How Much Does the Fox Merger Really Mean to Walt Disney Co Stock?

Disney stock - How Much Does the Fox Merger Really Mean to Walt Disney Co Stock?

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Walt Disney Co (NYSE:DIS) has had a bumpy year so far. The media conglomerate’s stock is down 3% as investors mull over the possibility that the firm’s proposed merger with Twenty-First Century Fox Inc (NASDAQ:FOX) won’t go through.

A month ago, I pointed out that with the FOX deal hanging in the balance, Disney stock is likely to see some volatility and so far, that has proven true. However, buying a strong company with a bright future while the rest of the market panics over a piece of news is one of the best ways to make money on Wall Street.

So now that it looks like the FOX merge could go either way, you should be asking yourself whether or not this could be a good opportunity to get your hands on Walt Disney stock.

Does Disney Need Fox?

With other suitors like Comcast Corporation (NASDAQ:CMCSA) also knocking on Fox’s door, the question for Disney stock investors is whether or not the company really needs Fox to maintain its place at the top of the media food chain over the next decade.

The first big question mark is Sky, Fox’s European arm. Most believe that Sky was a huge part of the reason Disney was interested in buying Fox. But that opportunity looks to be slipping away.

Not only has Comcast put in a higher bid for Sky, but many expect that the Trump administration will block the Fox deal from going ahead as planned due to antitrust concerns.

The trouble for Disney in that scenario is that Sky offered  a great way to stretch its legs into Europe. Sky already has a huge audience overseas. So adding it to the Disney umbrella would give the firm a much needed boost in European markets.

Perhaps the larger concern for Disney is the content that Fox would offer. DIS is working on building out its streaming prowess. And acquiring a library of hit TV shows and movies would certainly help the company break into streaming.

Many investors are interested in adding DIS stock to their portfolios because they think Disney can win in the streaming space. But can DIS win without FOX?

The Disney Appeal

Losing FOX and all the content that comes with it would definitely be a blow to Disney’s streaming ambitions. But I don’t think it will derail them completely.

As-is, Disney has massive appeal already. The company owns some of the most popular franchises on the planet. And its huge catalog of kid-friendly programming will make it a strong contender for family audiences even without Fox’s content.

Next there’s the potential that Disney has to build on its existing franchises with TV series available exclusively to subscribers.

Much like Netflix, Inc. (NASDAQ:NFLX) has been able to rope subscribers in by offering must-see series, Disney has that same potential. Except a lot of the legwork — like building a following and finding characters that people connect with — has already been done. Take Star Wars. Imagine the rush of signups DIS will see when it reveals a TV series set in a galaxy far, far away about characters that already have a massive fan-base.

If all else fails, Disney has money and that’s half the battle. Netflix is planning to spend around $8 billion on new content throughout the year. But if Steven Cahall from RBC Capital Markets is correct, Disney could spend $30 billion on original content each year. That figure takes into account a successful merger with FOX, but if Disney can manage just a third of that figure it’s still more than Netflix.

The Bottom Line for Disney Stock

There’s more to Disney stock than just the FOX merger.

Not only does Disney appear to be more than capable of going it on its own in the streaming space, but Disney also has a hugely successful theme park business that brings in more than a third of its total revenue at the moment.

Until the merger with FOX is settled, the stock is likely to see some ups and downs — but using the downs as a chance to buy into a well-run blue chip might not be a bad idea.

As of this writing, Laura Hoy was long NFLX. 

Marie Brodbeck has a Finance degree from Duquesne University and has been a financial journalist for more than a decade. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN.

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