I have always been a fan of Marvel movies since the very first day Marvel Studios started their 1st movie, Iron Man back in 2008. As I am writing this post, Marvel Studios is still smashing box-office records worldwide with their latest movie, Captain Marvel and I am sure many of Journey With Money readers as well as my close friends have already watched the movie. For those who didn’t and are intending to watch, fear not as there are no spoilers here and I am definitely not doing a movie review here.
Over here at Journey with Money, the CALM investors strongly believe in the power of investing in companies with strong economic moats and making our money work harder for us. Those who have followed our website for awhile now would have already guessed what is coming your way next. I often tell people investing is really not hard because whether you like it or not every single one of us is a consumer. In our daily lives, whatever product or service we ever purchased I can assure you that you will surely be able to link it to a company. With the success of the current movie Avengers: Infinity Wars, have we ever asked the question – Who owned Marvel Studios?
Marvel Studios was a subsidiary of Marvel Entertainment until The Walt Disney Company ( Ticker symbol: DIS US) purchased Marvel Entertainment for $4 billion on 31 December 2009. Yes, we are talking about the company behind your cartoon characters like Mickey Mouse and Donald Duck and all the themes parks that have created many magical moments for both children and adults in Florida, Tokyo, Paris, Hong Kong and Shanghai which was opened only back in 2016. Disney’s parks account for 4 of the top 5 most visited parks in the world. They make up 7 of the top 10 worldwide, and make up 12 of the top 25, according to the Themed Entertainment Association. Growth at the Disney’s parks is looking like a long term trend. Between 2013 and 2017 revenue expanded by 30.7% from $14.09 billion to $18.42 billion, while profit soared 70% from $2.22 billion to $3.77 billion. As you can see, when you buy into Disney shares, you are not just buying into its Marvel Cinematic Universe but Disney has many business segments. The below pie chart gives us a glimpse of how the different business segments contribute to Disney’s profits before tax.
Disney’s shares have under-performed the S&P 500 for the past two years mainly because investors are concerned about the company’s Media Network division which is its largest business segment by profit contribution. Specifically, investors are concerned about ESPN, which has been a cash cow for Disney for many years. Consumers in the United States are increasingly cutting the cord and switching to video steaming options. People nowadays like to check on sporting events when they are doing other things. Having the option to do it on the phone is appealing, and that has prompted the development of a direct to consumer model. For example, in just December of last year, Verizon and the NFL (the National Football League) announced a five-year, $2.5 billion deal to stream games on mobile devices. Subscribers to ESPN, which is the cornerstone of Disney’s cable TV business, peaked in 2011, and has been in steady decline. As the trend moves toward a direct to consumer model ( take a look at Netflix business model), Americans are choosing to cancel their cable services. While ESPN has been struggling, Disney’s theme parks and movie business have been doing well. Okay, I have to admit that I am a Star Wars fan too and perhaps you can say that I am abit biased in my judgement call. Personally I still think Disney in itself is a strong brand name and let’s not forget that Disney owned Star Wars movies too after Disney acquired Lucas Films. What I really like about the movie business is the success of a film franchises has huge marketing potential. A successful film title can spawn a theme park attraction, a music CD, a TV show, comic books, merchandise and even a thematic cruise ship. In my opinion, I think at current stock valuation it may be a good time to accumulate the stock or use options to earn some premiums which will enable you to watch more of your favourite movies like Avengers: Infinity Wars & Captain Marvel for free.
Journey With Money