The Walt Disney Company (NYSE:DIS) has been hitting on all cylinders of late. The studio segment of the company in specific has been white hot and is still making money off of the movie Frozen, which was released late November 2013! I believe that everyone walking planet earth these days at least knows the name of one Disney character and this goes to show the reach that this company has. The company has been able to purchase Lucas Films and Marvel Entertainment during the past few years and Marvel has proven to be the diamond in the rough. There is no telling what Lucas Films is going to do, but it definitely should not underperform. However, the stock has been trading sideways of late because I believe the bar might be set too high for these guys.
Despite having the bar set high, Disney continues to prove great performance through the studio segment. Having released Guardians of the Galaxy last weekend with a strong showing, part two is already in the works. This movie earned nearly $94 million in its first weekend of showing, and has something for everyone to see. The comic book enthusiasts are going to see the movie regardless, but what Marvel has done is incorporate well-timed humor, and not making it all about action. This makes the movie more accessible to audiences of all ages now. I was talking about a co-worker earlier in the week and she was telling me that she took the kids to see the movie, but would never take the kids to see The Expendables 3. She said she doesn't mind showing the kids GOTG because it has a "fun" spin to the action whereas Expendables 3 has a "violent" spin to the action. Capturing the kids from now will definitely bode well for the company in the future.
The movie not only recorded the $94 million in revenue (the movie production budget was $170 million) over the opening weekend, but that value was a record for an August opening. I for one didn't know how this movie was going to do because it actually threw out a cast of comic characters I never even knew existed. I'm not really into comics, but at least I know the main characters. I haven't seen it yet, but will eventually make the time to go down to the theater for it just because it is a Marvel movie. Let's be clear, the Disney Marvel movies have been fantastic, the Fox (NASDAQ:FOXA) and Sony (NYSE:SNE) Marvel character movies haven't been as exciting.
But Disney has other entertainment content besides Marvel. The company also operates a joint venture with Hearst Corporation to run A+E Networks which owns a group of television channels such as A&E, History, Lifetime, and H2. In recent news regarding this content distributor, Dish Network (NASDAQ:DISH) has added A+E to its over the top programming which means additional revenues for Disney. What this means is that A+E shows will be capable of being streamed live and on-demand over the internet. Dish is trying to get an online service up and running before the end of 2014 and have no doubt that this service will begin to compete with Netflix (NASDAQ:NFLX), which also distributes Disney content.
Disney has shown that its studios are improving dramatically, but valuations are fair across the board for the media sector, not just Disney. This is now an entertainment world where content is king, and with respect to content, Disney is the king of media. By being the king of media, this has helped the company to meet and exceed estimates during the past year. But alas, I believe when a company beats and exceed continually, it sets a precedent among investors to continue doing so. Hence why I believe the stock may continue to trade sideways in the low 80's for a little while longer. I'm sticking with the stock, but will not be buying anymore in the near future.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: The author is long DIS, SNE, FOXA. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.