020. This breakdown of weights can be seen on page 32. Using this method for comparisons we calculated Disney’s relative valuation to be $120. This was done by multiplying the average forward P/E ratio of the competition (19.57) by Disney’s forecasted EPS ($6.16). We believe that this does not accurately represent the value of Disney as the average forward P/E ratio is weighed down by the competitors in the Media and Studio Entertainment industries. The majority of Disney’s competition in these industries trade at a significantly lower P/E ratio than Disney does. We believe that this is because Disney, with a $260 billion market cap, is a significantly larger firm than these competitors and has more diverse streams of revenue. Also, in 2020 the Media segment still makes up the largest portion of estimated revenue by segment, so it has the heaviest weight. By breaking competition down into each industry and using a weighted average we tried to paint the most accurate picture of how Disney is made up. However, since Disney has such a wide variety of products there is no other company that it can closely be compared to. This is another reason that we believe relative valuation is not a good method for valuing Disney.

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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 whole. Disney has a low beta of 0.8792 because they are a media conglomerate and a mature firm, so they do not possess as much risk due to sheer size. That being said, with its recent penetration into the direct-to-consumer market it will be important to look at the change in beta as it potentially could expose them to risk as they are entering a market that is new to them. For example, Netflix is the leader in this area and has a beta is much higher at 1.36.

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 external factors from the industry and economy, which is out of Disney’s control. Also, we decided to test the effects of WACC and saw a 0.3% increase resulted in a stock price decline of around $13. This shows that Disney has potentially higher risk associated to its capital possibly due to its investments in their new direct to consumer streaming services.

CV Growth vs Pre-Tax Cost of Debt The CV growth is an important metric used in both the DCF and EP models because a large proportion of the 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.

Marginal Tax Rate vs Risk Free Rate Marginal Tax Rate is a key metric to find the ROIC of Disney, which is used to determine the intrinsic value. The tax rate has the potential to shift, due to the possibility of a change in presidency in 2020. Because of this we believe it is important to see how the affect could alter Disney’s intrinsic value. A 1% increase in the marginal tax rate declined Disney’s intrinsic value by around $2.50. With 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.

Receivables vs CV ROIC A 3% increase in accounts receivables yields about a $1.50 increase in Disney’s intrinsic value. Receivables is one of Disney’s largest current assets on the balance sheet. Receivables are forecasted using an average historical percentage of sales multiplied by current year sales. Since receivables make up the majority of Disney’s current 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 wanted to see how sensitive the intrinsic value is if Disney did not see as high of a return on their invested capital as originally predicted.

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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.

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1. Gross Domestic Product. (n.d.). Retrieved from https://www.bea.gov/data/gdp/gross-domestic-product.

2. Amadeo, K. (2019, July 10). Four Critical Components of America's Economic Growth. Retrieved from https://www.thebalance.com/components-of-gdp-explanation-formula-and-chart-3306015.

3. United States: Consumer Confidence Index: Economic Indicators: CEIC. (2019, October 1). Retrieved from https://www.ceicdata.com/en/united-states/consumer-confidence-index/consumer-confidence-index.

4. Bureau of Labor Statistics Data. (n.d.). Retrieved from https://data.bls.gov/timeseries/LNS14000000.

5. Chen, J. (2019, October 7). Inflation Definition. Retrieved from https://www.investopedia.com/terms/i/inflation.asp.

6. Bloomberg Terminal. (n.d) 7. 10 Year Treasury Rate - 54 Year Historical Chart.

(n.d.). Retrieved from https://www.macrotrends.net/2016/10-year-treasury-bond-rate-yield-chart.

8. United States Unemployment Rate. (n.d.). Retrieved from https://tradingeconomics.com/united-states/unemployment-rate.

9. (n.d.). Retrieved from https://www.federalreserve.gov/monetarypolicy/openmarket.htm.

10. Log In: S&P Capital IQ. (n.d.). Retrieved from https://www.capitaliq.com/CIQDotNet/Charting4/ModernBuilder.aspx?CompanyId=2671444&fromC3=1&fromC2=1.

11. Segal, T. (2019, November 13). Who are Walt Disney's Main Competitors? Retrieved from https://www.investopedia.com/ask/answers/052115/who-are-disneys-dis-main-competitors.asp.

12. S&P 500 Communications Services Sector. (2019, November 19). Retrieved from https://www-capitaliq-com.proxy.lib.uiowa.edu/CIQDotNet/Index/IndexWidgetTearsheet.aspx?companyId=2671444.

13. Amusement and theme park attendance in North America 2018. (n.d.). Retrieved from https://www.statista.com/statistics/194269/attenda

nce-at-theme-and-amusement-parks-in-north-america-since-2010/.

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/nbcuniversal-peacock-streaming-wars-hulu-netflix-office-parks-and-recreation-snl-exlcusives.

15. Netflix EBITDA 2006-2019: NFLX. (n.d.). Retrieved from https://www.macrotrends.net/stocks/charts/NFLX/netflix/ebitda.

16. Whitten, S. (2019, August 6). Nearly 25% of households will ditch traditional TV by 2022. Retrieved from https://www.cnbc.com/2019/08/06/nearly-25percent-of-households-will-ditch-traditional-tv-by-2022.html.

17. Sims, D. (2019, March 21). Hollywood Makes Way for the Disney-Fox Behemoth. Retrieved from https://www.theatlantic.com/entertainment/archive/2019/03/disney-fox-merger-and-future-hollywood/585481/.

18. Disney, Co. Earnings Call Q4 2019, 2019. Web. 7 November 2019.

19. By. (2019, September 19). Global Amusement Park Market Overview 2019-2023: Segmented by Geography Trends and Opportunities growing with CAGR of 8%. Retrieved from https://www.marketwatch.com/press-release/global-amusement-park-market-overview-2019-2023-segmented-by-geography-trends-and-opportunities-growing-with-cagr-of-8-2019-09-19.

20. Movie genres by total box office revenue in North America 2019. (n.d.). Retrieved from https://www.statista.com/statistics/188658/movie-genres-in-north-america-by-box-office-revenue-since-1995/.

21. Smith, C. (2019, April 15). Important Disney Acquisitions Over Time: Disney History. Retrieved from https://disneynews.us/important-disney-acquisitions-time-disney-history/.

22. Amobi, T. N. (2019, October 7). Industry Survey: Global Media & Communications. Retrieved from https://www-capitaliq-com.proxy.lib.uiowa.edu/CIQDotNet/Research/DocumentViewer.aspx?documentViewerDocumentId=42652903.

23. Disney, Co. Form 10k 2018, 2019. Web. 29 September 2019.

24. Hastings, N. (2019, November 2). ESPN : Everything you need to know about ESPN's streaming service. Retrieved from https://www.businessinsider.com/what-is-espn-plus.

References

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25. Brown, L. (2017, December 17). Walt DisneyCompany SWOT Analysis & Recommendations.Retrieved from http://panmore.com/walt-disney-company-swot-analysis-recommendations.

26. Here Are All the Movies Disney Is Releasing forthe Next 8 Years. (2019, May 22). Retrieved fromhttps://redtri.com/disney-movies-through-2027/.

27. Disney Named World's Most Powerful Brand.(2018, February 6). Retrieved fromhttps://www.thewaltdisneycompany.com/disney-named-worlds-most-powerful-brand/.

28. Top Lifetime Grosses. (n.d.). Retrieved fromhttps://www.boxofficemojo.com/chart/top_lifetime_gross/?area=XWW&landingModalImageUrl=https://m.media-amazon.com/images/G/01/IMDbPro/images/home/welcomeToBomojov2._CB1571421611_.png.

29. Lovely, S. (2019, September 8). How Much Arethe Streaming Giants Spending on Content?Retrieved fromhttps://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. 6August 2019.

31. Rising / declining attendance at theme parksworldwide 2017-2018. (n.d.). Retrieved fromhttps://www.statista.com/statistics/194286/percentage-change-in-attendance-at-amusement-parks-worldwide-2009-2010/.

32. Disney, Co. Form 10Q 2019, 2019. Web. 7November 2019.

Walt Disney CompanyRevenue 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 & ResortsTotal Guests @ domestic parks/hotels 97 100 103 106 109 112 115 118 121 125Average Revenue per Visitor Domestic 153 162 168 174 180 186 193 200 207 215Total 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 EntertainmentTheatrical 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 MediaTotal 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 ServicesPortion of CP&IM Rev attributed to streaming services

# of users 2019A 2020E 2021E 2022E 2023E 2024E 2025E CV 2026EHulu 28.50 29.36 32.29 34.23 35.25 35.96 36.32 36.68Dis+ 33.60 57.12 62.83 65.97 67.95 69.31 70.00ESPN+ 3.40 3.47 3.54 3.61 3.68 3.75 3.83 3.85Bundle 12.00 21.00 23.10 24.26 24.98 25.48 25.86

Revenue

Hulu (assuming 11.99/month) 341.72 351.97 387.16 410.39 457.96 467.12 471.79 513.19Dis+ (assuming 6.99/month) 234.86 456.39 627.69 791.02 814.75 831.05 909.36ESPN+ (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 2026EHulu 11.99 11.99 11.99 11.99 12.99 12.99 12.99 13.99Dis+ 6.99 7.99 9.99 11.99 11.99 11.99 12.99ESPN+ 4.99 4.99 4.99 4.99 5.99 5.99 5.99 6.99Bundle 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

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Estimated Subscriber  Count 2020‐2026

Hulu Dis+ ESPN+ Bundle

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Subscriber Count Over Time

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Assumptions used for Parks & Resorts Revenue CalculationParks and Resorts 2016 2017 2018 Hotels Domestic 2016 2017 2018Domestic Revenue 14,242.00 14,812.00 16,161.00 Available Room Nights (in Millions) 10.38 10.21 10.05 Magic Kingdom 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

Epcot 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 ratAverage 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 forwardTotal 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 2017Tokyo Disney Resort Domestic Parks 94.54 96.83

# of vistors per year 30.00 30.10 30.10 YoY Growth 0.024269309Average Rev per vistor International Parks 80.06 87

Tokyo Disneyland 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

Disneyland Paris Growth rate for avg revenue per international visitor# of vistors per year 8.40 9.60 9.84 Average Rev per vistor

Hong Kong Disneyland *using the 9% for # of vistors per year 6.10 6.20 6.70 Average growthAverage Rev per vistor

Shanghai Disney Resort Growth rate of total guests @ international parks# of vistors per year 5.60 11.00 11.80 0.089289543 0.048282888Average 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 parksAverage Revenue per Visitor International 33.28$ 40.29$ 44.11$ Total International Revenue 2,732.00$ 3,603.00$ 4,135.00$

Walt Disney CompanyIncome Statement

Fiscal Year Ending September 30th 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026ERevenue 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 & ExpensesCost 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 The Walt Disney Company (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 DisneyBasic 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 2,128Weighted average 1,568 1,499 1649 2056 2294 2260 2228 2198 2170 2141

Dividends declared per share1.56$ 1.68$ 1.76 1.76 1.76 1.80 1.80 1.85 1.89 1.96

Walt Disney CompanyBalance Sheet

Fiscal Year Ending September 30th 2017 2018 2019  2020E   2021E   2022E   2023E   2024E   2025E   2026E ASSETSCurrent 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 EQUITYLIABILITIESCurremt 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 CompanyCash Flow Statement

Fiscal Year Ending September 30th 2017 2018 2019Operating 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 ActivitiesInvestments 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 ActivitiesCommercial 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 CompanyCash Flow Statement

Fiscal Year Ending September 30th 2020E 2021E 2022E 2023E 2024E 2025E 2026ENet Income         12,655          13,689          14,625          15,350       15,571          15,944          16,466 Adjust to reconcile Net IncomeDepreciation 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 AccountsReceivables               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 ActivitiesChange 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 CompanyCommon Size Income StatementPercent of salesFiscal Year Ending September 30th 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026ERevenues:

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 & ExpensesCost 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 CompanyCommon Size Balance SheetPercent of salesFiscal Year Ending September 30th 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026EASSETSCurrent 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 EQUITYLIABILITIESCurremt 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%

EquityPreferred 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 CompanyValue Driver Estimation

Fiscal Year Ending September 30th 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E CVNOPLAT ComputationEBITANet 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 LiabilitiesDeferred 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 ComputationOperating 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 LiabilitiesAccounts 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 AssetsPV 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 LiabilitiesOther 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 DriversNOPLAT 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 CompanyWeighted Average Cost of Capital (WACC) Estimation

CAPM Risk free rate 1.93%

Market Risk Premium 5.44%

Beta1y 0.8742y 0.8453y  0.8954y 0.903Average of last 4 years  0.87925 0.87925

CAPM 6.7131%

Estimate Cost of Debt YTM30 y maturity 3.538% Number is from firms curve on BBMarginal Tax Rate 22.02% 30y from B

Capital StructureEquity Market Value 260,406               Debt Value 50,154  Current Portion of borrowings + BTotal 310,560               

Capital Structure WeightsEquity 83.85%Debt 16.15%

Cost of Capital Estimation (WACC)Equity Component 5.629%Debt Component 0.446%WACC 6.075%

Walt Disney CompanyDiscounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

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

DCF ModelFiscal Years Ending 0.019 2020E 2021E 2022E 2023E 2024E 2025E CV 2026EFor Discounting:

Number of periods: 1 2 3 4 5 6 6WACC Discount Rate 1.061 1.125 1.194 1.266 1.343 1.425 1.425

Continuing Value

Numerator2026 NOPLAT               18,632 1‐(g/ROIC) x 94%

17,487.61      DenominatorWacc ‐ 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 1.425PV 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 ModelFiscal Year Ending 2020E 2021E 2022E 2023E 2024E 2025E CV 2026EContinuing 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 1.425PV 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$          

Key Inputs:

Walt Disney CompanyDividend 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 1.89 135.12Discount Periods 1 2 3 4 5 6 6

     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 CompanyRelative Valuation Models

EPS EPS Est. 5yrMarket 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         

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      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 ActivitiesMarket Cap (billions) EPS EPS Est. 5yr

Ticker Company Price 2020E 2021E P/E 20 P/E 21 EPS gr. PEG 20 PEG 21SIX 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 EntertainmentMarket Cap (billions) EPS EPS Est. 5yr

Ticker Company Price 2020E 2021E P/E 20 P/E 21 EPS gr. PEG 20 PEG 21LGF.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 Sony 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 ratioCNK 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 CompaniesMarket Cap (billions) EPS EPS Est. 5yr

Ticker Company Price 2020E 2021E P/E 20 P/E 21 EPS gr. PEG 20 PEG 21AMZN 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        

Implied Relative Value:

Weight Applied to Each Area

Walt Disney CompanyKey Management Ratios

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

Liquidity RatiosCurrent Ratio 0.81 0.94 0.89 0.86 0.99 1.14 1.31 1.47 1.63 1.79Quick Ratio 0.74 0.86 0.84 0.77 0.90 1.05 1.22 1.38 1.54 1.70Cash 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 RatiosInventory Turnover 21.94 23.67 27.00 21.84 18.85 18.76 18.63 18.38 18.46 18.51Receivable Turnover 13.73 14.32 13.41 27.83 14.32 8.79 6.35 4.39 3.55 3.00Asset Turnover 0.58 0.60 0.37 0.41 0.42 0.43 0.43 0.42 0.41 0.41Capital Turnover ‐14.88 ‐57.42 ‐21.39 ‐18.83 ‐383.63 20.88 9.62 6.22 4.62 3.70

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

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

Payout Policy RatiosPayout 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 LiabilitiesQuick Ratio Current Assets ‐ inventory / Current LiabilitiesCash Ratio Cash / Total Current Liabilities

Inventory Turnover COGS / Average InventoryReceivable Turnover Sales / Total Accounts ReceivableAsset Turnover Sales /  Total AssetsCapital Turnover Sales / Working CapitalDebt Ratio Total Liabilities / Total Assets

Debt‐to‐equity Ratio Total Liabilities / Total Equity

Interest Coverage Ratio EBIT /  Interest ExpenseGross Profit Margin (Sales ‐ COGS) / SalesReturn 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 OperatingFiscal Years Ending 43738 Leases Fiscal Years Ending 43738 Leases #REF! Leases2019 681 2018 580 2017 4772020 571 2019 472 2018 3762021 470 2020 401 2019 3292022 381 2021 324 2020 2782023 261 2022 244 2021 227Thereafter 1220 Thereafter 1327 Thereafter 1419Total Minimum Payments 3584 Total Minimum Payments 3348 Total Minimum Payments 3106Less: Interest 416 Less: Interest 426 Less: Interest 437PV 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 LeaseYear Commitment Payment Year Commitment Payment Year Commitment Payment1 681 661.5 1 580 563.4 1 477 463.32 571 538.7 2 472 445.3 2 376 354.83 470 430.7 3 401 367.5 3 329 301.54 381 339.2 4 324 288.4 4 278 247.55 261 225.7 5 244 211.0 5 227 196.36 & beyond 261 972.1 6 & beyond 244 1046.0 6 & beyond 227 1105.7PV 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 2026E3167.96 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):  14Average Time to Maturity (years): 5.11Expected 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 2026EIncrease in Shares Outstanding: 3 3 3 3 3 0Average 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 5,314Expected 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 2,128Plus: Shares Issued Through ESOP 3 3 3 3 3 0 0 0Less: 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 DISCurrent Stock Price $144.67Risk Free Rate 1.93%Current Dividend Yield 1.36%Annualized St. Dev. of Stock Returns 23.84%

Average Average B‐S ValueRange of Number Exercise Remaining Option of OptionsOutstanding Options of Shares Price Life (yrs) Price GrantedRange 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 Premium171.46$        5.14% 5.24% 5.34% 5.44% 5.54% 5.64% 5.74%0.57925 289.85 284.00 278.35 272.90 267.63 262.55 257.620.67925 244.34 239.26 234.36 229.63 225.07 220.65 216.390.77925 209.98 205.49 201.16 196.98 192.95 189.05 185.29

Beta 0.87925 183.10 179.08 175.20 171.46 167.85 164.37 161.000.97925 161.51 157.87 154.36 150.97 147.70 144.55 141.501.07925 143.78 140.45 137.25 134.15 131.17 128.29 125.501.17925 128.96 125.90 122.95 120.10 117.36 114.71 112.14

CV Growth171.46$        1.30% 1.50% 1.70% 1.90% 2.10% 2.30% 2.50%5.150% 200.13 209.27 219.48 230.94 243.90 258.69 275.715.450% 182.82 190.43 198.86 208.24 218.74 230.57 244.015.750% 167.84 174.26 181.30 189.08 197.72 207.35 218.17

WACC 6.050% 154.76 160.22 166.17 172.70 179.89 187.84 196.706.350% 143.24 147.92 152.99 158.52 164.58 171.23 178.576.650% 133.02 137.05 141.41 146.14 151.29 156.90 163.066.950% 123.88 127.39 131.16 135.23 139.64 144.43 149.64

Pre‐Tax Cost of Debt171.46$        2.79% 2.89% 2.99% 3.09% 3.19% 3.29% 3.39%1.60% 161.83 161.85 161.88 161.91 161.93 161.96 161.981.70% 164.83 164.85 164.88 164.91 164.93 164.96 164.991.80% 167.97 167.99 168.02 168.05 168.08 168.10 168.13

CV Growth 1.90% 171.26 171.29 171.31 171.34 171.37 171.39 171.422.00% 174.71 174.74 174.77 174.79 174.82 174.85 174.882.10% 178.34 178.36 178.39 178.42 178.45 178.48 178.512.20% 182.15 182.18 182.21 182.24 182.26 182.29 182.32

Risk Free Rate171.46$        1.33% 1.53% 1.73% 1.93% 2.13% 2.33% 2.53%19.02% 207.53 196.91 187.18 178.22 169.96 162.30 155.1920.02% 205.02 194.50 184.85 175.98 167.79 160.20 153.1621.02% 202.51 192.07 182.52 173.72 165.61 158.10 151.1222.02% 199.98 189.64 180.17 171.46 163.42 155.98 149.0823.02% 197.44 187.20 177.82 169.20 161.23 153.87 147.0324.02% 194.90 184.76 175.47 166.92 159.04 151.74 144.9725.02% 192.35 182.30 173.10 164.64 156.84 149.61 142.91

Disney + User Count Growth in CV year 2026171.46$        0.70% 0.80% 0.90% 1.00% 1.30% 1.60% 1.00%1.60% 161.96 161.98 162.00 162.02 162.08 162.15 162.021.70% 164.96 164.98 165.00 165.02 165.09 165.15 165.021.80% 168.10 168.12 168.15 168.17 168.23 168.30 168.171.90% 171.39 171.42 171.44 171.46 171.53 171.60 171.462.00% 174.85 174.87 174.90 174.92 174.99 175.06 174.922.10% 178.48 178.50 178.52 178.55 178.62 178.69 178.552.20% 182.29 182.32 182.34 182.37 182.44 182.51 182.37

CV ROIC171.46$        15.94% 20.94% 25.94% 30.94% 35.94% 40.94% 45.94%10.27% 165.88 170.86 173.93 176.00 177.50 178.63 179.5213.27% 164.36 169.35 172.42 174.49 175.99 177.12 178.0016.27% 162.85 167.84 170.90 172.98 174.47 175.60 176.4919.27% 161.34 166.32 169.39 171.46 172.96 174.09 174.9822.27% 159.82 164.81 167.88 169.95 171.45 172.58 173.4625.27% 158.31 163.30 166.36 168.44 169.93 171.06 171.9528.27% 156.80 161.78 164.85 166.92 168.42 169.55 170.43

Marginal Tax Rate

CV Growth

Receivables