Has Disney profited from the Marvel purchase yet?

On October 28th a special event was held at the El Capitan Theatre in Hollywood to announce the full slate of Phase 3 of the Marvel Cinematic Universe. Fans went nuts. Within the next five years there will be two Avengers Movies, another Captain America and another Thor movie. There’s also a few movies devoted to different Marvel characters like the Black Panther and Dr. Strange. You can click here to see the full list. Marvel has a juggernaut on their hands, of that there is no doubt. The two trailers for the newest Avengers movies have almost 90 million views combined on YouTube. All this excitement over the new Marvel superhero movies had me thinking though…has Disney’s purchase of Marvel paid off?

For those who need a refresher, Disney acquired Marvel in 2009 for $4 billion in a mixture of cash and stock. Ultimately, this gave Disney the rights to a library of over 5,000 characters including the stars of today’s films, Thor, Captain America, Iron-Man and the Guardians of the Galaxy crew. There’s an extensive history of rights swapping and distribution claims that you can read about here between Disney, Paramount and Universal. Adjusted for inflation into today’s dollar equivalent, this purchase is worth approximately $4.4B.

So I began researching global gross revenue for the Disney Marvel films. Using figures from Box Office Mojo, (owned by IMDB, which is owned by Amazon), I was able to quantify how the Marvel franchise has benefited Disney based solely off its films. You can see the results below.

Marvel-Disney Movie Profits

* – Production Budget as determined by Box Office Mojo refers to the cost to make the movie and it does not include marketing or other expenditures.

 

According to this data, Disney has already made $4.2 Bn off of the Marvel franchise on films alone. Considering the average Marvel film (from the numbers above) has a profit of $697 million, it’s safe to say with the release of Avengers: Age of Ultron (May 2015) and Ant-Man (July 2015) that Disney will easily reach the $5-$5.5 Bn in profit mark this year. Side note: I don’t have high expectations for Ant-Man, sorry Paul Rudd.

From here, I set out to find Disney’s profit on Marvel related toys and products. Within the Disney annual reports, this is classified as the Consumer Products segment. While big box office hits certainly can bring in lots of money, they also help to spur sales of anything from Halloween costumes to coloring books. This serve as a boon to earnings and can really increase a franchise’s net worth. Unfortunately, there is not a lot of public information on Marvel product sales, so in order to calculate the projected four year profits, we’ll have to use a little bit (read a lot) of guess work.

marvel_character_group-crop

After reading through the 2010-2014 Annual Reports, I found a line that might give us a reasonable number to rely on. In the 2011 Annual Report, I found this sentence: “The increase in licensing and publishing revenue reflected a 6% increase driven by the strong performance of Cars, Tangled
and Toy Story merchandise and a 8% increase due to higher revenue from Marvel properties.”

The Consumer Products segment is further broken down into Licensing and publishing (L&P) and Retail and other (R&O). From the information given we can see that $138 M ($1,725 x 8%) of the year over year (YoY) increase in the Licensing and Publishing sub-segment is because of the Marvel properties.

Capture

 

Now it’s time for some extrapolation. Assuming the same percent of the YoY increase from the L&P segment is seen in the R&O sub-segment (8/12 =75%); we would assume 12.75% (17% *75%) of the R&O sub-segment increase is because of the Marvel properties. This would result in $121 million increase in revenue from the R&O sub-segment. Therefore, combined, we can estimate that $259 million of the segment revenue increase is due to Marvel. The 2011 Consumer Products profitability is 26.8% (816/3,049). Finally, we can then estimate that $69 M (259*26.8%) of the Consumer Products segment’s income in 2011 is due to the Marvel assets.

Projected

Taking into account the YoY increase in Consumer Products Income we can project (OK, make a calculated guess) that since 2010, the Marvel assets have contributed $408 M to the Consumer Products operating income. Add this to the $4.2 Bn from the Marvel franchise films and you’ve got overall income around $4.6 Bn, already greater than the $4.4 Bn adjusted purchase price of the Marvel franchise. Assuming Disney has broken even on the Marvel purchase, all further gains are now being made off house money and as stated earlier, there seems like a large amount of money still left to bring in from this exciting and profitable franchise.

So while Disney appears to have broken through the adjusted purchase price with its net income from Marvel properties. I think it’s safe to say that they still have a lot more opportunities left to profit off this acquisition. I think they can easily bring in another $5 Bn alone from just films. What are your thoughts?

A Look At The Dow Stocks YTD Returns, Forward P/E And Their Seeking Alpha Followings

This is an excerpt from a Seeking Alpha post I published on August 8th:

According to a Zach’s Investment blog post, the average long term P/E for the Dow Industrial (DIA) has been between 14 and 15 for the last 100 years. The current market conditions fall right within that range. The Wall Street Journal  estimates the forward P/E for the Dow at 14.51 as of August 8th. Using numbers obtained from Morningstar I found the forward P/E to be about 14.2. This puts the market firmly within the historical average range.  I wanted to take a closer look however at the individual components and see which stocks were at the lower end of the average. I used stock information from Google Finance for the YTD returns and Morningstar to conclude on each stocks forward P/E. I also wanted to get a sense of which stocks of the Dow may be the most “unpopular”. Instead of looking at trading volume, (which could easily fluctuate due to stock news)  I chose to just use the amount of followers each stock had here on Seeking Alpha to get a better sense of investor interest. This can be seen by the size of the bubbles in the chart below. I’ve included some thoughts below about my findings. . . . .

To read more visit my full post here.