How Much Can The Success Of Star Wars Impact Disney’s Valuation?

The Walt Disney‘s (NYSE:DIS) movie Star Wars: The Force Awakens, which released on December 14^th, set a record in pre-sales when over $50 million worth of tickets were sold in advance bookings. ^[1]. It opened to a stellar weekend by grossing $530 million worldwide in the opening weekend and the release in China is yet to come. (Read Weekly Media Notes: Disney’s Star Wars Smashes Box Office Records For A Stellar $500 Million Opening Weekend). According to our estimates, the Disney Studios division accounts for nearly 12% of the company’s valuation, and we estimate Disney’s market share in the global box office to be around 10% over our forecast period, given that the company is planning to release one movie in the Star Wars series every year till 2020. Our price estimate of $120 is around 8% higher than Disney’s current market price, and while our forecast incorporates the revenues from Star Wars in the valuation of the Studios division, if the company is able to generate higher merchandise revenue and increase the traffic to its Parks and Resorts riding on the success of Star Wars, there can be an up to 10% upside to our price estimate.

Higher Revenues From Star Wars Merchandise Sales Can Lead To A 10% Upside In Our Price Estimate

Disney’s shares were up just 2% on December 14^th when the movie released to a grand opening.  According to Macquarie Securities, the film could gross $2 billion in global box office receipts and generate merchandise sales of $5 billion. The company could also earn $500 million in licensing and publishing revenue alone. ^[2]  Although the company has not provided revenue projections for the series of Star Wars films (it plans to roll out four more films in the next four years), industry estimates put total revenue from these films to around $25 billion in the next five years. ^[3] We estimate Disney’s market share in the global box office to remain steady around 11% over our forecast period, after jumping from 9.5% in 2014 to around 10.5% in 2016, primarily due to the success of the Star Wars series. While we do not expect the market share to increase significantly beyond our estimates, a higher market share will impact the company’s valuation positively.

Disney’s consumer products and interactive media division accounts for nearly 15% of the company’s valuation, according to our estimates. We believe revenues of this division will grow from around $4.75 billion in 2015 to nearly $8 billion by the end of our forecast period, driven primarily by sales in its newly opened Shanghai store, Playmation toy series and Star Wars merchandise. However, if these revenues increase significantly beyond our expectations due to the popularity of the Star Wars merchandise and reach $15 billion by the end our forecast period, there can be a nearly 10% upside to our price estimate.

Disney is also planning to create a Star Wars area in its amusement parks and this should attract additional traffic to its parks thus increasing revenues. We believe Star Wars is a massive franchise for Disney and its strategy of integrating the movie with other segments such as merchandise, theme parks and video games should work well as it has in the past. Given that the company plans to release one movie in this series every year till 2020, it will be a key growth driver for the next few years.

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1. Star Wars Has Already Sold Over $50million in Advanced Tickets, Variety.com, November 2015 [↩]
2. “The Force” is already with Walt Disney’s Stock , CBSnews.com, December 15^th 2015 [↩]
3. How Star Wars Could Become Disney’s Next Cash Cow, Los Angeles Times, December 13, 2015 [↩]