“Guardians of the Galaxy Vol. 2” made $861.5 million at the global post office, technically a big hit, but marketing costs for the comic-book romp helped contribute to a lousy third quarter at the box office for the world’s biggest entertainment operation, the Walt Disney Co DIS.
Even the biggest numbers at theaters can be deceiving. “Guardians,” written and directed by James Gunn, had a reported $200 million production budget, about the same amount that studios on average spend to market (known as “print and advertising,” or P&A) their would-be blockbusters.
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Studios also must split half their take with North American theaters, one reason why studios are increasingly looking at the cheaper theater and marketing costs in China.
Earnings before interest and taxes for the quarter “was $639 million, missing our projection of $648 million, with the core reason there being the lower revenue number, balanced against P&A expenses for Guardians of the Galaxy 2,” noted Loop Capital Markets managing director David W. Miller.
The big news out of Disney’s earnings report was that it was ending its relationship with Netflix, Inc. NFLX and forming its own competing streaming service.
Disney Movies Did Better Last Year
Miller, in an analyst note, noted that Disney had a record third quarter last year, when “Captain America: Civil War,” “Finding Dory” and “Jungle Book” together alone grossed more than $3 billion. Miller noted that Disney’s total gross for movies this Q3 was $2.39, billion down $15.9 percent from the year ago period and Miller’s projection of $2.78 billion.
Betting on the box office is risky, but Miller said Disney management was talking up its slate of high-expectation films for the next three quarters, which include “Thor: Ragnarok,” the Pixar flick “Coco,” “Star Wars: The Last Jedi” and “The Black Panther.”
Disney overall had revenues of $14.24 billion. Theme parks had an outstanding year at its theme parks, but television was down due to lower ratings at ABC and two fewer games of the NBA Finals.
He rated Disney at Hold with a price target of $108. Disney closed Wednesday at $102.83, down 3.89 percent.
Deutsche Has Slightly Better Take
Deutsche Bank’s Bryan Kraft noted the same problems but had a more optimistic take, rating Disney a Buy with a price target of $125.
“The Parks continue to fire on all cylinders,” he said in a note. “Filmed entertainment, while lower than expected, doesn't drive any forward looking concerns; nor does broadcasting. However, the softer cable networks and consumer products results do have forward looking implications.”
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Image Credit: "Chris Pratt and Zoe Saldana speaking at the 2016 San Diego Comic Con International, for 'Guardians of the Galaxy Vol. 2,' at the San Diego Convention Center in San Diego, California." By Gage Skidmore from Peoria, AZ, United States of America - Chris Pratt & Zoe Saldana, CC BY-SA 2.0, via Wikimedia Commons
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