Disney's Numerous Future Potential Growth Catalysts

It’s not often that you find an established company offering significant growth potential. This is one of those rare cases.

Mar 25, 2014 at 6:30PM

Magic Kingdom Night

Source: Disney.com.

Disney (NYSE:DIS) recently announced a lot of news at once. This news includes a third installment to the Cars franchise, a second installment to The Incredibles franchise, and new information about Star Wars: Episode VII. Disney acquired Lucasfilm for $4 billion back in 2012, giving it the rights to the Star Wars franchise. 

Future installments
Cars 3 and The Incredibles 2 are both set to be released after 2015. In order to determine the potential for these two films, we must look at past results.

The original Cars had a production budget of $120 million. It grossed $244 million at the domestic box office and $462 million at the worldwide box office.

The sequel, Cars 2, didn't perform as well at the domestic box office, but it performed better than the original at the worldwide box office. This likely stemmed from the movie taking place overseas. This seemed to be a strategic move by Disney, but domestic moviegoers felt let down. Cars 2 had a production budget of $200 million. It grossed $191 million at the domestic box office and $560 million at the worldwide box office. Looking ahead, it will be interesting to see if Disney goes for the domestic or international moviegoer. 

The Incredibles had a production budget of just $92 million. It went on to gross $261 million at the domestic box office and $631 million at the worldwide box office.

Then there's Star Wars.

Star Wars news
Disney hasn't given much away, but there are some clues. These clues include that some very familiar faces will be in Star Wars: Episode VII and that there will be a trio of new young leads. The only character that we know is certainly returning is R2-D2.

We also know that JJ Abrams is the director, that John Williams is still the composer, and that Disney's open auditions called for a street smart orphan girl in her late teens as well as a smart and capable male in his late teens or early 20s. And according to The Hollywood Reporter, Adam Driver will play the villain.

Disney's approach of dropping small hints every once in a while is brilliant. In marketing, it has been proven that this is an effective approach, as it heightens consumer excitement. 

Other reasons to consider Disney
In addition to the above potential growth catalysts, which should further improve brand recognition, Disney owns ABC, ESPN, and all Disney channels; it's a retailer; and it's a theme park operator. This diversification is what makes Disney so attractive to many investors. If one segment falters, another sector often picks up the slack. Below is a breakdown of revenue per segment for fiscal-year 2013:

Fiscal Year 2013


Media Networks

$20.36 Billion

Parks and Resorts

$14.09 Billion

Studio Entertainment

$5.98 Billion

Consumer Products

$3.56 Billion


$1.06 Billion

Source: Statista.com

Disney's future potential with Cars, The Incredibles, and Star Wars franchises can lead to revenue gains in each segment. In addition to aforementioned growth potential areas, these brands can be leveraged to the television market, implemented in theme parks, and be made into video games. Therefore, these brands go well beyond the box office.  

Of course, Star Wars: Episode VII should be a massive success. The movie wouldn't even have to impress moviegoers to sell tickets. The brand is that strong. And in addition to future installments for the Cars and The Incredibles franchises, Frozen will have a sequel and a show on Broadway, and Shanghai Disney Resort is set to open on Dec. 31, 2015. Shanghai is a wealthy and highly populated city with more than 14 million people -- a very good combination for Disney.

Disney also stacks up well against entertainment giants Time Warner (NYSE:TWX) and Twenty-First Century Fox (NASDAQ:FOXA). First, consider top-line performances over the past year:

DIS Revenue (TTM) Chart

DIS Revenue (TTM) data by YCharts

Twenty-First Century Fox has grown its top line the fastest, and that should be recognized. However, Twenty-First Century Fox doesn't have anything close to what Disney has in future growth catalysts.

Twenty-First Century Fox did deliver a 15% increase in revenue in the second quarter, primarily thanks to the inclusion of Sky Deutschland revenue and a 14% boost in affiliate revenue growth in its Cable Networking Program segment. 

In regards to filmed entertainment and future brand potential, The Secret Life of Walter Mitty and Walking with Dinosaurs don't compare to what Disney has to offer. 

Furthermore, while Twenty-First Century Fox is impressive, it doesn't compare to Disney in merchandising potential. With all the aforementioned movie brands, Disney will have extraordinary merchandising opportunities, especially with Star Wars

As far as Time Warner goes, it has been growing the slowest, but it does offer a 1.9% dividend yield, higher than Disney and Twenty-First Century Fox at 1.1% and 0.8%, respectively. This might entice dividend investors, but Disney is very capable of increasing capital returns to shareholders in the future.

Time Warner's fourth-quarter revenue improved 5% to $8.6 billion in the fourth quarter. TBS (cables #1 network in primetime among adults 18-49), TNT (#2 network in total day among adults 25-54), and HBO (most Primetime Emmy Awards of any network) all performed well. Warner Bros. delivered hits Gravity and Her.  

Looking ahead, The Lego Movie may inspire a sequel, and 300: Rise of an Empire continues a successful brand. However, while everything is well at Time Warner, its brands can't be leveraged to the same extent that Disney can leverage its brands. 

The Foolish takeaway
Disney has several potential future growth catalysts, partially in thanks to the ability to leverage some of these brands across all segments: added installments to Cars and The Incredibles, a sequel and Broadway show for Frozen, Star Wars: Episode VII, and Shanghai Disney Resort. While nothing is a guarantee, it would be difficult to find another company that is so fiscally sound and "mature" while also offering significant future growth potential. However, please do your own research prior to making any investment decisions. 

Disney is very impressive, but it's not Motley Fool's top pick for the year....
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Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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