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April 10, 2008

Checking In On Disney

I remain long Disney across Northlake client accounts including my own accounts. Down just 3%, the shares have acted fairly well this year compared to many other media investments, particularly those with significant advertising exposure. Performance of the shares in the near future is a battle between the possibility that the economy drags down earnings and the ability of company's content engine and tight cost management to counteract.

The December quarter surprised many observers positively and it looks like the March quarter might due the same. Management has sent positive signals and datapoints on broadcast and cable network TV advertising and travels trends to Disneyworld remain positive.

Despite the currently positive backdrop, risk definitely remains. Advertising sales and travel spending historically have lagged economic downturns. Companies don’t want to pullback on product and brand development too quickly and consumers book big vacations well ahead of time and are loathe to cancel....

....If we assume that these historical trends will catch up with Disney in the next six months, Disney will have to continue to generate momentum from content and keep a tight rein on costs. I suspect both those things will happen but investors will probably not significantly reward the shares until they believe the economy will turn up. When that happens, Disney will be a big winner.

I plan to wait it out given my high degree of confidence of the management team. Investors with a shorter time horizon may not be so patient.

As an aside, the announcement earlier this week about the company's animated film release schedule though 2012 was extremely well received based on reports in trade magazines and blogs. The next Pixar film, due in June is Wall-E. About 30 minutes of it was shown to quite favorable reviews.

Posted by Steve Birenberg at April 10, 2008 03:29 PM in DIS