How Is Disney’s Studio Business Trending In 2014?

Disney (NYSE:DIS) has seen a spectacular year with its movie business and the studio’s current market share is around 16% in the U.S. for 2014. The movie business benefited from the success of Captain America: The Winter Soldier, Guardians of Galaxy, Maleficent and continued success of Frozen. Globally, the studio has raked in $3.27 billion so far this year. ^[1] Looking at the first three quarters, studio’s revenues stood at $5.39 billion, up 20% over the prior year period. The studio revenues include box-office revenues, home entertainment and studio’s TV distribution revenues. The segment operating income was $1.14 billion during the first three quarters of 2014 as compared to $427 million in the prior year period. ^[2]

We wonder if Disney can continue to ride high over the success of its movies in the coming months. While Disney has had many popular movie titles such as Pirates Of The Caribbean, The Cars, Frozen and Toy Story, the performance of its studio division can be erratic as it largely depends on the audience and box office response, which can be fickle and hard to anticipate.

Understand How a Company’s Products Impact its Stock Price at Trefis

Disney Studio Benefits From The Box-office Success In 2014

Disney has added to its movie-making assets through a series of acquisitions, including the $7.4 billion purchase of Pixar, maker of Cars and Toy Story in 2006. It added Marvel in 2009 at a cost of $4.2 billion and last year it added Lucasfilm, maker of the Star Wars films, in a deal valued at $4.1 billion. Star Wars has a huge fan following and it shouldn’t be difficult for Disney to repeat the success of Marvel and Pixar with Lucasfilm. Earlier last week, Disney said that its theme parks will have a significant Star Wars presence. However, the attractions will be based on the upcoming movies rather the old ones in George Lucas’ Star Wars series. ^[3] Disney will release the episode 7, The Force Awakens, in December 2015.

The studio business contributes close to 10% to Disney’s value, according to our estimates. In fiscal 2014, it accounted for 15% of overall revenues and 12% to the company’s operating income. However, historically the contribution in earnings has been low due to high marketing costs associated with the business. For instance, Disney reportedly paid $4 million per 30-second spot for the first televised advertisement of Captain America: The Winter Soldier this year. ^[4]

Captain America, Guardians of Galaxy and Maleficent drove Disney’s success at the box-office this year. These three movies have grossed over $2.24 billion at the global box office while the production budget of these movies combined was $520 million. Disney also benefited from its other releases including Need For Speed and the continued success of Frozen. The success of these movies at box-office will also aid other studio revenues such as the revenues earned by Disney via pay-per-view, video-on-demand and pay-TV mediums.

Disney had a fantastic run at the box office this year and it has a solid lineup for the next few years, especially 2015 and 2016 when the studio will reap the benefits from the much awaited Star Wars: The Force Awakens and Avengers: Age Of Ultron. We estimate the studio’s revenues to be north of $7 billion and an estimated EBITDA margin of 21.6% for Disney’s studio business will translate into EBITDA of $1.56 billion in 2015, representing close to 10% of the company’s overall EBITDA for the year.

For 2014, we estimate Disney’s overall revenues of around $49 billion and EPS of $4.08, which is in line with the market consensus of $3.87-$4.38, compiled by Thomson Reuters. We maintain a $93 price estimate for Disney’s shares, which is close to the current market price of $91.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

1. 2014 WORLDWIDE GROSSES, Box Office Mojo [↩]
2. Disney’s SEC Filings [↩]
3. ‘Star Wars’ Theme Park Attractions to Be Based on New Films, Not Old (EXCLUSIVE), Variety, Dec 10, 2014 [↩]
4. Super Bowl: Disney Seeking Last-Minute Ad Buy, The Hollywood Reporter, Jan 22, 2014 [↩]