Walt Disney (DIS) and Vivendi (VIVHY): Buy, Hold or Sell?

The entertainment industry has seen a decline in consumer spending due to overarching macroeconomic challenges. Furthermore, companies in this sector are grappling with intensified competition as new market players enter the arena, creating a challenging environment for existing players.

Given the backdrop, let’s look into the entertainment stocks The Walt Disney Company (DIS) and Vivendi SE (VIVHY) to see if they could be bought, sold, or held now. Before delving into the fundamentals of these stocks, let us briefly examine the industry’s prospects. 

The entertainment and media industry is known for its cyclical nature because consumers typically reduce their discretionary spending during macroeconomic challenges.

For instance, a February 2023 survey revealed that a significant majority of U.S. consumers who discontinued their video streaming subscriptions in the preceding six months cited price as the primary reason, with almost 44% of respondents canceling to reduce their monthly expenditures.

Moreover, according to a report by PWC, global revenue in the entertainment and media (E&M) sector increased by 5.4% in 2022, reaching a total of $2.32 trillion. This growth rate marks a significant slowdown compared to the 10.6% increase observed in 2021 when economies and industries worldwide were recovering from the disruptions caused by the pandemic.

Furthermore, over the next five years, the growth rate is projected to decrease sequentially, leading to a 2.8% revenue growth from 2026 to 2027. This decline in the revenue growth rate can be attributed to sluggish consumer spending.

On a positive note, despite the existing challenges, the industry is actively embracing emerging technologies, particularly generative AI, to enhance creative processes and productivity. This commitment to innovation could potentially lead to a rebound in the sector.

Notably, the Generative AI in the media and entertainment market is forecasted to reach $12.08 billion by 2032, growing at a remarkable CAGR of 26.7%.

Given the industry dynamics, let us now dive into the fundamentals of the featured Entertainment - Media Producers picks, beginning with number 2.

Stock #2: The Walt Disney Company (DIS)

DIS operates as an entertainment company worldwide. The company engages in the film and episodic television content production and distribution activities. It operates through two segments, Disney Media and Entertainment Distribution; and Disney Parks, Experiences and Products.

The stock’s trailing-12-month net income margin of 2.56% is 37.9% lower than the 4.13% industry average. Its trailing-12-month ROCE of 2.37% is 42.5% lower than the 4.12% industry average. Furthermore, DIS’ trailing-12-month gross profit margin of 32.77% is 33.6% lower than the industry average of 49.37%.

In terms of forward non-GAAP P/E, DIS is trading at 21.88x, 44.7% higher than the industry average of 15.12x. Its forward EV/EBITDA multiple of 12.76 is 51.3% higher than the industry average of 8.44. Also, its forward Price/Cash Flow ratio of 14.75x is 70.1% higher than the industry average of 8.67x.

In the third quarter, which ended on July 1, 2023, DIS’ revenues came in at $22.33 billion, while its attributable net loss and loss per share amounted to $460 million and $0.25 versus an attributable net income and EPS of $1.41 billion and $0.77, in the prior-year quarter, respectively.

Also, during the same period, the company’s cash and cash equivalents stood at $11.46 billion, down 1.4% compared to $11.62 billion as of October 1, 2022.

Moreover, for the fiscal fourth quarter (ending September 2023), DIS’ revenue and EPS are projected to be $21.44 billion and $0.76, respectively. The stock declined 26.4% over the past year and 19.6% over the past six months to close the last trading session at $80.98.

DIS’ POWR Ratings reflect its bleak outlook. The stock has an overall rating of D, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

The stock has a D grade for Value, Momentum, and Quality. Within the 10-stock D-rated Entertainment - Media Producers industry, it ranks #8. Click here to see DIS’ ratings for Growth, Stability, and Sentiment. 

Stock #1: Vivendi SE (VIVHY)

Headquartered in Paris, France, VIVHY operates as an entertainment, media, and communication company in France, the rest of Europe, the Americas, Asia/Oceania, and Africa. It operates through Canal+ Group; Havas, Prisma Media; Gameloft; Vivendi Village; New Initiatives; Generosity and Solidarity; and corporate segments.

On July 13, Havas, one of VIVHY’s segments, expanded its portfolio with its fourth acquisition of the year, venturing into the vibrant British creative agency scene by investing in Uncommon Creative Studio.

Through this deal, Havas acquired a majority stake of 51% in the company, while the founders of Uncommon Creative Studio retained ownership of the remaining shares. This acquisition marks Havas' most significant move in the creative sector to date.

VIVHY’s trailing-12-month gross profit margin of 44.11% is 10.7% lower than the 49.37% industry average. Whereas its trailing-12-month cash per share of $1.76 is 17.7% higher than the industry average of $1.49.

VIVHY’s forward non-GAAP P/E of 11.65x is 22.9% lower than the 15.12x industry average. Its forward EV/Sales multiple of 1.09x is 43.2% lower than the industry average of 1.93x. However, its forward Price/Cash Flow ratio of 16.72x is 92.9% higher than the industry average of 8.67x.

For the six-month period, which ended on June 30, 2023, VIVHY’s revenues increased 3.7% year-over-year to €4.69 billion ($5.03 billion), while its EBIT rose 8.3% from the year-ago value to €404 million ($433.36 million).

In addition, during the same period, the company’s adjusted net income and adjusted EPS increased significantly year-over-year to €324 million ($337.55 million) and €0.32, respectively. However, its cash and cash equivalents came in at €1.65 billion ($1.77 billion), down 13.6% compared to €1.91 billion ($2.05 billion) as of December 31, 2022.

Analysts expect VIVHY’s revenue and EPS for the fiscal year (ending December 2023) to increase 3.8% and 120.3% year-over-year to $10.51 billion and $0.77, respectively. Moreover, the company has an impressive surprise history, surpassing revenue estimates in three of the trailing four quarters.

VIVHY’s shares have slumped 6.2% year-to-date but gained marginally over the past three months to close the last trading session at $8.90.

It’s no surprise that VIVHY has an overall C grade, which translates to Neutral in our POWR Ratings system. Out of 10 stocks in the same industry, it is ranked #2.

It has a C grade for Growth, Value, Stability, Sentiment, and Quality. To access additional rating for VIVHY’s Momentum, click here.

What To Do Next?

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DIS shares were trading at $80.56 per share on Thursday afternoon, down $0.42 (-0.52%). Year-to-date, DIS has declined -7.27%, versus a 17.32% rise in the benchmark S&P 500 index during the same period.

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