Disney Studios Driving Its Future

Disney Studios Driving its Future

The Walt Disney(NYSE: DIS) Company has been a “buy and hold” investor’s dream for decades. In fact, if you look at the company’s stock movements over its 50+ year history, the only major downturns came in conjunction with the tech bubble that burst in the late 90's and the financial crises surrounding 9/11 and the subprime lending bubble.

Over the last five years alone, Disney’s stock price has grown over 200%, and it shouldn’t be a surprise as to what has been the main driver in that explosion so uncharacteristic of a stock that’s been around for so long: Movies.

Studios: A Short History

Disney has long been the industry leader in children’s movies. Starting with its first animated film, “Snow White and the Seven Dwarfs” in 1937, Disney hasn’t looked back. While it began mixing animation and live action in 1940, it didn’t start producing live action movies until 1950. For the next five decades, the majority of Disney movies were live action, with animated classics peppered in here and there.

Then, in 1995 Disney forged a relationship with Pixar Studios with its release of “Toy Story.” Over the next ten years the two companies released five more films before Disney acquired Pixar in 2006 for $7.4 billion. Since then Disney has released nine movies, netting just over $4 billion in the box office alone for an average of almost $500,000 per movie. Add in DVD sales and consumer products and it’s more than likely the company has already earned back its initial investment. Six more Pixar films are planned for the next three years, with three more without release dates.

Three years after its acquisition of Pixar, Disney saw an opportunity with the struggling Marvel Studios. With the popularity of superhero movies rising high, Disney purchased Marvel at the end of 2009 for $4 billion. Since then, Marvel Studios has netted just under $5 billion in the box office, including two films that netted over $1 billion (“The Avengers” and “Iron Man 3”). Eleven more Marvel films are slated over the next four years.

Not to be underwhelmed at all, Disney made another deft move in 2012 to acquire Lucasfilm for $4 billion. Founded by George Lucas in 1971, Lucasfilm is best known for its Star Wars and Indiana Jones franchises. While Disney has yet to release any films under Lucasfilm, a new installment in the Star Wars franchise is scheduled to be released in late 2015, and it announced the next one will be released in 2017.

And, of course, we can’t forget Frozen. The blockbuster film that has captured the hearts of children and adults alike to the tune of over $2 billion between the box office and consumer products, now has a sequel—though no release date has been set.

Flagship Growth

In all this excitement over Disney’s studio division, it’s not to say the rest of the company hasn’t been delivering. In 2014, the company saw revenue growth of 7%, 12% and 22% from Parks and Resorts, Consumer Products and Interactive, respectively. However, with what Disney already has slated over the next few years between all its studio endeavors, the 22% growth from studio entertainment is likely to be continually supported through the foreseeable future.

This growth will also bleed into other segments as character toys hit the shelves and new additions make their way into its theme parks.

What This Means for You

As a short-term investor, you’re likely to see resistance. For many, Disney’s current valuation seems too good to be true. The P/E ratio of 19.42 is the biggest reason for investor apprehension. While you’ll likely see growth to continue at a gradual pace, there are other stocks out there that might offer a more attractive short-term investment.

However, long-term investors shouldn’t wait for a dip. As a long-term investment, it’s never a bad time to take a long position and hold it forever.

Disclosure: None

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Cliff Wachtel 8 years ago Contributor's comment

nice history and overview, too bad its worthless as actionable investment advice. Filler content in the classic tradition of anyoption.