Iger’s Disney: How the Magic Kingdom Transformed Into a Media Empire

The Walt Disney Co. (DIS) has transformed itself into a media and entertainment juggernaut, a massive conglomerate of growth assets that even Walt Disney himself could have never envisioned.

Thanks to key acquisitions and CEO Bob Iger’s extraordinary ability to organically grow Disney’s core assets, there are now only a few dozen companies worldwide more valuable than Disney. Shares have almost tripled since September 2011 hit and the stock approached an all-time high on Wednesday after yet another strong earnings report.

Disney’s EPS jumped 27% to $1.28 from $1.01 in the prior-year quarter. Revenue came in at $12.5 billion for the quarter, up 8% year-over-year. Analysts expected $1.17 in earnings and $12.2 billion in revenue.

“We’re obviously very proud of our performance this quarter. It’s satisfying to see the growing impact of our strategic focus on building strong sustainable franchises across all of our brands and businesses,” said Iger said on the conference call. “We’ll continue leveraging to deliver results and create greater value for our company and our shareholders.”

Disney has established a tradition of handily beating earnings estimates, a trend that CFO Jay Rasulo says is due to margin expansion across all of its segments.

With a broad portfolio of growth assets and an endless pipeline of new products, Disney is a totally different animal from the Disney just a decade ago. Here’s how Disney’s most important assets performed for the quarter, and how these assets can continue their tremendous growth rates.

Media Networks

Quarterly Revenue: $5.5 billion

Operating Income: $2.30 billion

Key Assets: ABC, Disney Channels, ESPN Inc. (80%), A&E (50%), Hulu (32%)

Disney’s media networks segment now makes up for almost half of the company’s total revenue and 60% of its total operating income. The segment is an integral component of the company’s transformation, particularly on the heels of the growing value of sports media content.

With a $50 billion valuation, ESPN is the crown jewel of this Disney’s media networks, and possibly Disney’s most valuable asset in general. The World Cup on ESPN was the most streamed sporting event in history, and Iger mentioned that more than 80 million people connected to WatchESPN via computers and mobile devices. ESPN’s ad revenue rose 10% for the quarter.

Disney is also geared up for the upcoming football season, as ESPN owns the rights to Monday Night Football and a plethora of college football games every weekend. ESPN is set to launch the SEC network this fall, which will reach 60 million homes nationwide.

The segment’s net income decreased 7% for the quarter on higher programming and production costs from ESPN. However, ESPN and Disney’s entire television business remains Disney’s most indispensible asset and a key component of its future.

Studio Entertainment

Quarterly Revenue: $1.81 billion

Operating income: $411 million

Key Assets: Walt Disney Pictures, Lucasfilm, Pixar, Marvel

Disney’s studio entertainment division posted yet another stellar quarter, particularly boosted by Frozen, Captain America: the Winter Soldier, and Malificent. Studio entertainment revenue increased 14% while operating income more than doubled year-over-year, and the segment was Disney’s most surprising over-performer.

Through the acquisitions of Lucasfilm, Marvel, and other studios over the past decade, Disney has positioned itself as a factory for big-budget, big-profit motion pictures. With films in the pipeline like Star Wars Episodes 7-9, Indiana Jones, the Avengers, Guardians of the Galaxy, and countless other franchises, movies will remain a huge part of Disney’s financial success for decades to come.

Iger was particularly excited about Avengers 2 in May 2015, Captain America 3 in May ’16, and an eventual sequel to Guardians of the Galaxy, which grossed $94 million in its first weekend. Star Wars Episode 7 will be ready on December 18, 2015, and Iger said the new Star Wars footage has been “spectacular.”

However, movie quality remains of utmost importance to Disney going forward. Studio entertainment will continue serve as a cash cow for Disney, but only if its studios continues to produce top-quality movies that people are willing to pay money to see in theaters. Disney lost $200 million on John Carter, resulting in the resignation of Disney’s studio boss. In the coming years, Disney can’t afford a flop on any of its upcoming hyped-up movie franchises like Star Wars.

Parks and Resorts

Quarterly Revenue: $4.0 billion

Operating Income: $848 million

Key Assets: Disney Resorts, Disney Cruise Line, Shanghai Disney Resort

Theme park revenue grew 8% to $4.0 billion thanks to increased guest spending, higher theme park attendance, and higher prices at Disney Cruise Line.

Iger raved about the future of Disney’s parks and resort business, a core component of its operations. “Progress continues on Shanghai Disney Resort. This is our most ambitious project ever,” said Iger, who expects a grand opening date to be announced within the next six months. “We are also developing ideas and designs for a far greater Star Wars presence at our parks.”

Iger also praised the success of MagicBands, which allow guests to electronically store their hotel key, park admission ticket, and FastPass on a band that wraps around the wrist. Guests can also electronically charge food and drink to their Disney Resort hotel room bill through the band.

Disney’s Bright Future

On the heels of the strong quarter, Disney stock brushed against an all-time high at $87.62. The stock trades at 20 times earnings – a premium to the S&P 500 – but Disney clearly warrants this premium versus its peers.

Disney has not only been able to sustain organic growth across its core operations, but has also generated a constant pipeline of lucrative ventures across all of its segments through acquisitions and partnerships. TV networks continue to grow on the increasing value of live sports, studio entertainment is chock full of promising movie franchises like Star Wars and the Avengers, and theme park attendance and guest spending remain stronger than ever.

As Disney continues to expand earnings at a torrid pace, it will surely acquire more assets and fortify its empire. Disney now has eight brands that generate $1 billion or more in consumer product revenue: Pooh, Mickey Mouse, Monsters, Star Wars, Spider-Man, Cars, Disney Junior, and Princess. Given Iger’s masterful ability to acquire and grow brands, this portfolio of billion dollar brands is undeniably set to expand.