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3 Important Takeaways From Disney's Earnings Report

Late last week, The Walt Disney Company (NYSE: DIS  ) reported earnings results that beat analyst expectations on both the top and bottom lines. Shares of Disney proceeded to rally over 2% the next day. The following is a breakdown of the three most important takeaways from management's subsequent conference call.

Star Wars delayed
The force is strong with Disney, although apparently it isn't quite strong enough yet considering Disney delayed the release of the much-anticipated new Star Wars trilogy until December 2015. Originally set to release a full seven months earlier, Disney CEO Bob Iger stated, "We've chosen a date we believe will allow the creative team the time to make a great film." 

While obviously a disappointment to fans, the move may not be much of a disappointment to investors. Considering the massive popularity and scale of the series, the paramount objective for management at Disney is to create a new trilogy in the Star Wars universe that is of the highest quality. Not only will the new movies draw in the legions of already loyal fans, but they have the potential to dazzle a whole new, younger generation as well. The success of the movies also ties in directly to the success of ancillary video games and animated series spin-offs.

Video game publisher Electronic Arts (NASDAQ: EA  ) signed a multi-year deal with Disney in May to develop all video games based on the new Star Wars movies. The deal includes games for video game consoles and extends to PC and mobile devices as well. The move seems to have been made at just the right time for both Disney and Electronic Arts. The former disbanded the LucasArts games studio shortly after acquiring Lucasfilm, and the latter is still recovering from the failure of Star Wars: The Old Republic, a massively multiplayer online role-playing game that reportedly cost $100-$300 million to make but failed to maintain solid subscriber numbers. 

While the delays of the new Star Wars films will most likely delay Electronic Arts' plans for any companion video games as well, the importance of properly reinvigorating the Star Wars universe is most assuredly worth the wait for both Disney and Electronic Arts investors. The science-fiction brand has enormous recognition around the world. Star Wars could be an even larger, recurring source of revenue than it is now for Disney if handled properly, possibly even challenging Marvel as the company's most valuable entertainment property.

Netflix partnership
Speaking of Marvel, Bob Iger also announced that Disney would partner with Netflix (NASDAQ: NFLX  ) to create numerous live-action series, including a mini-series event, based on Marvel characters. The series will begin airing in 2015 and will focus on several lesser-known characters in the Marvel roster such as Daredevil and Iron Fist.

The deal is a pretty substantial event for both Disney and Netflix. Not only does it add more ammunition to Disney's already robust superhero arsenal, it also significantly enhances Netflix's unique content offerings. Netflix can now claim to have four original serialized programs in the increasingly popular superhero segment, which will no doubt serve to strengthen the company's content lineup.

For Disney, the move is a no-brainer. It allows the company to further capitalize on the current superhero phenomenon in pop culture, but it also affords the company more flexibility by allowing Disney to give its larger Marvel properties some down time, which they may need after a while.

No dividend raise
Despite all of the exciting news, there was one announcement that I was eagerly awaiting all year, a dividend raise. Unfortunately, management at Disney made no mention of a raise in the company's dividend, which now equates to a yield of only 1.09%. Although the company has been actively buying back shares in 2013 and plans  to purchase a staggering $6-$8 billion worth of stock in fiscal 2014, the lack of a dividend raise is a bit disappointing.

Next steps
Shares of Disney are currently very attractive, as the company is executing well in all areas and seems poised to continue the trend into 2014 and beyond. The major drivers of Disney's success have been the two major acquisitions the company executed in the last decade, Marvel Entertainment and Lucasfilm.

The importance of these acquisitions was made very clear in the company's latest earnings report. Marvel is excelling on all fronts, from film to television to theme park attractions, and the brand shows no signs of waning just yet. Perhaps more exciting is that Lucasfilm is just about to get started.

Management seems to be taking the right approach with Star Wars by focusing on quality regardless of time frame. This strategy should reward the company and its investors in the long-term, as the Star Wars brand is positioned to capture the imaginations of a whole new generation. There may never be a more exciting time to be a shareholder of Disney than right now!

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  • Report this Comment On November 15, 2013, at 2:00 PM, SisyphusRocks wrote:

    Though I own a bunch of Disney and agree with just about all their business decisions (for instance, it's better to get Star Wars VII right than get it a few quarters early), I can't understand why they are so focused on buybacks over dividends right now.

    Although I know there are tax advantages to buybacks over dividends, I fear Disney is engaging in exactly the kind of buybacks at the top that tend to make buybacks a worse form of shareholder value return than dividends in the long run. Disney stock isn't exactly cheap, nor is the market generally. I'd rather they limit buybacks to cover options granted, and put the rest into increasing the dividend, even if it's only by a few cents.

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9/30/2016 12:46 PM
DIS $93.16 Up +1.36 +1.48%
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