For most of this year, discussions about Disney (NYSE:DIS) centered on its bitter battle with rival Comcast (NASDAQ:CMCSA). At stake was Fox’s (NASDAQ:FOXA) entertainment assets. The Magic Kingdom ultimately won the battle, sending Disney stock higher. With this catalyst largely written in, do incentives still exist for DIS?
I understand investor hesitation. Since mid-September, DIS stock has jumped over 6%. For a company that isn’t known for dramatically-wild trading sentiment, the recent surge worries some. I’ve argued before that I’m net bullish on the Fox deal. With it, Disney has a virtual entertainment monopoly that competitors will find extremely difficult, if not impossible, to topple.
On the other hand, we’re still talking about a $71.3 billion deal. I don’t care who you are: that is a ton of money. More critically, such magnitude carries significant risk. This is no slam dunk in the cord-cutting, content-streaming era. Management must make good on maximizing potential. Otherwise, Disney stock will suffer.
Nevertheless, having factored in the current media landscape’s many risks, I’m still bullish on DIS stock. Here are three reasons why:
Two Words Bolster Disney Stock: Star Wars
Back in early 1997, Lucasfilm rereleased its iconic Star Wars film to movie theaters throughout the U.S. and the world. Officially titled Star Wars: Special Edition, it featured a digital remastering, as well as extra tidbits that didn’t make the original cut.
That movie studios resuscitate old films through various methods isn’t at all unique. What made this go-around so special, however, was its resounding success. On January 31, 1997, Star Wars: Special Edition opened to an astounding $35 million weekend debut. Eventually, the rerelease would generate over $138 million in domestic box-office revenues.
A lot of folks might feel that the Star Wars franchise is dead, especially after Solo: A Star Wars Story bombed. They’re wrong. Sure, franchise-fatigue probably got the better of Disney’s most recent release. However, a lucrative history extending several decades proves this franchise’s financial viability for Disney stock.
The motivation for Star Wars: Special Edition was that it would give a new generation the ability to watch these classics on the big screen. Now, Disney has the opportunity not only to do re-rereleases, but to invigorate the series with fresh ideas. Plus, let’s not forget the associated merchandise sales.
Beyond that, keep a close eye on DIS stock throughout 2019. The next Star Wars film is scheduled for a December 20, 2019 release. That’s a long time to wait. Expect monstrous numbers, perhaps the biggest in cinema history.
Demographics Favor DIS Stock
Living in the U.S. is a blessing few of us take the time to truly appreciate. One of the reasons why America is so great already is that we have a steadily-growing population. We’re replenishing ourselves at a growth rate of 0.9% annually.
That’s significantly better than many developed countries which have upside-down demographics. Even more important for Disney stock, our society skews young. A prime example is that the millennials currently represent the largest work-force demographic. And now that most are older, earning money, and having kids, this is a boon for DIS.
Further, everyone discusses the rise of the Hispanic population. This is incredibly beneficial for Disney stock as nearly half of U.S.-born Latinos are younger than 18. Obviously, Disney is a young person’s company at heart. Therefore, the younger the target audience, the better.
Another inevitable demographic change is that thanks mostly to China and Asian immigration, the world is becoming more eastern. Movie studios, like Lions Gate (NYSE:LGF.A, NYSE:LGF.B) are taking note. For instance, their latest film, “A Simple Favor,” was astonishing and not just for the wild script.
The film features an Asian actor, Henry Golding, which in and of itself is a shocker. Add in the fact that Golding’s character is not a racialized caricature and that (spoiler) he gets the girl? I nearly fell out of my seat!
Blogger Mai Linh feels it’s a gamechanger for how Asian actors are portrayed moving forward, and I agree wholeheartedly. Disney in particular has done a wonderful job including Asians in its broader diversity protocol.
This is big time money for Disney stock that other media companies are leaving on the table.
DIS Is a Content King
Lastly, let’s talk about the Fox deal. Naysayers may point out how expensive it was for DIS to secure those entertainment assets. In the end, it’s money well spent.
Fundamentally, Disney stock features rock-solid stability. The company features excellent profitability margins. It has grown sales at a respectable 8% rate over the past three years. Admittedly, Disney was already carrying significant debt prior to the Fox deal. However, its steadily rising cash flow assuages concerns.
More important, Disney is in the best position to advantage the Fox assets. Its theme park and merchandising businesses complement its cinematic franchises. Plus, having that envy-inspiring content library only bolsters the company’s foray into streaming.
As the recent Emmys confirms, compelling content, not price, is king. Since Disney is now the king of content, I think I like its chances to compete effectively in streaming. Logically, DIS stock should do very well over the next few years.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
