Here’s How Disney’s Spectacular Performance At The Box Office Can Impact Its Valuation

For Disney  (NYSE:DIS), it has been a spectacular year for the studio division. The company became the first film studio to take $7 billion in global ticket sales in a year, after its next movie in the Star Wars series — Rogue One — collected nearly $300 million in its opening weekend. In 2016, four of the company’s films were top grossers, taking more than $1 billion each at the global box office. Disney Studios accounts for around 15% of the company’s revenues with Parks and Resorts and ESPN being the major divisions, contributing nearly a quarter each of the company’s revenues. According to our estimates, the studio division accounts for nearly 16% of the company’s valuation. The success of this division can also impact the revenues of the company’s consumer products segment. Disney’s blockbuster Frozen has accounted for merchandize sales of more than $107 billion since its launch. The characters of movies produced by Disney studios also play a prominent role in its theme parks and are crucial in attracting consumers. Given the high cost of producing movies, Disney’s Studio segment does not contribute significantly to its valuation.  Yet because these films generate significant demand across Disney’s businesses, the Studio segment has an inordinate impact on the other critical lines of the company’s business.  These three segments, i.e., Parks and Resorts, Disney Studios and Consumer Products, together account for more than 60% of the company’s valuation according to our estimates.

Stellar Performance Of Disney’s Movies Can Impact Other Segments Positively

The astounding success of movies produced by Disney Studios have a positive impact on the revenues of the related segments, thus impacting its valuation positively. According to our estimates, Disney’s share of box office sales will remain steady at around 60% over our forecast period. We expect Disney’s Studio revenues to increase from around $3.6 billion in 2016 to nearly $4.8 billion by the end of our forecast period.

However, given the projected global box office collections of nearly $8 billion in 2016, Disney’s 2016 revenues could be higher than our estimates. If they increase at a faster pace over our forecast period, there can be an upside to our price estimate.

We expect Disney’s consumer product revenues to grow steadily from nearly $5.0 billion in 2016 to nearly $ 6.5 billion by the end of our forecast period.

We expect this growth to remain steady given the company’s popularity among kids and the rise in popularity of its new characters.  Success of the movies produced by Disney Studios will impact these revenues positively.

Disney is adding a Star Wars attraction to its theme parks and the success of the movie is likely to attract higher crowds to this attraction. This should impact revenues of this segment positively going forward.

Disney had invested nearly $15 billion in the past decade to strengthen its studios division. This investment was towards the acquisition of Pixar (which has produced hits such as Finding Nemo and Finding Dory), Marvel Comics Superhero Universe (which has taken Disney to the live action territory) and Lucas Films (producing the Star Wars series). These significant investments are now showing results reflected in the spectacular performance of the company’s studio division. While its ESPN segment continues to disappoint, we believe Disney Studios can continue to drive growth for the company’s Parks and Resorts and Consumer Products segment, in the long term.

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