Can "Transformers: Age of Extinction" Transform Viacom Stock?

While the return of Optimus Prime and Bumblebee will no doubt have some impact, Marvel’s absence may also be taking a toll on Viacom stock.

Jul 1, 2014 at 6:40PM

Optimus Prime Transformers Age Of Extinction

Optimus Prime is back in Transformers: Age of Extinction. Source: Paramount Pictures, a Viacom company.

In 2014's biggest opening weekend to date, Paramount Pictures' Transformers: Age of Extinction topped the charts with $100 million in U.S. box office receipts and $301 million worldwide. Shares of Paramount parent Viacom (NASDAQ:VIAB) stock rose about 1% late Sunday, following the release of estimates.

That isn't surprising, of course. Transformers is one of Paramount's biggest franchises for the filmed entertainment group, which accounts for about one-third of company revenue. What's more, shares of Viacom stock have more than tripled the return of the S&P 500 since the first Transformers movie openedin summer 2007.

VIAB Chart

VIAB data by YCharts.

Transforming a company
How important are Hasbro's giant robots to Viacom's movie business? Very, especially now that Paramount, like its peers, is making fewer films than it used to.

But don't take my word for it; look at the difference between 2011's results and those of the two years since. Having Transformers: Dark of the Moon in the mix three years ago made a difference, which you'd expect from a movie that earned more than $1.1 billion at the worldwide box office:

Filmed Entertainment
Fiscal 2013
Fiscal 2012
Fiscal 2011

Theatrical revenue

$1,239 million

$1,310 million

$2,175 million

Films released

13

15

16

Transformers movie?

No

No

Yes

Sources: SEC filings.

Iron Man: Almost as important as Optimus Prime
Can we expect the company to get back to 2011 revenue and profit levels with the release of Transformers: Age of Extinction? Not if Viacom's SEC filings are to be believed. Walt Disney's 2010 repurchase of distribution rights to Marvel Studios films has taken a toll on the competition:

"Lower revenues from our 2012 releases were principally due to the difficult comparison against our 2011 release of Transformers: Dark of the Moon and Marvel's Thor and Captain America: The First Avenger," according to a note on page 46 of Viacom's most recent 10-K annual filing.

The message? Not only did we fail to release a new Transformers movie in 2012, we also missed out on profiting from Marvel's The Avengers and Iron Man 3, and every other Marvel Studios movie since then. An expensive mistake by any measure.

Originally, Paramount had agreed to distribute all Marvel films in exchange for a lucrative producer fee amounting to 8% of the gate. But the studio in 2010 sold the rights back for $115 million, missing out on a potential $218.7 million payday for The Avengers and Iron Man 3 alone. Add in Thor: The Dark World, Captain America: The Winter Soldier, and the dozens more Marvel Studios movies we'll see between now and 2028, and it's possible that Viacom gave up billions. Whoops.

So while the Transformers franchise is no doubt important and remarkably lucrative, investors need to consider other catalysts. At least one -- the Marvel distribution deal -- has gone missing, taking with it hundreds of millions in potential revenue and profit.

Now it's your turn to weigh in. Have you seen Transformers: Age of Extinction? Do you expect the movie to deliver big profits and drive up Viacom stock in the process? Leave your take in the comments box below.

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Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Walt Disney at the time of publication. Check out Tim's web home and portfolio holdings or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool recommends and owns shares of Hasbro and 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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