The Sky Is The Limit for Disney

Disney leverages its legacy and acquired brands to create long-term value for its shareholders. But can that last forever?

Apr 28, 2014 at 2:07PM

The Walt Disney Company (NYSE:DIS) has been on a roll the past couple of years due in major part to its acquisition of Marvel Entertainment. Captain America: The Winter Soldier, Disney's latest movie utilizing its Marvel acquisition, has been a runaway success like its predecessor and has already grossed over $500 million in ticket sales worldwide. Disney competes in many different arenas and some of its multimedia competitors include Time Warner (NYSE:TWX) and Twenty-First Century Fox (NASDAQ:FOXA). However, neither company has the brand firepower or intangible value that Disney does.

Disney's best assets 
Disney is home to the broadcast network ABC, and the sports and entertainment news powerhouse ESPN. The company also houses some of the most iconic and well-recognized brands and characters around the world, including Mickey Mouse, The Muppets, The Little Mermaid, and Aladdin. Its stable of Marvel characters includes Spider-Man, X-Men, Iron Man, Captain America, and the Avengers. In 2006, Disney acquired Pixar from Apple's Steve Jobs and its other owners, integrating the company into its own animation studio. The combination has produced a plethora of hits including Cars, Toy Story, Finding Nemo, and WALL-E. Its most recent worldwide success is Frozen, which has grossed over $1 billion worldwide.

The success of Disney is evident in its stock price since its purchase of Marvel was finalized on Dec. 31, 2009. It is also a testament to the value that Marvel offers Disney. The chart below shows the stock climbing from the last day of trading in December 2009 to April 22, 2014 and outperforming the S&P 500 and Time Warner. Fox recently split off from its parent company, so trading history for its stock going back five years does not exist.

Stock Since Marvel Acquisition

Source: Yahoo Finance

The competition's response to Disney
Twenty-First Century Fox has forayed into ESPN's territory with its recent launch of Fox Sports 1. It will be extremely tough for Fox, however, to lure viewers over since many have grown up tuning into ESPN for the previous day's sporting news. On the other hand, Fox has had success with its movie unit, releasing Avatar and the "Planet of the Apes" and "Rio" films. Time Warner has also been successful with HBO, but it falls short competing with Disney in sports programming and possessing an assortment of brands that can yield returns not only today but also in the future.

Disney builds on its recent success
Adding to its legacy brands and Marvel acquisition, in 2012 Disney bought Lucasfilm, the home of Star Wars. The recent Star Wars films have grossed over or close to $1 billion, and Disney plans to release its first Star Wars film in 2015. Disney will also release Guardians of The Galaxy this year, capitalizing on Marvel's value once again, and it will also release another "Avengers" film in 2015. The last "Avengers" film grossed over $1 billion worldwide.

Disney is not just focused on the U.S. market and has expanded overseas as well. The company will open a resort in Shanghai in 2015 and bolstered its presence in India and Asia in 2012 with the purchase of UTV Software Communications, an Indian media and entertainment company. Disney is also building its presence online with its recent purchase of Maker Studios. Maker Studios produces content for YouTube such as Epic Rap Battles of History and KassemG, and has garnered billions of views.

Not just fun for kids but for investors too
The potential value of Disney is truly amazing. Its brands and characters can be leveraged for movies, cartoons, TV shows, theme parks, apparel, and toys. If there ever was a company that you could not put a value on, it's Disney. The company is home to a multitude of $1 billion brands, and its namesake and subsidiaries are recognized by both kids and adults around the world. If Disney's performance over the past five years is any indication of its future, then investors cannot go wrong investing in Disney.

But can Disney win the war for your living room?
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 

 

Andrew Sebastian has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool 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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