Rants and Ramblings about Disney Stock

Friday, January 14, 2011

On January 5, Disney stocks hit a 10-year high. What does this mean for investors? For Cast Members? I'm not in any way qualified to give advice on investments, but can't resist a little meditation on the topic after reading recent headlines.

First, let's review a basic fact about economics: Money is fiction. In other words, the value of money is determined by social contract, not by any intrinsic value. If you don't believe me, the fine folks at This American Life can explain in more detail. Or, just try this thought experiment: If everybody on earth simultaneously decided that money was worthless, could you get anyone to give you a cup of coffee in exchange for a couple green pieces of paper? What if even just 80% of the world suddenly decided that money was worthless? Maybe you can see my point.

The value of stocks is even more fictional, if that phrase has any meaning. Unlike a specific currency, which (usually) we have a fairly consistent agreement on from day to day, stocks' value often fluxuates wildly within a day, a week, or a year. And while B-school students like myself may study up on ROI, cost/dividends ratio, and other indicators of a stock's worth, 39% of expert analyists can be beaten by picking stocks based on throwing darts at the financial pages. Plus, remember again that stock values are fiction: These financial indicators might guide what the market thinks a stock is worth, but the actual value of the stock is determined by what you can sell it for.

So what, then, does it say that Disney's stocks are at a ten-year high? Is it a good time to buy Disney stocks? Maybe so, even with the stock being so highly valued already. Earlier this month, Forbes.com reported a $50 target price for Disney stock, and as of Wednesday January 12 it's trading a little under $40 (check here for the price right now. 

I'd guess that the next significant fluxuation in Disney stock prices will come right after their February 8 announcement of first quarter financial results, which will include the important holiday season. If the results are good, stock prices might jump again. (At least, if the markets weren't expecting the results to be even better. Because it's not about any intrinsic value of the stock . . . it's about whether the marketplace thinks the company is doing as well as it should be, given the current price of the stock.) 

And remember: Disney as a whole is much bigger than its Parks division. In Fiscal Year 2010, Parks accounted for less than 25% of the revenue for Disney as a whole. As a public company, Disney's financial statements are available at the SEC. Here's a link to their 2010 annual report, for those inclined to poke around a little deeper.

(One thing I notice in that FY10 report: In 2010, Disney repurchased $2,669,000,000 worth of their common stock. (Yes, that is the right number of zeros.) In 2009, they repurchased only $138,000,000 worth. Did Disney think their own stock was undervalued, and want to buy it up like any other investor would? Did they want to support their stock prices by keeping the volume of trades up? Or is there some other explanation? I'm just a student, not a qualified analyst . . . anybody out there have the scoop?)

My personal hunch is that Disney's stock price reflects not just any financial analysis that stockholders have done on recent financial performance, but also the fact that Disney has a broad range of assets, and is likely to do well even if the economy continues to be sluggish. The Parks division may be strongly affected by drops in personal income (as 2009 results showed), but movies, video games, and other media entertainment may be more resiliant in a tough economy. Plus, there's that feel-good confidence in Disney's strong branding and long-term track record.

And what does Disney's stock price mean for Cast Members? Well, if they're earning enough money to support participation in the Employee stock purchase program mentioned on the WDW web site, then they can benefit just like any other investor. And I'm guessing that some of the higher-level Cast Members may have significant stock holdings. Disney has continued to pay dividends regularly, and will do so again next week. The current economy does seem to favor stocks that pay dividends, as many investors are strapped for cash, and might also be nervous about whether any stock will reliably retain value, after some of the market drops we've seen in recent years.

But after having done some research lately on what Cast Members are paid, and watching the ongoing union negotiations at Walt Disney World, I'm guessing most can't afford to invest in stock. Listening to first-hand accounts from some Cast Members on the Mousetrapped video series produced by one of the Cast Member unions, I'm left with a bitter taste in my mouth. With Disney stock prices still near that 10-year high, can't the Company share a little more of the wealth with the Cast Members and other employees? Geez. (By the way, if you'd like to let Disney know your opinion on the compensation of Cast Members, here's a link to Guest Services, and the text of my own email to Disney on the topic.)

I know too much about capitalism to think that high stock prices are any magic protection from layoffs. Certainly during the current economic crisis we've seen plenty of companies maintain and even increase profits by laying off staff. But you're probably a bit safer with an employer whose stock is soaring, than the alternative.

But that being said . . . with Disney doing well, and the Parks reportedly even more crowded over the holidays than expected, hopefully Cast Members will benefit from steady employment, and possibly improved compensation, depending on how those union negotiations go. And if you're a stockholder who's benefiting from the current value of your investment, please remember that next time you're tipping your WDW server or housekeeper. They're working hard to make the magic, in more ways than one.