Apple, Inc.
and Walt Disney Co. have independently carved a niche for themselves and have their own unique advantages.
A Needham analyst pitched one against the other and concluded that they are "better off together."
Complementary, Not Competitive: Taking an offensive approach, Apple and Disney are worth more together than separately, analyst Laura Martin said in a note.
“We believe that great content and a strong distribution footprint are complementary networks. That is, both are worth more if they have the other,” she said.
Martin noted that Apple is best at distributing content globally to 2 billion high-end mobile devices owned by 1.25 billion unique, wealthy users. Disney is best at creating AAA content franchises, which it distributes globally across all screens, as well as in the physical world, she added.
Commonalities Shared: Martin listed some mission-critical commonalities Apple and Disney share, including their
- Rabid superfans
- Premium pricing power
- Brand-first corporate decision making
- Marketing focus on the wealthiest consumers and families
- Global scale and material economic exposure to China, the largest consumer market on the Earth
Despite both companies being “marketing juggernauts,” Martin said Disney has a much more difficult marketing job to win market share.
All of Disney’s products compete in the “leisure category” or are not must-haves, while Apple promotes its mobile products as utilities, she added.
Difference Is In Value Capture: Apple’s market cap captures more than 90% of the value the company creates for consumers, both directly and indirectly, the analyst said. Consumers directly pay Apple for the hardware, and the company also gets a 15-30% cut from apps riding on its hardware, she noted.
Disney’s revenue is more widespread, with the company leaking billions of dollars of value into adjacent ecosystems, the analyst said. To make her case, she noted that when people fly into Disney World in Orlando, the company does not capture the flight or hotels or meals eaten off its properties.
Also, Disney’s attendance pull from across the world to its Orlando park benefits its direct competitor Comcast Corp’s
Universal theme park in the same place and Hollywood, Martin said.Combo Is Great: While looking at Apple’s relatively greater ability to capture the value it creates and Disney’s massive value leakage, Martin said, “They are better together.”
The analyst also noted that since Apple’s enterprise value is more than ten times larger than Disney, Apple can buy Disney and not vice-versa. Also, she sees a Disney buy as non-dilutive to Apple shareholders.
“By implication, if AAPL buys DIS using its higher valued shares, this would be anti-dilutive to AAPL shareholders on a P/E basis, as well as on an EV/Rev and EV/EBITDA basis,” she added.
Martin has a "buy" rating and a $170 price target for Apple.
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