It's all in the title of the article:
Disney Stock Rises Ahead of Potential Record Setting Summer Blockbuster Season
Wise investors know that when everyone is talking about how great a stock is, then it's time for a "correction".
After a tremendous run-up in stock price, everyone is talking as if DIS has no place to go but up. The reality is that DIS is through the roof with sky-high expectations built into the price. Anything less than home runs by all divisions (and another $6.5 billion in stock buybacks
) will lead to a correction.
DIS is due for a fall in the next 1-2 years. Not because the company did something wrong but because, as it always does, Wall Street can't control its "irrational exuberance".
Frankly, Disney's stock price is representative of why there will be another stock market crash sooner rather than later.
Even with last year's success of
Guardians of the Galaxy,
Frozen,
The Winter's Solider, and
Maleficent, Studio Entertainment generated only
12% of operating income. That was double the year before. However, you'd never know that by reading this article, which seems to be absolutely giddy that this year's films will lead to explosive growth in 2015. What about the other 88% of the company?
Yes, a successful movie has consumer tie-ins but, as Disney specifies, "Studio Entertainment segment revenues and operating income include an allocation of Consumer Products revenues, which is meant to reflect royalties on sales of merchandise based on certain film properties." In other words, much of the bump from tie-ins is already lumped into studio revenue and profits.
Again, what about the other 88% of the company?
Disney's challenge is that 2014 was an exceptionally successful year, and CEO Bob Iger exercised the stock options to prove it.
In order to justify the current stock price, Disney has to pile success on top of success. Blockbusters are already built into the price. Having to compete with last year's
Frozen, Studio Entertainment revenue
declined 2% for the first fiscal quarter of 2015, and that's taking into account home rentals and sales for
Guardians of the Galaxy and
Frozen. Revenue from theatrical distribution dropped
46%.
Big Hero 6 is not going to have the same strong home rentals that Disney's earlier films did.
The run-up in stock price is not Disney's doing. With the exception of the ridiculous amounts being spent on stock buybacks, Disney's management is operating the company properly.
Wall Street is the one that's running up the stock price.
