Sorry, Marvel -- Disney's the Superhero Stock

Tim Beyers is a fan of Marvel (NYSE: MVL  ) . I'm a fan of Disney (NYSE: DIS  ) . It's only natural that we pit the two character farms against one another in this week's Dueling Fools segment.

The timing of the bout may not be in my favor this time. Disney is coming off a quarter in which revenue fell by 7%, with pre-charge profitability tanking by 26%. Free cash flow took an even harder 40% tumble.

Marvel, on the other hand, posted a small dip in earnings on a head-turning 75% top-line surge. It looks impressive, but Marvel's results are always lumpy. It's a hit-driven business, with more jagged peaks and valleys than an Arizona horizon.

Guess who is going to live happily ever after?

M-I-See into the future
Comparing notes on the quarterly reports that the entertainment giants posted last month may lead you to believe that Marvel is this year's hottie.

Sorry. For all of 2009, analysts see Marvel's net income falling by nearly 50% on a 29% plunge in revenue. Disney won't get smacked as hard, with revenue projected to fall a more modest 6%.

So, even if you try to smooth out the volatility by looking at a year -- instead of a quarter -- Marvel still has the potential to break your heart. It's like buying into DreamWorks Animation (NYSE: DWA  ) after a Shrek sequel or Take-Two Interactive (Nasdaq: TTWO  ) when a new Grand Theft Auto comes out. The near-term results will be juiced, but the subsequent lulls can be brutal. Disney is the company that offers the more dependable performance.

It could be Disney's cable business, delivering the consistent flow of subscription revenue from channels like ESPN and Disney Channel. It could be the broadcasting power of having the ABC network in its arsenal. On the leisure end, you have theme parks and cruise ships that operate year round. Disney knows how to milk a hit when its movie studio cranks one out -- just like Marvel -- but it's not as if Disney will collapse if the multiplex goes dark.

Simply Marvel us
Marvel is exclusively at the mercy of the popularity of its characters in theatrical releases. If its characters hit a bad streak of cinematic duds, or if superhero action flicks fall out of favor -- and don't laugh, because it can and has happened -- Marvel's in for some serious pain (especially now that the company is bankrolling some of its releases).

You can say goodbye to its share of the box office receipts and the subsequent DVD release. All of its licensing deals -- from the THQ (Nasdaq: THQI  ) video games to the Crocs (Nasdaq: CROX  ) footwear -- come undone if Marvel's storytelling wizardry on the big screen becomes the next World Wrestling Entertainment (NYSE: WWE  ) .

Disney doesn't have to worry about that. Sure, it's great that Up was a monster hit last week, but it's not going to stop someone from tuning in to watch the Yankees taking on the Red Sox on ESPN or checking out a Jonas Brothers flick on Disney Channel.

It takes more than just characters
I went to Marvel Superhero Adventure City on the Canadian side of Niagara Falls two years ago. It was a modest attraction, complete with a glowing Hulk miniature golf course and a lame Spider-Man laser-shooting dark ride. I believe it recently closed down.

I live in Florida, so I've been to Marvel Superhero Island in Orlando's Islands of Adventure several times. It's neat, but I don't know if Marvel has enough firepower to fill up more than an indoor arcade or a single land in a park, whereas Disney has fleshed out four entire theme parks just 15 minutes away. Dubai is getting a Marvel-themed park, but parks get doled out there like Oprah Winfrey hands out Pontiacs.

You get a park! You get a park! Everybody gets a park!

Sorry Marvel, but even DreamWorks Animation is getting its own theme park in Dubai. This doesn't mean that the parks won't work. As a theme park enthusiast, I want to make it out there in a few years, badly. However, it's just proof that Marvel is still not the complete entertainment company that Disney has become with decades of cultivated seasoning.

Marvel has a good story to tell, but Disney is the one that is going to be telling its story the longest.

M-I-C. See these other headlines:

Take-Two Interactive Software is a Motley Fool Rule Breakers selection. Walt Disney, DreamWorks Animation SKG, and Marvel Entertainment are Motley Fool Stock Advisor picks. Walt Disney is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days.

Longtime Fool contributor Rick Munarriz can usually be found at Walt Disney World. Not today, though. He does own shares in Disney and DreamWorks Animation. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 05, 2009, at 4:29 PM, wuff3t wrote:

    "Disney is the company that offers the more dependable performance...."

    Fair enough Rick, but then how do you get to buy it at a bargain price? Doesn't Marvel offer the better opportunity for buying the dips and making investors money?

  • Report this Comment On June 06, 2009, at 8:59 AM, sens8in wrote:

    Unfortunately, your article only touches on the movie-making capabilities of MVL. Prior to FY08, Marvel did not produce its own movies, but licensed its characters. Production costs were paid by Sony and Fox for Spider-man and X-men trilogies. They still had record growth during these years which is due to not only comic book sales, but the plethora of characters being licensed in other venues (i.e. Hasbro figures). MVL will grow at a faster rate than Disney. Little debt and a great small cap stock. For some reason you are biased towards Disney and I understand it is less riskier, but it will not give the same rewards.

  • Report this Comment On June 08, 2009, at 8:51 AM, Awebb33 wrote:

    If you want 6% annual returns on a large-cap that's already had it's days of huge growth, then Disney is your preferred investment. If you want a riskier investment with room to grow, then invest in Marvel. It's really more of a question of what piece of your investment puzzle you need to fill. Why not own both? I'm surprised at all the hate for Marvel, Rick. Did you buy at $38 last year?

  • Report this Comment On June 08, 2009, at 9:36 PM, TMFCop wrote:

    Hey Rick,

    It's tough to choose between them, but I think DIS does come out ahead. I like the fact that it has the right of first-look for Stan Lee's new comic characters being developed with his Purveyors of Wonder (POW) company that's set up primarily to develop storylines for films.

    They're already working with him on one character and he's producing several more.

    Perhaps the greatest risk (for POW) anyway, is Stan Lee's age. He's in his 80's. But he'll be releasing a character next month that can time travel via his mobile phone. How's it being released? Via mobile phones and the Internet! Cool way to test market acceptance, particularly since it will be free.

    The Economist had a big write up about it. But the potential for Disney to find some good, new characters to develop into movie franchises seems pretty big at low cost and for me gives DIS the edge over MVL, though I do think a strong case could be made for owning both.

    Rich

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