Long ago, in an economy far, far away, a young man named Walter Elias Disney took his struggling animation studio from Kansas City, Missouri, to Hollywood, California.
Almost a century later, that animation studio has turned into one of the most recognized companies in the world. Disney (DIS) ranks No. 11 on Forbes’ list of most valuable brands, with Disney theme parks in the U.S., France, China and Japan. The company also owns ABC, one of the most prominent television networks, as well as sports supernetwork ESPN and a treasure trove of movie studios.
Despite this big reach and big potential, however, Disney stock hasn’t been without troubles. Investors are worried about its immensely profitable ESPN channel losing subscribers. And after reporting third-quarter earnings, DIS plunged more than 20% over a three-week period.
DIS stock has bounced back from those August lows, making up almost all that it had previously lost, but many investors are still wondering what’s next for Disney and what to expect from this powerhouse as we enter 2016.
The fact is, Disney stock will be just fine. Regardless of whatever short-term troubles it may find itself in, DIS stock holders have nothing to worry about in the long run.
Star Wars, Marvel Strengthen Disney Dominance
As InvestorPlace.com’s Lawrence Meyers recently pointed out, Disney has a lot working in its favor. The company generates absurd cash flows of more than $6 billion annually. It’s also a well-diversified company, with five segments all running relatively smoothly. And the company has some major money-making brands backing it up.
Indeed, those brands are going to be a huge part of Disney stock performance in the future.
On Dec. 18, Disney will unleash Star Wars: Episode VII — The Force Awakens upon the world. Episode VII will be the first new live-action Star Wars film in a decade, and the movie is already drawing huge amounts of hype and attention.
When tickets went on sale in October – fully two months before the movie releases – fans crashed three different websites in a rush to make sure they were among the first to see the new installment. Websites for the Alamo Drafthouse, AMC Theaters, and online ticketing king Fandango all crashed when tickets went up for The Force Awakens.
And don’t be fooled into thinking this the normal level of hype seen when a new Batman or Avengers movie comes out. According to a Reuters report, Star Wars presales on Fandango obliterated the old record holder — The Hunger Games — with eight times as many ticket sales.
This is very, very good news for DIS stock holders.
Yes, movies are expensive to make. And yes, the new Star Wars trilogy will probably end up being some of the most expensive films ever produced. But it doesn’t matter. The prequel trilogy that started with 1999’s The Phantom Menace made a collective $2.5 billion dollars in worldwide box office receipts. And that was long before 3D and IMAX theaters became standard fare.
Remember, though, Star Wars isn’t the only blockbuster franchise under Disney’s ownership. There’s Marvel’s Avengers, along with the solo films for most of the team’s characters; the franchise has movie plans stretched all the way out to 2020. And let’s not forget about Pixar, whose films had always debuted at No. 1 until Jurassic World refused to be unseated by Inside Out this summer. (Don’t worry — Inside Out still brought in more money than any original Pixar film in its opening weekend.)
At this point, some Disney stock investors undoubtedly wish to point out that Disney Studios — the company’s movie-making division — only represents 15% of annual revenues and 12% of profits. That’s certainly true … but the influence of Star Wars and Marvel won’t be contained to that one division.
DIS Stock Has Big Brands Everywhere
Go into any Target (TGT) or Walmart (WMT) right now. Look around. Try to find a section of the store that isn’t overflowing with Star Wars merchandise. Toys, clothes, home furnishings, kitchenware. Star Wars merchandise is ubiquitous, and the same will be true of the next movie, and the one after that, and the one after that….
Now multiply all that merchandise by its Marvel, Pixar and traditional Disney characters.
Theme parks? Yep, go ahead and add entire Star Wars sections to its Disneyland and Disney World parks.
Media Networks? With Agents of S.H.I.E.L.D. already bringing the success of The Avengers to ABC, don’t be surprised if Star Wars makes it way there, or on Netflix (NFLX), where Marvel is finding success with Daredevil and Jessica Jones.
Oh, and just wait until the Frozen sequel comes out. DIS stock is still selling crazy amounts of Anna and Elsa merchandise fully two years after the film’s release.
The bottom line is that Disney has been around for a very long time, and it knows how to build on its successes. That’s exactly what the company is doing now — after a string of genius acquisitions, Disney is building out its portfolio and capitalizing on its most successful brands. So, regardless of whatever short-term hurdles it has to leap, DIS stock will be just fine in the long run.
Adam Benjamin is an Assistant Editor at InvestorPlace. As of this writing, he did not hold a position in any of the aforementioned securities, but he does hold tickets for the premiere of The Force Awakens.
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