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"Iron Man" Is So Much Bigger Than You Think

By Tim Beyers - Updated Apr 5, 2017 at 9:27PM

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Think outside the box office, Fool.

I didn't plan to write a series on Marvel Entertainment (NYSE: MVL). All I wanted to do was point out that Iron Man wasn't the make-or-break story Wall Street thought it would be. The core business -- the one that has yet to see a dime of profit from self-produced films -- is outperforming and  undervalued.

But it's actually more than that. Marvel is slowly but certainly morphing into the next Disney (NYSE: DIS).

Crazy, you say? Rewind to 2002 with me. Spider-Man hit theaters on May 3 and became the year's top grossing film. Yet, according to Capital IQ, Marvel booked just $57.8 million in licensing revenue in 2002. Look how it's improved since:

Licensing Revenue

TTM

2007

2006

2005

2004

Total licensing

$237.6

$272.7

$127.3

$230.1

$214.7

Spider-Man Joint Venture

$94.8

$122.0

$4.1

$24.7

$67.5

Other

$142.8

$150.7

$123.2

$205.4

$147.2

Spidey as a % total

39.9%

44.7%

3.2%

10.7%

31.4%

Sources: Marvel press releases; SEC filings; Capital IQ, a division of Standard & Poor's. Numbers in millions.

Talk about a myth buster. We've long thought that revenue from a 1999 joint venture with Sony (NYSE: SNE) -- a deal that, according to SEC filings, amounted to a 50-50 split of merchandise sales tied to the Spider-Man films -- was wholly responsible for licensing revenue growth. Not so. Marvel's licensing business performs well even when you exclude the joint venture.

To me, there are only two conclusions to draw from this data:

  1. Marvel is I-just-hit-the-Powerball-jackpot lucky.
  2. Marvel, like Disney, unleashes a revenue-boosting halo effect every time it introduces a successful character-based franchise.

I'm going with No. 2. Here's why:

Year

Films

U.S. Combined Box Office

Total Combined Box Office

2007

Ghost Rider, Spider-Man 3, Fantastic Four: Rise of the Silver Surfer

$584.2

$1,408.2

2006

X-Men: The Last Stand

$234.4

$459.3

2005

Elektra, Fantastic Four

$179.1

$386.8

2004

The Punisher, Spider-Man 2, Blade: Trinity

$459.8

$967.4

Source: Box Office Mojo. Numbers in millions.

See anything interesting? I do. Marvel's best year for non-Spidey licensing, 2005, also happened to be its worst year at the box office. For those wondering whether the beginnings of a $200 million deal with Hasbro (NYSE: HAS) might explain the increase, stop wondering. Marvel has historically broken out toy revenue separately.

And don't forget the core of Marvel's core businesses: publishing. That division produced just $64.5 million in revenue and $19.6 million in operating profit in 2002. Oh, what a difference a few successful movies make:

Publishing

TTM

2007

2006

2005

2004

Revenue

$124.7

$125.7

$108.5

$92.5

$85.9

Operating Profit

$51.9

$53.5

$44.1

$36.3

$37.3

Operating Margin

41.6%

42.6%

40.6%

39.2%

43.4%

Sources: Marvel press releases; SEC filings; Capital IQ, a division of Standard & Poor's. Numbers in millions.

Spider-Man did a lot more than bury box office baddies, Fool. It improved every area of the business. News Corp.'s (NYSE: NWS) Fox, General Electric's Universal, and Viacom's (NYSE: VIA) Paramount all sought deals of their own with Marvel. Video game publishers also wanted in. Even Crocs (Nasdaq: CROX) bought a boost from Marvel's tailwind.

Thus the Disney comparison: Successful character introductions are massively lucrative outside the box office. Just how lucrative is a matter of debate, but we have some data to work with, thanks to the Spider-Man joint venture.

Let's run the numbers. Excluding 2002 and 2003 -- Marvel accounted for the joint venture differently in those years, so I hesitate to rely on data from back then -- the Spider-Man partnership brought Marvel $218.3 million during the four years ending in 2007. Doubling that (it's a 50-50 deal, remember) equals $436.6 million.

Four years, $109 million per year. Just for merchandising.

Does that mean Iron Man, too, could be worth $100 million a year outside the box office? Probably not. Spidey is huge; Shellhead isn't.

Not that it matters. Marvel is currently running just under $500 million a year in revenue. Who cares if Iron Man isn't worth $100 million annually? $50 million would be massive.

That's how Disney was built. Create a character, roll it out to a wide audience, license like crazy, and collect the residuals. The difference between Disney and Marvel is that the Magic Kingdom has worked this process successfully hundreds of times. Marvel has done it just once, with Spider-Man.

Check that, twice. Welcome to the club, Iron Man.

More Marvel ...

Disney, Hasbro, and Marvel are all Stock Advisor selections. Try this market-beating service free for 30 days. There's no obligation to subscribe. Crocs is a Hidden Gems Pay Dirt recommendation.

Fool contributor Tim Beyers had positions in Marvel shares and LEAP options at the time of publication. The Motley Fool has a market-beating disclosure policy.

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Stocks Mentioned

Marvel Entertainment, LLC Stock Quote
Marvel Entertainment, LLC
MVL.DL
Hasbro, Inc. Stock Quote
Hasbro, Inc.
HAS
$78.10 (0.24%) $0.19
The Walt Disney Company Stock Quote
The Walt Disney Company
DIS
$109.18 (2.39%) $2.55
Sony Corporation Stock Quote
Sony Corporation
SONY
$84.83 (-1.73%) $-1.49
Twenty-First Century Fox, Inc. Stock Quote
Twenty-First Century Fox, Inc.
FOX
Crocs, Inc. Stock Quote
Crocs, Inc.
CROX
$73.88 (0.37%) $0.27

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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