Disney (DIS) stock holders may not realize just how gigantic the announcements were at the D23 Expo 2015 over the weekend (particularly in regards to the Star Wars franchise), but they were pretty big. If you needed a reason to buy DIS stock on the dive it took after shelling out disappointing earnings, here it is.
I’ve worked in Hollywood, so I understand Star Wars in a way that the average investor probably does not. And Disney’s announcements at the D23 Expo are central to the Disney theme, not just over the next few years, but the next several decades.
Why Star Wars Is Crucial to Disney Stock
The 1977 film wasn’t just some silly “space opera.” Star Wars is the reason my entire generation goes to the movies. Sure, George Lucas’ film ticked off all the right escapism boxes, but on a fundamental level, the story of the Star Wars universe works on the deepest mythological levels.
Star Wars put the potential of the movie industry on display for millions, and influenced the movie industry’s current summer blockbuster model.
But my generation had given up hope for the franchise after the second trilogy.
With the LucasFilm purchase, however, George Lucas’ lousy influences are no more. And from everything I’ve seen, Disney is putting the best creative talent to work in an attempt to breathe new creative life into the franchise, and Disney stock will get a boost along with it.
We have J.J. Abrams, who resurrected both Mission:Impossible and Star Trek, helming the next film. And rather than make a safe directorial choice for the eighth film, LucasFilm chose Rian Johnson, a stylistic independent filmmaker.
At D23, DIS revealed Colin Trevorrow as director of the ninth Star Wars. It’s a bold choice. Trevorrow only directed two films: The first was a wonderful, sweet independent flick, and the second was Jurassic World. You may remember the latter for obliterating box office records, putting Comcast’s (CMCSA) NBCUniversal well on pace to break Time Warner’s (TWX) Warner Bros record of $2.1 billion for highest-grossing year at the box office.
And the Star Wars universe keeps growing, with a casting announcement for a spin-off film called Star Wars: Rogue One, a great animated series already ongoing in Star Wars: Rebels and video games such as Disney Infinity and the upcoming Star Wars: Battlefront.
And a huge moneymaker for Disney stock should be in its newly announced Star Wars theme park in both Disneyland and Disney World. The sheer commitment of capital alone to just these endeavors demonstrates that DIS gets it.
Of course, along with the film, TV and multimedia source content, there’s plenty more revenue to be mined. Disney’s interactive games will be just a drop in the bucket for Disney stock in the grand scheme of things, but there’s plenty to be made in merchandising. And like Star Wars, DIS has a chance to unleash Indiana Jones on a new generation of movie-goers. The most recent entry was an unmitigated disaster, but Disney could call it a mulligan and reboot the franchise for release every three to four years.
Bottom Line on DIS
You can truly hold Disney stock forever. LucasFilm franchises alone could potentially provide decades of revenue, provided the storytelling remains good. We’ve already seen Marvel Studios execute on its plan to create films and TV out of every comic possible, mixing-and-matching elements from each to create a completely interwoven universe.
Disney has all the resources it needs to execute: $7.1 billion in cash, $6.7 billion in free cash flow in the trailing 12 months, etc. We are talking billions upon billions of dollars to put to work. As long as the audience interest is there (and after nearly four decades, it still is), DIS should spare no expense.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance. As of this writing, he was long DIS. He has 20 years’ experience in the stock market, and has written more than 1,200 articles on investing. He also is the Manager of the forthcoming Liberty Portfolio. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
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