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Disney Shares Flew to New Heights on "Endgame"

By Motley Fool Staff – May 2, 2019 at 11:13AM

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The stock pop Monday morning didn't even last as long as the film does, but the Marvel franchise continues to prove a long-term win for the company.

Anyone who was paying attention to the buzz and the ticket presales around Marvel's Avengers: Endgame knew that the film was destined for a monster opening, but the degree to which it smashed all box office records this weekend was in excess even of those high expectations: $1.2 billion in ticket sales. In response, investors pushed Disney (DIS 0.43%) shares to their own new record at the open of trading Monday.

In this segment from MarketFoolery, host Chris Hill and analyst Abi Malin discuss the ripple effects of the Marvel acquisition, how Disney's (relatively small) film studio business has lifted the broader fortunes of the media empire, the legacy of CEO Bob Iger, and the investment thesis for Disney stock.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

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This video was recorded on April 29, 2019.

Chris Hill: Shares of The Walt Disney Company opened this morning at an all-time high. It's down a little bit now, but probably not a surprise it had that strong open, because Avengers: Endgame broke just about every box office record under the sun over the weekend -- $1.2 billion globally. I don't know about you, I went and saw it, I contributed to that. I thought it was going to have a great weekend. I didn't think it was going to be this great!

Abi Malin: I didn't see it, but I am not surprised by these numbers.

Hill: When we look at a number like this, I think it is tempting to just think, "Oh, my gosh, this is amazing." But the context for investors when it comes to Disney and movies is always looking at the studios part of the business. It's not the biggest part of the business by a long shot.

Malin: Right. It's all the little third-party synergies that you get from having these amazing characters.

Hill: That's the thing I wanted to get to. Go back to August 2009. Disney buys Marvel for $4 billion. Let's say that again. They bought Marvel for $4 billion. Now, I'm wondering, how big has the ripple effect been? It seems like -- and I've gotten a little bit of this on Twitter, because I tweeted something about what a great weekend it was, and a couple of people came back with, "Well, the studio business isn't that big." Yeah, but, this is something that feeds not only into consumer products, licensing deals, T-shirts, toys, etc., but it has to help with the launch of Disney+, doesn't it?

Malin: Definitely. I think it just shows Disney's dominance in that space. It's not just kids driving that $1.2 billion worldwide.

Hill: No. My kids didn't pay for the tickets.

Malin: Right. It's everyone. That's future visits to Disneyland, that's T-shirts, that's toys, that's games. That's going to be huge! That's really going to be huge for them!

Hill: I went back and looked at a couple of things that The Motley Fool was writing at the time of that acquisition.

Malin: Mainly asking, was it too much?

Hill: There was a little bit of that. And I think that's a fair question. I think that's a natural question. anytime there's an acquisition. Any acquisition, any industry, I think it's fair to be like, "OK, was this a good price?" That I was able to find, there was not a lot of people saying, "That's outrageous, that they're paying that much!"

What I was reminded of, though, was, part of the case for acquiring Marvel was boys. I was reminded of the fact that --

Malin: They wanted to reach that younger boy demographic.

Hill: Yeah. Just, how dependent Disney was on princesses to drive their films and to drive the parks experience. Obviously, the decision to acquire Marvel, on top of the decision to acquire Pixar, has just been amazing.

Malin: Yeah. I think also, when you think about a broader competitive landscape perspective, Disney has three key competitive advantages. It's this brand, the IP, the characters, things like that, that can be utilized throughout all aspects of the business. But it's also their above-average profitability and their low-risk balance sheet. I think one of the key points that this really demonstrates is, for a long time, we've seen really cheap money. We've seen a lot of competitors do well and thrive in the face of Disney, or keep up with Disney. But as debt becomes more expensive, and it becomes harder for competitors to actually finance those projects, you see Disney, where they can continue to do this, there's no reason that this is going to stop for Disney just because of a change in the economic interest rate structure. It doesn't just show that Disney's good at it, but it really solidifies a dominance in that space for them.

Hill: Bob Iger is the CEO at Disney. He's obviously a well-known, I would argue one of the better-known CEOs, in part because it's Disney, in part because of the amazing job he's done. Far less well-known, I would argue, is Kevin Feige, who is the president of Marvel Studios, and has been for about a dozen years or so. When you think about what has been accomplished under his leadership, and I say this as a Disney shareholder, let Kevin Feige do whatever he wants. Maybe he already is doing whatever he wants. But that's an incredible track record he's amassed.

Malin: Right. Amazing.

Hill: God help whoever is the next CEO at Disney.

Malin: They have to make magic happen.

Abi Malin owns shares of Walt Disney. Chris Hill owns shares of Walt Disney. The Motley Fool owns shares of and recommends TWTR and Walt Disney. The Motley Fool has a disclosure policy.

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