“Star Wars: The Force Awakens” may have destroyed every record in its path and driven the domestic and international box office into unprecedented territory, but Wall Street still isn’t impressed.
Disney’s shares closed up $1.39 (1.3 percent) Monday but are still down from the $1.72 mark they were at when “The Force Awakens” rolled out on Dec. 18, and the stock of the major theater chains has fallen roughly two percent on average since then.
That’s hard to figure, since a movie could hardly do more business. Disney’s juggernaut has taken in more than $1 billion at the box office globally in record time. The fourth quarter’s box office was down six percent from last year before “The Force Awakens” debuted, but has risen to nearly 10 percent ahead of 2014 since the opening — and with four days left in the year that will only go higher.
But Disney shares lost nearly 2 percent last week and have dwindled by more than 10 percent in the last month. What’s the deal?
Two factors have prevented “The Force Awakens” from translating to a stock surge for Disney investors, according to most analysts.
The first is perceived overspending on ESPN and sports rights combined with the cable sector’s weakening long-term prospects. The second is that the shares rose so much in anticipation of “Star Wars” — roughly 15 percent since the start of last year — that a boost had already been realized.
“Even The Force cannot protect ESPN,” is how Richard Greenfield of BTIG Research put it, citing what he saw as Disney’s “overpaying for sports rights based on overly aggressive multichannel video subscriber projections.” He downgraded the stock to “sell” and forecast a dip of around 16 percent next year on the day “The Force Awakens.”
The pre-release hype ahead of the opening not only drove the stock up, it distracted investors from the serious problems faced by ESPN, Business Investor Editor Hilary Kramer said Monday.
“The fact that Disney stock is swimming upstream against the cord-cutting mega-trend is enough for me to want to take my money elsewhere,” she said.
Benjamin Swinburne of Morgan Stanley doesn’t see a “Star Wars” boost either, and suggests the stock will remain flat for the next year or so.
“Lower estimated ESPN revenue growth and tough licensing (comparisons) against ‘Frozen’ fully offset” the positive projection for ‘The Force Awakens’,” he said.
Not everyone’s view is so grim. Moody’s take the long view stresses that Disney’s Lucasfilm will in time turn things around.
“The Star Wars franchise is uniquely multi-beneficial to Disney and clearly the evergreen intellectual property further diversifies and strengthens the company’s foundation alongside its most important franchises,” said Moody’s.
Meanwhile, an analyst at B. Riley sees the movie theaters’ recent skid as an opportunity, and is recommending “buy” for all of the major chains.
He attributes the recent dip to the perception that Disney’s share of movie ticket revenue on “Star Wars” is higher than normal –“north of 60 percent,” he estimates — and weakness early in the quarter. The good news is, from Wold’s perspective, both of those ills can be cured by ongoing “Star Wars” success.
“We fully expect the leading exhibitors Regal, AMC, Cinemark and Carmike to exceed expectations,” he said Monday, citing major boosts from 3D, IMAX and Premium Large Format surcharges and concession revenues.
He believes that investors focused on the theaters’ reduced “Star Wars” cuts were not seeing the big picture, and said The Force would be boosting the first quarter of 2016 as well.
“Major films released in the final two weeks of the fourth quarter (after 12/15 of each year) generated an average of 46 percent of their total domestic box office revenues in the first quarter of the following year,” he said.
“We estimate that ‘Star Wars’ could easily reach $800 million to $1 billion in domestic box office, which would indicate the potential for $370 million to $460 million in box office to be generated in Q1,” Wold said.”This would provide a relatively healthy three percent to four percent boost to 2016 annual box office trends at the start of the year.”