Disney Bought Marvel at $4 Billion, Should You Buy Disney at $43?
Three years after the Marvel acquisition, Disney is earning record-breaking revenue from the first film based on The Avengers.
At more than $600 million worldwide, the long-awaited motion picture is already the most successful of 2012. And while some of the profits must be shared with Paramount Pictures, the Viacom-owned (NYSE: VIA) studio that was once slated to distribute The Avengers, Disney (NYSE: DIS) gets to keep the majority of the earnings. Comparatively, the film rights to X-Men and Spider-Man still belong to other studios, preventing Disney from fully cashing in on their success.
Now that The Avengers has soared to the top of the lengthy list of all-time box office opening weekends, Disney has proven that it doesn't need Marvel's most popular characters (such as Wolverine and Peter Parker) to make a large amount of money. In fact, the studio might have just proven that it is capable of turning Thor, Iron Man and Captain America into more popular mainstream characters -- together in one film, if not individually.
With a third Iron Man film, another Thor, and a second Captain America on the way (along with the prospects for a new Hulk now that the character has been redeemed in the eyes of moviegoers), Disney might have finally obtained the ultimate cash cow. If done right, comic book movies aren't just profitable -- they are excessively profitable. Disney may have spent $220 million to make the film (that is, according to Box Office Mojo's production budget listing), but the film has already grossed nearly three times that amount. What about The Avengers' ad budget? Disney could have easily spent $100 million or more promoting the film. But even then The Avengers would still be profitable.
At the rate it's going, The Avengers will easily make more than $1 billion worldwide. The second Avengers film should be just as profitable. Assuming the first sequel doesn't suck, moviegoers are bound to return for a third Avengers flick -- and possibly a fourth.
All told, The Avengers alone could be worth more than $4 billion for Disney in ticket sales alone. When merchandise, DVD sales, TV distribution, video games, and other factors are entered into the mix, Disney could be looking at a record-breaking goldmine.
Thus, investors need to ask themselves: is now the time to buy Disney?
Historically, stocks don't move much on successful movie releases. They might tank on lousy video game reviews and rise on multi-million-dollar investments, but most investors don't seem to care about how well films perform.
Granted, this isn't Lionsgate (NYSE: LGF) we're talking about. Disney is more than just a film and animation studio -- the company operates everything from a TV network (multiple TV networks, actually) and an amusement park (multiple amusement parks, in fact) to a whole chain of Disney-branded stores, among other ventures. If Disney's bottom line could rise and fall on The Avengers alone, the studio would be desperate for its success. But the reality is that Disney is big enough -- and wealthy enough -- to withstand a few major flops. In fact, it already endured a major flop the day John Carter was released. Here we are, less than two months later, and it's almost as if that film didn't even exist. Today, the whole world is talking about The Avengers. John Carter, on the other hand, is barely a distant memory.
Disney hasn't risen significantly on The Avengers' success. It probably won't rise much on the sequel, or the next big Marvel film after that. All things likely, however, Disney will rise. It might not happen today and it might not happen tomorrow. But Disney is better than anyone at milking big-budget franchises. Just look at what the company did with the Pirates of the Caribbean films -- the sequels may have disappointed fans and critics alike, but moviegoers still lined up to see them.
Now imagine a world in which The Avengers 2 is actually good. Think of how much money Disney will make then.
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