Over the last year, curious investors have been buying Disney stock shares as they anticipate the releasing of the first Star Wars movie after Lucasfilm and Mickey Mouse joined. The stocks of Disney have risen 23 percent in 2015, but this could be masking some bigger long-term concerns.
Sometimes in August, Disney lowered its expectations on revenue as consumers showed heightening drop in cable network at an unexpected rate. This left three million fewer households having access to ESPN, the stalwart sports network.
Investors are now saying for the first time in years that the movie business has become the main driving factor for the Disney stock. Perhaps the big question is whether the increasing revenue from blockbusters is going to offset the losses being witnessed from the cord-cutting trend.
Disney Share Price Values
The Disney earnings for the fiscal year 2015 that were announced November 5th indicated that the company has recorded $4.90 per share and net income of $8.4 billion. Its shares may be pricey but the profits are impressive. Disney share price values this company at about 20.1 times its expected earnings of 2016, which is about 12 percent higher compared to the ratio for the S&P 500.
Disney is headquartered in Burbank, California and the company has 180,000 employees. In the financial year 2015, Disney recorded revenue earning of $52.5 billion. Disney operates business in entertainment including TV and film production, cable television, consumer products, and theme parks. The company has a market cap of $196 billion and share price of $116, which has increased by 23 percent year-to-date.
The purchase of Lucasfilm or for that matter Star Wars by Walt Disney Co. in 2012 may not have been a cheap deal. Lucasfilm produces the Star Wars films and animated TV series and it’s a leading film and television production company.
However, its acquisition by Disney may have changed directions in the film industry. It was an expensive deal and when you add the action figures, movie tickets, or the limited-edition Coffee-mate creamers, it is expected that billions of dollars are going to come back to replace what has already been spent in the deal.
Disney immediately started streaming in money from an investment that is likely to pay off in a big way for years to come. Just four days following the purchase deal of October 2012, the stock of Disney was showing a rise, having experienced a hit shortly after the purchase.
The acquisition has been perceived by Wall Street as accretive and likely to add to the potential earnings in share growth, according to a senior vice president of finance working with Merrill Corporation, John Holbeck. Merrill Corporation is a financial services and marketing company.
Disney Stock Shares Have Outperformed The Market
Following the purchase of Lucasfilm by Disney, the stock shares of Disney have continued to outperform the market. Disney stocks have almost doubled since the acquisition of Lucasfilm or simply Star Wars, which means that it is outpacing a growing market by almost an additional 50 percent.
There may be other factors that have resulted in the growth of Disney stocks including the consolidation of corporate overhead after the acquisition or the natural synergies associated with the purchase deal of a new company to Walt Disney Co. however, the most likely factor that may be fueling the increasing growth of the Disney stock price is the Star Wars: The Force Awakens.
George Lucas, the previous owner of Lucasfilm wasn’t going to do Star Wars movies again after retiring from the company and handing it over to Walt Disney Co. at a price deal of $4 billion in 2012. Lucasfilm may be said to have been sitting on the richest oil deposit but never wanted to drill it. However, Disney smartly tapped that oil well as well as its gusher.
A relaunch of Marvel’s Star Wars comic book sold close to a million units in January 2015. If you aren’t aware, Disney too owns the Marvel Entertainment Company, which it acquired for $4.24 billion in 2009.
The January sales of Star Wars comic books were about 25 times more than what was realized from the final Star Wars issue released or published by Dark Horse Comics some seven months prior. Force Friday also came along with more than 100 new Star Wars toys rolled out. The retail toy sales realized from Force Friday to end of year topped $2 billion while the wholesale sales estimated at $1 billion.
Disney has a royalty rate of about 15 percent on the toy sales something considered a cheddar for the Mouse. Already, $150 million for royalties goes to Disney just from toys sales, and this is a massive number. Marc Mostman who is a partner at Striker Entertainment says that by Disney, making $150 million just in royalties is unbelievable— this company is a beast.
Marc Mostman says that he can’t wait to see where this company heads. Disney has teamed up with toy and merchandise retailers and manufacturers in various events to sell Star Wars products. Force Friday showed the coming merchandising windfall for Star Wars. It was a promotion intended to launch a product line and not the movie.
Disney’s New Fan Base buying Star Wars Merchandise
Children and casual fans who may not know Star Wars are just beginning to buy the merchandise in stores. There are also ticket sales, and while Jurassic World may be holding the record for selling the highest amount on its opening weekend for domestic box office where it earned $209 million, the Star Wars: The Force Awakens may be a good bet to knock out that dino’s record. Already, $50 million is in bank from advance ticket sales.
While the $4 billion stake may seem a large chunk of cash to have changed hands, Shawn Robbins, a senior analyst for BoxOffice.com says that more than likely, Disney may make half the amount it spent to buy Lucasfilm in 2012 from this movie alone when all revenue streams are looked at.
Those who wish to trade the Disney stocks need to understand something about the trading scenario. Some may be aspiring buying the stocks and selling immediately after the release of Star Wars VII – The Force Awakens but this may not be the right move, warns Jason Bazinet of Citigroup.
Jason Bazinet said that he is not buying the Wall Street idea that traders can buy and own shares of Disney before the release of “Star Wars VII – The Force Awakens” then sell them after the movie is released. What perhaps those trading in the stocks of the company need to look at is the entire slate for 2016. This is dubbed as the best overall year for Disney.
Therefore, it is not just about the December release of the movie. It’s much more about the full 2016 that is considered a theatrical release year with Disney releasing Star Wars, Captain America: Civil War, Doctor Strange, family oriented live action Jungle Book, and a sequel on Alice in Wonderland.