Disney (NYSE:DIS) stock has been firing on all cylinders lately, rising by more than 23% in 2014 and another 17% year-to-date, well in the neighborhood of all-time highs. The company has reported extraordinary financial performance over the last several quarters. However, investment decisions should of course be based on future potential, not past performance.
Fortunately for Disney investors, expectations are as bullish as ever for the company, especially with Star Wars: The Force Awakens scheduled for release later this year.
May the force be with you
Star Wars is clearly one of the most popular movie franchises ever created, and Disney management is remarkably optimistic regarding its potential. During the most recent earnings call, Chairman and CEO Bob Iger commented:
There is a strong emotional connection to this franchise that transcends geography and generations, and the brief teaser trailer released last November has been viewed more than 123 million times. Having been on the set and seen most of the footage, I can definitely say that our excitement is justified, it marks the beginning of a new era of exceptional Star Wars storytelling as well as an opportunity for continued growth across all of our businesses.
In the first 24 hours after the trailer was released, it received 88 million views. This puts Star Wars: The Force Awakens ahead of other major blockbusters. The Furious 7 trailer was viewed 62 million times over the first 24 hours, while the Avengers: Age of Ultron trailer received 35 million views in its first day.
Reflecting on these vibrant expectations, Wall Street analysts and industry insiders are making big predictions. Analysts from Citi recently published a research note saying the movie could generate $1.75 billion in global box office receipts. Credit Suisse believes the movie will produce something in the neighborhood of $1.2 billion, generating about $733 million in profits for the company.
Other analysts are even more optimistic, forecasting $2 billion in box office receipts worldwide. The most aggressive projections come from Entertainment Weekly, which believes the film can produce a mind-blowing $3 billion globally.
To put these numbers in perspective, the highest-grossing films of all time include Avatar (2009) with $2.7 billion in global box office revenues and Titanic (1997) which made $2.2 billion. That $3 billion estimate would make The Force Awakens the new record holder, not an easy feat.
On the other hand, the film looks remarkably exciting from multiple perspectives. The movie is bringing back the original cast, with luminaries such as Harrison Ford, Mark Hamill, and Carrie Fisher. This is a brilliant move to capitalize on the franchise's enormously powerful legacy. Also, when it comes to storytelling and marketing firepower, Disney comes second to none in the entertainment industry.
It is impossible to predict box office receipts with any precision at this stage, however, if the movie lives up to the hype, the numbers could be truly astonishing.
What this means for investors
Even for a global powerhouse such as Disney, which brought in $13.4 billion in total revenues during the last quarter, a blockbuster movie can have a significant impact on financial results.
Keep in mind that Disney has already confirmed additional Star Wars movies in the pipeline, and the company is also working on three spin-offs from the main trilogy. For the company, this franchise is about much more than The Force Awakens, so a strong start will be essential to gaining momentum for other upcoming movies.
Besides, Disney is a very unique business with the masterful ability to profit from a successful movie via multiple platforms. Consumer product sales grew 22% in the last quarter, while segment operating income jumped by an even stronger 46% year-over-year. This is due mostly to the fact that the company is still enjoying merchandise sales from the booming success of its Frozen movie -- released over a year ago in November 2013.
If Disney plays it cards well with the coming Star Wars films, the company should be able to leverage that success via home entertainment, product sales, video games, and attractions at its parks and resorts. Keeping this in mind, both Star Wars fans and investors in Disney stock have strong reasons to run to the theater when The Force Awakens debuts on December 18th.