It’s a good time to be holding Disney stock. But how long that remains true has a lot to do with how beloved the newest installment of the saga set in a galaxy far, far away becomes with audiences. With the latest episode of Star Wars set to release December 18, it seems there’s nothing that can hold Disney back – even if it is struggling in its most profitable sector.
When Disney bought Lucasfilm in 2012 and announced plans to bring Luke Skywalker and Han Solo back to the big screen, the stocks didn’t improve much, even dipping for a slight period in the days following the announcement. Since the company has begun releasing tangible results like movie trailers and merchandise, however, the film has served as nothing short of a golden egg during a period when the entertainment behemoth might otherwise be hemorrhaging stock value.
ESPN struggles hurt stock
Disney shares suffered their worst decline since 2008 in August, after the company revealed it was continuing to lose ESPN subscribers. Shares dropped 22% after the company posted its third-quarter results, mainly because half of Disney’s operating profit in 2014 came from its media networks division, of which ESPN is the flagship.
The fall months didn’t do much to help ESPN’s performance: In its annual report released at the end of November, Disney reported that ESPN lost 3 million subscribers from 2014 to 2015, with similar drops across channels including ESPN2, ESPNU, and ESPN Classic. Disney still reported a gain in operating income, but the drop in subscribers caused another slight drop of 4% in the share price.
In both cases, however, Disney’s stock has been able to rebound. After hitting a low of $95.36 in August, the share price has recovered and has been holding around $114 for the past month. So what’s going on?
Conventional investor wisdom says that in terms of media companies, cable is king. As a result, subscriber numbers for paid television channels tend to drive stock prices much more than blockbuster releases and movie merchandise. But as The New York Times reports, the opposite is happening for Disney – at least for now.
“You would not believe the level of Wall Street fixation on ‘Star Wars’ right now,” Michael Nathanson, an analyst at MoffettNathanson, told the Times.
Star Wars ticket, merchandise sales
With the much anticipated release of Star Wars: The Force Awakens, investors holding Disney can breathe easier. The question is how long that will continue. So far, shares have risen every time a new trailer is released, or new merchandise goes on sale.
Ticket sales have only helped Disney’s value in the eyes of investors. Variety magazine reports that pre-sale tickets for the movie has passed the $50 million mark, with most IMAX locations sold out on opening weekend. Fandango and other sites selling advance tickets crashed when the Star Wars tickets first became available, and it became the biggest pre-seller in history by trumping the first Hunger Games installment, released in 2012.
“For Star Wars, we have already sold eight times as many tickets as we did on the first day of sales for the previous record holder,” Fandango said.
Despite astronomical pre-sales, relying on a movie franchise to save your stock is a risky move, as Disney well knows. The company has already done what it can to temper expectations for opening weekend, reminding the public that only 18% of students will be out of school on the opening day of the film, asking analysts to gauge the film’s success on the entire movie run, not the first few days. December can be a great month to release movies, but most record-breakers don’t open in the weeks leading up to Christmas.
“It’s natural for people to want to view this and compare this to a summer blockbuster, but films in December don’t have the same historical release patterns as summer films. In December it’s rare to see a big debut,” Walt Disney Studio’s chairman Alan Horn told The Hollywood Reporter in November. “People are shopping, they’re traveling, they also know that their kids are going to be on vacation in a week and they’re going to all go see movies together.”
What’s more, the success of a movie has a lot to do with fan reception, critic reviews, and purchases following the theater release. It’s a lot more difficult to predict that success than it is to gauge subscriber numbers for cable channels, which is part of the reason investors typically stick to those instead of how much fans like the reprised roles of Han Solo and Princess Leia.
Disney might have some expert strategists and forecasts about how the newest film will do, and how it will likely affect their company’s value on Wall Street in the coming months. But it’s anyone’s guess about whether it will be enough to boost the value long-term, especially since Disney executives remain cautious about how the movie will be received in the first place.
“There are a number of things that put this film in uncharted territory, literally uncharted territory, making it even more difficult than usual to predict what the opening weekend will be,” Horn said.