Here’s some good news for The Walt Disney Co. (NYSE:DIS) stock investors—in less than two weeks since its debut, Disney’s new movie Star Wars Episode VII: The Force Awakens is on its way to becoming the biggest film of all time. Meanwhile, respected finance professor Aswath Damodaran estimates that the Star Wars franchise is worth $10.0 billion to Disney. (Source: “Intergalactic Finance: Valuing the Star Wars Franchise,” Aswath Damodaran blog, December 28, 2015.) That’s pretty good news for DIS stock.
Aswath Damodaran is a professor of finance at New York University Stern School of Business. Back in 2012, Disney bought the Star Wars franchise and Lucasfilm for $4.0 billion. That would be a huge bargain, given the professor’s $10.0-billion valuation.
Let’s take a look at how he arrives at this number…
DIS Stock: Spent $4.0 Billion, Bought Something Worth $10.0 Billion
To value the Star Wars franchise, Damodaran starts with estimates of worldwide box office revenue for Star Wars Episode VII: The Force Awakens and Disney’s subsequent movies in the series. Other than this newly released film, Disney plans to make two new movies and at least three spin-offs. He estimates that each of the three main movies will bring in $2.0 billion at the box office, while the spin-offs would make half of that. Damodaran uses a two-percent inflation adjustment in his calculations.
Professor Damodaran notes that by 2017, total revenues from streaming are expected to exceed box office revenues. He estimates that each dollar in box office revenue from new Star Wars movies would generate an additional $1.20 of revenue in streaming.
Merchandise sales have played a very important role in the Star Wars franchise. Historically, Star Wars movies have generated $1.80 in toy and merchandise revenue for every dollar in box office revenues. This number has potential to go up, given Disney’s capabilities at merchandising, but Professor Damodaran keeps the multiple at its historical level in his calculations.
Other than streaming and merchandise, the professor also includes books/e-books, gaming, and TV shows in the valuation. To calculate the franchise value, he uses operating margins of the movie (20.14%) and toy/merchandise business (15.00%), netting out taxes at a 30% tax rate. He then discounts back using the entertainment sector’s average cost of capital of 7.61%.
How much is Star Wars worth to Disney? A whopping $9.972 billion if it can maintain its box office performance from the recent Star Wars Episode VII: The Force Awakens and the estimated numbers for add-ons.
The Bottom Line on DIS Stock
The most recent piece of good news for DIS stock investors is that Star Wars Episode VII: The Force Awakens has now made $1.16 billion at the box office, making the $2.0-billion expectation quite achievable. Moreover, the movie has also become the fastest movie in history to pass $1.0 billion at the box office. (Source: “Box Office: ‘Star Wars: Force Awakens’ Rockets to $1.16 B,” The Hollywood Reporter, December 29, 2015.)
Closing at $107.08 a share today, the Disney stock price has increased 13.7% since the beginning of this year. The company has a price-to-earnings multiple of 21.85 and a dividend yield of 1.33%, making DIS stock an interesting one to watch, especially with its $10.0-billion Star Wars franchise.