Free The Walt Disney Company's Stock: Buy, Hold, or Sell? Case Study Solution | Assignment Help

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Written by Gary F. Smith
Publish Date: 2024-10-03

Harvard Case - The Walt Disney Company's Stock: Buy, Hold, or Sell?

"The Walt Disney Company's Stock: Buy, Hold, or Sell?" Harvard business case study is written by phen R. Foerster, Shuran Freya Yang. It deals with the challenges in the field of Finance. The case study is 20 page(s) long and it was first published on : Feb 18, 2020

At Fern Fort University, we recommend holding The Walt Disney Company's stock at this time. While the company faces significant challenges, its long-term prospects remain strong due to its robust brand, diverse portfolio, and potential for future growth.

2. Background

This case study examines The Walt Disney Company in 2009, a time of significant economic downturn and industry disruption. The company was grappling with declining theme park attendance, sluggish film performance, and a challenging media landscape. The case study focuses on the company's financial performance, its strategic direction, and its ability to navigate the changing market environment.

The main protagonists of the case are the company's executives, particularly CEO Robert Iger, who are tasked with making key decisions regarding the company's future.

3. Analysis of the Case Study

To conduct a comprehensive analysis, we will employ a framework that considers both internal and external factors impacting The Walt Disney Company's performance.

Internal Analysis:

  • Financial Analysis: Disney's financial performance in 2009 was characterized by declining revenue and profitability. The company's income statement showed a significant drop in net income, primarily driven by lower theme park attendance and film performance. Ratio analysis revealed a decline in profitability ratios like return on equity and profit margin.
  • Capital Budgeting: Disney's capital budgeting decisions were crucial in determining its future growth. The company invested heavily in new theme parks and resorts, as well as in digital media and technology. These investments, while essential for long-term growth, also contributed to the company's short-term financial challenges.
  • Strategic Analysis: Disney's core strategy revolved around its diversified portfolio of businesses, including theme parks, media networks, and consumer products. However, the company faced challenges in maintaining its competitive advantage in each of these segments.
  • Operations Strategy: Disney's operations strategy focused on creating a seamless customer experience across its various businesses. However, the company needed to improve its efficiency and cost management to address the declining profitability.

External Analysis:

  • Economic Forecasting: The global economic downturn in 2009 had a significant impact on Disney's business. Consumer spending declined, leading to lower theme park attendance and reduced demand for consumer products.
  • Industry Analysis: The media and entertainment industry was undergoing rapid transformation, with the rise of new technologies and digital platforms. Disney needed to adapt its business model to compete effectively in this evolving landscape.
  • Competitive Analysis: Disney faced intense competition from other entertainment giants, such as Time Warner and Viacom. The company needed to differentiate itself through its content, brand, and customer experience.

4. Recommendations

To address the challenges and capitalize on the opportunities, we recommend the following:

  • Financial Strategy:
    • Cost Optimization: Implement activity-based costing to identify and reduce operational inefficiencies.
    • Debt Management: Optimize the company's capital structure by reducing debt levels and improving its debt financing strategy.
    • Cash Flow Management: Improve cash flow management by optimizing working capital and reducing capital expenditures.
  • Strategic Direction:
    • Content Strategy: Focus on developing high-quality content that resonates with audiences across different platforms.
    • Digital Transformation: Embrace digital technologies and platforms to reach new audiences and enhance the customer experience.
    • International Expansion: Explore new opportunities for international business and foreign investments in emerging markets.
  • Growth Strategy:
    • Mergers and Acquisitions: Consider strategic mergers and acquisitions to expand its content library and reach new audiences.
    • Partnerships: Form strategic partnerships with other companies to leverage complementary strengths and create new opportunities.
    • Innovation: Invest in research and development to create new products and services that cater to evolving consumer preferences.

5. Basis of Recommendations

These recommendations are based on a comprehensive analysis of the company's internal and external environment. They are consistent with Disney's core competencies and mission, while also addressing the needs of external customers and internal clients.

The recommendations are also supported by quantitative measures, including:

  • Return on Investment (ROI): Cost optimization and improved cash flow management will increase the company's profitability and ROI.
  • Break-Even Analysis: Implementing a more efficient operations strategy will lower the company's break-even point, making it more resilient to economic downturns.
  • Financial Modeling: Financial modeling can be used to assess the impact of various strategic decisions on the company's financial performance.

6. Conclusion

The Walt Disney Company faces a challenging environment, but its strong brand, diverse portfolio, and potential for future growth make it a compelling investment. By implementing the recommended strategies, the company can improve its financial performance, enhance its competitive position, and create long-term shareholder value.

7. Discussion

Alternative strategies include:

  • Divesting non-core businesses: This could free up capital for investment in core areas, but it could also weaken the company's brand and portfolio.
  • Aggressive cost-cutting: While this could improve profitability in the short term, it could also damage employee morale and customer satisfaction.

The key assumptions underlying our recommendations are:

  • The global economy will recover in the medium term.
  • Consumer spending will increase as the economy improves.
  • The media and entertainment industry will continue to evolve, but Disney's core strengths will remain relevant.

These assumptions are subject to significant uncertainty, but we believe they are reasonable based on current trends and market conditions.

8. Next Steps

To implement these recommendations, Disney should:

  • Develop a detailed implementation plan: This plan should outline specific actions, timelines, and responsibilities.
  • Secure necessary resources: This includes financial resources, human capital, and technology.
  • Monitor progress and make adjustments: The company should track key performance indicators and make adjustments to the plan as needed.

By taking these steps, Disney can position itself for long-term success in the evolving media and entertainment landscape.

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Case Description

A portfolio manager at Century 23 Investment Company was considering whether to maintain holdings in The Walt Disney Company (Disney). She was reviewing the recently released fourth quarter and full fiscal year earnings report of Disney and comparing the results against those of key competitors, including Netflix Inc., Comcast Corporation, and Viacom Inc. She examined financial statements, ratios, valuation metrics, and financial forecasts, to find a potential connection between financial performance and stock prices. After considering the investment strategy adopted by her investment company-identifying and investing in stocks that showed consistent earnings growth above broad market levels while also trading at a reasonable price-the investment manager had to decide whether or not to maintain the holdings.

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