Star Wars Opening Weekend Points To Potential Upside For Disney Stock

  • Walt Disney's new movie release Star Wars: The Force Awakens has set a new all-time box office record for gross domestic takings during its opening weekend.
  • The new release has set a couple of other records as well, and is currently on track to break the all-time domestic gross takings set by Avatar in 2009.
  • What does this portend for Walt Disney stock?

Expectations were sky-high, and Walt Disney's (NYSE:DIS) Star Wars: The Force Awakens has so far not disappointed. The new movie grossed $238M in the North American market during its opening weekend, easily shattering the previous record of $208M in domestic opening takings set by Jurassic World. The Force has totaled $517M globally, good for #2 spot behind Jurassic World’s record-setting mark of $524.9M. But in its defense, The Force has not had the benefit of the Chinese market which Jurassic World had since the movie won’t debut in the China till Jan. 9 2016. Jurassic World debuted in the U.S. and Chinese market simultaneously.

Note: You might also be interested in 'The Force Awakens Is Just Another Catalyst For Disney Stock Right Now'

Star Wars has set a couple of other records as well. The movie averaged $57,568/theater, the biggest ever for a wide release, and the best Imax (NYSE:IMAX) opening ever.

For Disney stock investors interested in what the opening signals portend for The Force in the coming weeks and months, then it appears as if the movie is indeed going to turn out to be the blockbuster that it’s widely slated to become. Using typical recent multipliers, analysts now estimate that The Force could indeed threaten Avatar’s record of $760.5M for domestic gross takings since the movie is now tracking towards $714M-$833, the mid-point being higher than the mark set by Avatar. But that of course will largely depend on how the movie holds up through the holidays. December has not always been a bountiful month for movie opening, though both Avatar and Titanic, the two top grossers that The Force is challenging, both opened in the month of December in 2009 and 1996, respectively. That makes the new record by The Force all the more remarkable.

Can Star Wars Offset Disney's ESPN Weakness?

The biggest reason why Walt Disney investors are interested in the performance of Star Wars is because it has the best potential to offset cable weaknesses that the company is facing, particularly with regards to loss of subscribers by ESPN.

Not everybody in Wall Street is awed by Star Wars magic though. Disney stock sold off quite heavily last week after BTIG downgraded the stock to Sell saying that Star Wars alone was not enough to offset ESPN weakness saying, "Even the Force cannot protect ESPN."

During his contrarian call, BTIG’s Rich Greenfield said that the consensus earnings for Disney for fiscal 2017 and fiscal 2018 are far too high. Greenfield added some important points about ESPN saying Disney had paid too much for rights package in a bid to block out rivals such as NBC and Fox Sports. According to Greenfield, if The Force fails to crack the $2B mark, Disney will miss the earnings estimate for fiscal 2016.

Greenfield did not divulge the amount of money Disney paid as rights package for ESPN. But rising programming costs at ESPN really is nothing new. ESPN programming costs have increased by about 50% over the past four years.


Source: Wall Street Journal

But Walt Disney has been successful at offsetting rising programming costs by increasing its affiliate fees. The company is set to increase its ESPN affiliate fees by about 10% in 2016.

Currently there are no indications that The Force will fail to attain the $2B watermark that Greenfield says is necessary for Disney to at least meet consensus earnings estimates in 2016. The record takings in the opening week, plus the fact that the movie has been receiving extremely high ratings from moviegoers point to a blockbuster in the making. You can bet that Disney shorts will be watching hawk-eyed for any cracks in The Force. But Disney investors should not forget that ticket sales are just part of the whole package for the latest Star Wars series. Ancillary revenue from the movie is expected to top $7B, far exceeding the expected ticket sales of ~$2B as I had pointed out in my earlier post on Disney. The longs should add to their positions in Disney stock, before the Star wars wave sends the stock price soaring.

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