Disney’s (NYSE:DIS) stock has shown some signs of improvement this year, gaining about 12%. The recent earnings results, where the company posted higher than expected profits, have helped it sustain the increased stock price levels. In the last couple of weeks, Disney announced some product developments for its Disney Studios and consumer businesses. Although these are not significant enough to drive the stock, they are worth a mention. Below we look at these developments in context of the company. Disney competes with other media giants such as News Corp (NASDAQ:NWS), Time Warner (NYSE:TWX) and Viacom (NASDAQ:VIA).
Disney’s upcoming 3-D science fiction movie, John Carter, is a big budget film with incurred expenses of close to $250 million. This is not usual and implies that the movie has to become a huge hit in order to recoup the costs and make profits for the company. But some insiders have stated that the movie is unlikely to impress. 
To add context here, we estimate that Disney Studios constitutes about 20% to Disney’s value. Therefore the company’s performance in filmed entertainment business is likely to remain critical to our value estimates. Although one movie blunder is not an issue, the company should carefully judge the success potential of its high budget movies. 3-D movies have done well in the past but their success is hinged on other aspects rather than just visuals.
Furthermore, Disney introduced storybook apps for iOS devices for The Lion King and Tangled.  These are interactive books designed for better reader engagement and offer a new monetization stream for Disney. However, the incremental value is very low since the whole consumer business accounts for only 7% of Disney’s stock.
Disney has also struck a deal with You On Demand to distribute its movies in China. International markets still have tremendous growth potential for Disney. Besides online streaming licensing, expansion into international markets will drive Disney’s revenue growth.
Our price estimate for Disney stands at $51.35, implying more than 20% premium to the market price.Notes:
- ‘John Carter’: Disney’s Quarter-Billion-Dollar Movie Fiasco, thedailybeast.com, Feb 21 2012 [↩]
- Disney debuts storybook apps for Lion King, Tangled, CNET News, Feb 29 2012 [↩]