Why Hasn’t ‘The Force’ Awakened Walt Disney Co (DIS)’s Stock Price?
After buying Lucasfilm for $4 billion in 2012, The Walt Disney Company had to wait three years for its investment to begin paying tangible dividends. If, however, the initial box-office performance of “Star Wars: The Force Awakens” is a sign of things to come, then the wait was well worth it.
The seventh installment in the Star Wars film saga shattered the U.S. total box office record, passing the $760.5 million mark set by James Cameron’s blockbuster “Avatar” in 2009.
ValueWalk's Raul Panganiban with Maurits Pot, Founder and CEO of Dawn Global. Before this he was Partner at Kingsway Capital, a frontier market specialist with over 2 billion AUM. In the interview, we discuss his approach to investing and why investors should look into frontier and emerging markets. Q2 2021 hedge fund letters, conferences and Read More
Unfortunately for Disney’s shareholders, the company’s stock price has yet to jump to hyperspace. Instead, shares of Disney have trended downward during “Episode VII’s” time in theaters.
Stunningly, it only took “The Force Awakens” 20 days to break the U.S. gross box-office record. For context, “Avatar” took nearly eight months to pass the previous record-holder – “Titanic,” another Cameron epic. Moreover, “Episode VII” had the largest opening weekend ever recorded in the U.S., raking in $238 million.
Following the U.S. release, the film debuted in China — a market with little exposure to the Star Wars universe. During the years of the original trilogy, 1977 to 1983, the nation was in the midst of massive economic and political reforms. Thus, many of the original seeds of the franchise’s influence were never planted.
However, “The Force Awakens” lived up to is name, bringing in an estimated $53 million during its opening weekend in China. As of January 26, “Episode VII” had the third-highest worldwide gross of all time at $1.94 billion — more than $1 billion of which was overseas.
As “Star Wars: The Force Awakens” continues to subdue doubts and exceed expectations, FindTheCompany wanted to know why Disney’s shares haven’t done the same?
Since nearing their all-time high in mid-November, shares of Disney have been on a consistent decline. On Jan. 7, 2016, Disney’s stock price fell below $100 for the first time since September 2015. This trend appears to be especially unfitting, given how quickly “Star Wars: The Force Awakens” justified its $4 billion price tag.
Yet, with a market capitalization of roughly $160 billion, Disney clearly has more at stake than its initial $4 billion investment.
Problems for Disney surfaced following the company’s Q3 2015 earnings release. Disney’s stock price collapsed as investors were spooked by contracting subscriber numbers and ad sales for the company’s subsidiary sports network ESPN. Increased competition from streaming services like Netflix forced investors to take a more critical position on the ESPN numbers, as momentum trended (and continues to trend) in favor of original content and increased accessibility over established programming.
The fall wiped out much of Disney’s gains in 2015 and also sparked a widespread selloff of other television media stocks like Comcast (CMCSA), Time Warner (TWX), and Viacom (VIA). The sector as a whole struggled in 2015, with Disney being the only stock of the four to generate positive returns over the last year.
Whereas Disney’s stock price is up just less than 6 percent over the last 12 months, Netflix’s stock price is up more than 130 percent, exemplifying the recent shift toward streaming services.
On Wall Street, the battle between Disney and streaming services like Netflix has overshadowed “Episode VII’s” success. Despite this, Disney still has a number of reasons to be excited about Star Wars as it nears its next earnings date on Feb. 9.
First, the continued box office success of “The Force Awakens” bodes well for Disney’s bottom line. The company barely missed revenue expectations in its last two earnings reports and the ever-rising global box office gross could very well be a difference maker.
Second, as “Episode VII” reinvigorates the Star Wars brand in established markets like the United States, and introduces it to new markets like China, Disney has much to gain from a potential increase to both merchandise and theme park ticket sales. Estimates indicate that first-year merchandise sales could hit as much as $5 billion, while seasonal Star Wars events at Disneyland theme parks are expected to drive an increase in ticket sales as the hype over the reinvigorated franchise continues to build.
Moreover, Disney has announced plans for a 14-acre “Star Wars Land” addition to its Disneyland park in Anaheim, Calif., which could provide a huge boost for ticket sales.
Although the record-breaking pace of “The Force Awakens” box office tour has yet to be reflected in Disney’s stock price, the film has undoubtedly succeeded in reviving a brand with worldwide appeal. Faced with increased competition and a changing landscape for its products and services, Star Wars should supply Disney with an important portion of the revenue it needs to make the changes necessary to remain relevant in an ever-evolving industry.
Compare Stock Prices on FindTheCompany