If you thought the Tuesday after Memorial Day was a bit rough … well, you weren’t alone. Walt Disney Co (NYSE:DIS) tried to enjoy the long weekend with the release of its film Tomorrowland but got slapped around slightly yesterday after a not-so-hot box office performance.
Cue the headlines, cue the question marks, cue the chatter: Is Disney stock done? Should you kick DIS shares to the curb?
Well, Tomorrowland might not have been a huge hit, but it’s largely irrelevant for the stock’s prospects. Let’s take a look at three reasons why.
Don’t Worry About Disney Stock
Here’s the situation: Before you panic because of Tomorrowland and its subpar box office showing, consider the fact that the flop was a two-way street. Memorial Day box office sales were the lowest they’ve been in over a decade. So while “Tomorrowland” sure didn’t do it’s part to boost movie-going, it’s not folks were lining up to see everything — or anything — else.
Plus, a wide variety of factors play a role when it comes to something like box office attendance; as Jim Cramer pointed out, something as simple as “nice weather” likely played a role, along with competing events like the conference finals of NBA and NHL playoffs.
It’s a small slice. Worried less because of Memorial Day weekend in a bubble and more because of a seeming decline in movie popularity in general? Well, that’s not a huge deal for Disney stock either — because it’s not like DIS is a movie pure-play. Just check out its nice breakdown below, from the most recent Disney earnings report. Studio entertainment sales have been falling lately, but that has hardly weighed on Disney stock and arguably could make for an even more appealing sales mix.
Of course, that studio entertainment slice still isn’t anything to sneeze at. But once again, Disney stock investors can sleep well because Tomorrowland is an outlier in another sense: It was a relatively rare attempt for Disney to sell an original film. Sure, the studio shelled out $180 million for the flop, but it’s go-to strategy is still reviving established characters and storylines.
Comedian John Mulaney once suggested that there’s absolutely no reason for sequels for any of these movies from a thousand-foot-view-perspective — just show the kids the same darn move again! While I agree, it’s not difficult to understand Disney’s motivation for cranking out new flicks again and again. A super quick sample of what’s coming up:
- Frozen 2
- Toy Story 4
- 10 More Marvel movies, including Thor and Guardians of the Galaxy sequels
- Star Wars: The Force Awakens
And this is where that aforementioned sales mix comes into play again for DIS stock. As a recent TIME article applauding head honcho Bob Iger recently put it:
“The relentless parade of blockbuster fare may feel manufactured but, for Disney, they are paying off through multiple revenue streams. Sales of Frozen merchandise in the past six months rose tenfold over the year-ago period, even though the movie was released in 2013.”
The bottom line: Soon enough, the Tomorrowland flop with be a faint memory from yesterday. While it made for some quick headlines after an unimpressive weekends for movies across the board, it’s hardly a reflection of Disney stock’s prospects. While valuation is still a bit of a concern after the 31% tear shares have gone on in the past year, one unsuccessful movie is not the end of DIS stock.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.
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