DISCA/DISCK - Discovery Communications

[thefatbaboon]

Sleepy,

Have you found a good way to treat the content amortization/aquisition?

[gjangal]

If rev's continue growing around 10% this is a decent entry point for long term investors. Good amount of share buybacks, the only negative is high leverage. FCF/Share keeps increasing , 27% FCF/Revenue ratio

FCF: $1.5B
Mkt cap: 352mn shares x 67 ~ $23.5B market cap

Sleepy,

Have you found a good way to treat the content amortization/aquisition?

found this in the 10-K

"Our largest single cost is content expense, which includes content amortization, content impairments and production costs. We amortize the cost of capitalized content rights based on the proportion that the current year's estimated revenues bear to the estimated remaining total lifetime revenues, which normally results in an accelerated amortization method over the estimated useful lives. Certain networks utilize a straight-line method of amortization over the estimated useful lives of the content"

Looks like a mix of accelerated and straight line depreciation.

[PatientCheetah]

I am surprised by the sizable spread between DISCA and DISCKA. Beside votes, is there any other differences?

[gjangal]

I am surprised by the sizable spread between DISCA and DISCKA. Beside votes, is there any other differences?

Yes you are right. DISCK has no voting rights, maybe that's the reason for premium and may stay so. For me personally as a retail investor it makes no difference, so i d rather buy the DISCK shares.

[loganc]

If rev's continue growing around 10% this is a decent entry point for long term investors. Good amount of share buybacks, the only negative is high leverage. FCF/Share keeps increasing , 27% FCF/Revenue ratio

FCF: $1.5B
Mkt cap: 352mn shares x 67 ~ $23.5B market cap

I apologize for my ignorance as I have done little research here, but could you provide some more detail as to how you get to 1.5B of FCF? 

Thanks.

[gjangal]

If rev's continue growing around 10% this is a decent entry point for long term investors. Good amount of share buybacks, the only negative is high leverage. FCF/Share keeps increasing , 27% FCF/Revenue ratio

FCF: $1.5B
Mkt cap: 352mn shares x 67 ~ $23.5B market cap

I apologize for my ignorance as I have done little research here, but could you provide some more detail as to how you get to 1.5B of FCF? 

Thanks.

I made a mistake and as per my latest calculations it should be 1.36B , earlier I did a rough calculation of

(TTM EBITDA ($2354mn) - Maintenance capex ($117mn))*(1 - 0.33) = $1476mn.

My mistake being I did not adjust Changes to working capital and DISCK has consistently high -ve working capital changes. After you asked the question, I went back to look at the details. These are my caluculations

Numbers are from latest 10-K. Everything is in millions


FCF: EBIT - Taxes + Depr & Amortization - Changes in Net working capital - maintenance capex


EBIT/ Op Income: 1998

Provision for taxes: 659

Depreciation: 276

Content Amortization & Impairment: 1190

Changes in working capital: -95 [ Adding this back in the formula below ]

Content rights: 1426 [ IMO this should be treated as maintenance capex, based on previous 3 years this has been consistently increasing and they are spending working capital on this. One can argue that this is growth capex, but we don't know what will happen when it stops.  It's up to your judgement ]

Property and equipment: 117

1998 - 659 + 276 + 1190 + 95 - 1426 - 117 = 1357mn

Also when i look at the numbers, FCF is 25% of revenue I like firms that have consistently large percentage of revenue as FCF. Buybacks are great. The high leverage worries me a bit and i need to do some comparisons. I am still doing my research

[loganc]

If rev's continue growing around 10% this is a decent entry point for long term investors. Good amount of share buybacks, the only negative is high leverage. FCF/Share keeps increasing , 27% FCF/Revenue ratio

FCF: $1.5B
Mkt cap: 352mn shares x 67 ~ $23.5B market cap

I apologize for my ignorance as I have done little research here, but could you provide some more detail as to how you get to 1.5B of FCF? 

Thanks.

I made a mistake and as per my latest calculations it should be 1.36B , earlier I did a rough calculation of

(TTM EBITDA ($2354mn) - Maintenance capex ($117mn))*(1 - 0.33) = $1476mn.

My mistake being I did not adjust Changes to working capital and DISCK has consistently high -ve working capital changes. After you asked the question, I went back to look at the details. These are my caluculations

Numbers are from latest 10-K. Everything is in millions


FCF: EBIT - Taxes + Depr & Amortization - Changes in Net working capital - maintenance capex


EBIT/ Op Income: 1998

Provision for taxes: 659

Depreciation: 276

Content Amortization & Impairment: 1190

Changes in working capital: -95 [ Adding this back in the formula below ]

Content rights: 1426 [ IMO this should be treated as maintenance capex, based on previous 3 years this has been consistently increasing and they are spending working capital on this. One can argue that this is growth capex, but we don't know what will happen when it stops.  It's up to your judgement ]

Property and equipment: 117

1998 - 659 + 276 + 1190 + 95 - 1426 - 117 = 1357mn

Also when i look at the numbers, FCF is 25% of revenue I like firms that have consistently large percentage of revenue as FCF. Buybacks are great. The high leverage worries me a bit and i need to do some comparisons. I am still doing my research

Many thanks.

[sleepydragon]

Chuck Akre increased its DISCA to 4.6% of his portfolio, in the latest 13F filing, as of 3/31/2014
But in his fund's quarterly letter as of 1/31/2014, this holding is already there, which suggests the new DISCA shares were bought between 12/31/2014 and 1/31/2014, when the average price is around $80 and lowest price is $78.99, higher than current price of $73.72

[sleepydragon]

Can someone explain to me why the DISCK is up 5% today? Why the share dividend is affecting its price today?
And am i right this diluted DISCA holders voting rights, and thus its premium. Can the management actually do this without share holder approvals?? I have DISCA.
It seems to me there's no economic reasons for the share dividends other than that DISCA's voting powers are diluted. I don't buy the "more liquidity" reason given in the press release.

[dwy000]

DISCK doesn't carry a vote so it shouldn't affect or dilute the vote of the A shares - although on a total share count basis the A now represents a smaller proportion of the whole.  In fact, if you own the A shares, because they trade at a higher price than the C shares you could say that as a percentage of your cost base the new share is a smaller dividend than if you owned the C shares. 

I'm always amazed that stock splits have such a positive impact on the share price.  You don't own any more of the company than you did before and it doesn't change the enterprise value.