The mobile industry is experiencing a boom with millions of smartphones and tablets based on Apple’s (NASDAQ:AAPL) iOS and Google’s (NASDAQ:GOOG) Android operating systems sold worldwide each year. Riding on this growth is the budding ecosystems of apps which is dominated by games. Disney (NYSE:DIS) has done well with its mobile games in the past, topping the charts for Apple’s paid apps. But it’s difficult for any game to remain on the top for long, and it is vital to keep introducing updates and new games to keep users engaged.
Keeping this in mind and to build upon the success of its previous games, Disney is introducing three new games that leverage its popular characters. These include Monsters Inc. Run, Finding Nemo Reef and Where’s My Holiday. 
Even though this move won’t add any significant value to Disney, it will definitely help it engage consumers and cross-market its other products and services.
A typical gaming app sells for $0.99 per download on Apple’s app store. If we assume Disney’s games are downloaded about 50 million times a year, which is quite optimistic, Disney would earn close to $35 million in annual revenues, after accounting for Apple’s cut. Given that its consumer products and video gaming businesses together earn more than $4 billion annually, the incremental benefit is limited on a relative basis. In fact, the profits from the gaming division are negative, implying that Disney is actually losing money in this business. Then why does it keep pushing for it?
We believe that given the huge distribution channel that has opened up due to the popularity of iOS and Android devices, Disney is pushing its games to better engage its consumers. This provides cross marketing opportunities for Disney’s other businesses and keeps the brand image stable in consumers’ minds. For example, Disney could easily promote its movies, consumer products and theme parks via games.
Our price estimate for Disney stands $54.60, implying a premium of more than 10% to the market price.Notes:
- Disney Mobile Plans Big Holiday Push With Three New Games: Monster’s Inc. Run, Nemo’s Reef, And Where’s My Holiday?, Tech Crunch, Dec 12 2012 [↩]