Forget ESPN, DIS Stock Is Amazing
The Walt Disney Company (NYSE:DIS) has taken a lot of flack over subscriber losses at its flagship network, ESPN. But don’t panic yet, because Disney stock has much more going for it than one network, even if it is ESPN. DIS stock could jump sharply this month with the premiere of Star Wars Episode VII: The Force Awakens.
After all, let’s not forget that Disney has made some brilliant investments over the last decade. Or rather, CEO Bob Iger initiated a strategy that reaped huge rewards for Disney stock. Iger went for big-ticket items like Pixar, then Marvel Studios, and then Lucasfilm Ltd. LLC. (Source: “How Robert Iger’s ‘fearless’ deal-making transformed Disney,” LA Times, June 6, 2015.)
Each of those acquisitions seemed absurd at the time, but Iger’s foresight showed him how the landscape was shifting. His actions were taken specifically to guard DIS stock against the inevitable decline of traditional revenue sources.
Disney Stock Still Has Gas in the Tank
Iger let Marvel spin an expansive cinematic universe that kept viewers intrigued with its overlapping plotlines. Now Lucasfilm is gearing up for six major releases between 2015 and 2020.
The presale tickets for Star Wars Episode VII: The Force Awakens have already earned upwards of $50.0 million in revenue. Estimates suggest the movie could pull in more than $200 million in its opening weekend. My point is that Disney isn’t just surviving; it’s booming. (Source: “‘Star Wars’ Tickets Getting Scalped for Big Bucks,” Variety, December 2, 2015.)
The revenue from these franchises, once you factor in theme parks and products, is well into the tens of billions. This revenue was key to protecting Disney stock once the Internet tarnished some of its prized possessions. After all, cable TV has been getting destroyed for years, so why would sports be an exception? Bob Iger definitely saw it coming.
Netflix, Inc. created a whirlwind of trouble for cable TV and studios understood there was no undoing the damage. They have either licensed content to Netflix or built their own streaming platforms. ESPN still has time to try the latter strategy. The company can leverage its lucrative contracts with the major sports leagues, but it needs to act quickly. By accepting that a shift to online is inevitable, ESPN will be able to save its brand and market share. Avoiding that basic truth could put ESPN in serious jeopardy. These are the facts.
Fortunately, the loud and visceral reaction to ESPN losing seven million subscribers in two years should light a fire under the current management. Let us hope they stop clinging to the past and try to embrace the future. (Source: “ESPN, Down 7 Million Subscribers in 2 Years, Biggest Loser Among Disney Cable Channels,” Forbes, November 27, 2015.)
The Upside for DIS Stock
So let’s recap: Disney stock has the tailwind of both Marvel Studios (which is extremely successful) and Lucasfilm (which looks like it could exceed Marvel). The company is also reviving its old princess stories into live-action movies.
For instance, Emma Watson will be playing Belle in a live-action remake of Beauty and the Beast. Even if that isn’t what you would watch in your spare time, think about an entire new generation of kids connecting to that movie. (Source: “Here’s the First Cast Photo From Disney’s Live-Action Beauty and the Beast,” TIME, April 15, 2015.) The revenue from ticket sales is sure to be enormous.
ESPN is far from dead, but the company is at risk of becoming antiquated. We’ll see what steps Bob Iger and his team make in the near future, but my guess is that Disney stock has room to run.
Could we see DIS stock go all the way to $200.00? I’m not ruling it out.