DIS Stock: Walt Disney Co’s Next Move Could Shatter Expectations

DIS StockWith so many movie franchises and television networks, there is little doubt that Walt Disney Co (NYSE:DIS) is a moneymaking machine. Other than the tremendous success of the highly anticipated movie Star Wars Episode VII: The Force Awakens, there is more good news for DIS stock—the company is about to open its first Disney theme park in mainland China.

DIS Stock: First Disney Theme Park in Mainland China

On Tuesday, January 12, Disney announced that the Shanghai Disney Resort will open on June 16, 2016. It will be the first Disney theme park in mainland China. (Source: “Opening Date Set for Shanghai Disney Resort, Disney’s Newest World-Class Destination,” Walt Disney Co, January 12, 2016.)

The theme park took almost a decade to plan and more than five years to build. It is a joint venture between Disney and state-backed consortium Shanghai Shendi Group. According to Disney, the $5.5-billion project is the largest foreign investment project in Shanghai and one of the largest foreign investments in the history of China.

The Shanghai Disney Resort, located in Shanghai’s Pudong district, is going to be absolutely massive. Upon opening on June 16, the resort will include a world-class theme park with six themed lands; two themed hotels; and a shopping, dining, and entertainment district. The resort will cover 963 acres, around three-times the size of Hong Kong Disneyland Park.

Opening a theme park in a country with 1.4 billion people could be huge for Disney, as parks and resorts have become a crucial segment of Disney’s financials. In the company’s fiscal 2015, parks and resorts generated $16.1 billion in revenue, representing the second-largest revenue source for DIS stock (media networks being its primary source of revenue). Moreover, operating income from parks and resorts increased 14% to $3.0 billion. (Source: “The Walt Disney Company Reports Fourth Quarter and Full Year Earnings for Fiscal 2015,” Walt Disney Co, November 5, 2015.)

DIS Stock: Star Wars Worth $10 Billion to Disney?

Sure, Disney stock has received some downgrades, but this doesn’t change the fact that Disney’s new movie Star Wars Episode VII: The Force Awakens is now the highest grossing domestic film of all time. (Source: “Star Wars: The Force Awakens Becomes Highest Grossing Domestic Film of All-Time,” Walt Disney Co, January 6, 2016.)

As of January 6, 2016, Star Wars Episode VII: The Force Awakens crossed the $800-million mark domestically, surpassing the $760.5 million lifetime gross of Avatar. Another impressive part is that it only took the Star Wars movie 20 days to break the record.

Mind you, it’s not just the U.S. fans that are excited about the new Star Wars movie. The film recently became the biggest release of all time in the U.K. and had a tremendous opening weekend in China on January 9.

The neat thing about the movie’s success is that the Star Wars franchise will not just be making money from the box office. According to Aswath Damodaran, a professor of finance at New York University, Star Wars movies have historically generated $1.80 in toy and merchandise revenue for every dollar in box office revenues. Moreover, with growing popularity in on-demand video streaming, Professor Damodaran estimated that by 2017, total revenues from streaming Star Wars movies will exceed box office revenues. (Source: “Intergalactic Finance: Valuing the Star Wars Franchise,” Aswath Damodaran Blog, December 28, 2015.)

Of course, Disney didn’t get the lucrative franchise for free. Back in 2012, the company got hold of the Star Wars franchise by acquiring Lucasfilm for $4.0 billion. Fortunately, the investment is now producing fruitful results. Professor Damodaran estimates that the franchise is now worth approximately $10.0 billion to Disney.

What’s Next for DIS Stock?

Note that the company is just getting started. In the Star Wars world, Disney plans to make two new movies and at least three spin-offs.

Disney also owns Pixar, which is about to release sequels to Finding Nemo and Toy Story. Marvel Entertainment, another subsidiary of Disney, also has sequels to Captain America, The Avengers, and Guardians of the Galaxy in the pipeline.

These should be able to not only bring further success for Disney on the big screen, but also impress investors of DIS stock.