Disney’s Full Tank of Gas with Upcoming Cars Release

+11.86%
Upside
116
Market
130
Trefis
DIS: The Walt Disney logo
DIS
The Walt Disney

Disney (NYSE:DIS) set a box office record with Toy Story 3, which became the highest grossing animated movie ever. Apart from the movie’s cinematic success, higher 3D ticket prices also played a significant role in generating box office revenue. Cars 2 is currently scheduled for release next summer and could provide a similar lift in revenue.

Disney Studios competes with companies like Warner Bros. Pictures, owned by Time Warner (NYSE:TWX), 20th Century Fox, owned by News Corp (NASDAQ:NWS), and Paramount Pictures, owned by Viacom (NYSE:VIA).

We estimate that Disney Studios represents 16% of the company’s stock value, and we attribute 4% of the company’s value to box office operations.

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Disney Box Office Market Share

We anticipate that Disney will gain global box office market share in 2010, and we expect these gains to continue with the summer 2011 release of Cars 2, the animated sequel to its 2006 blockbuster Cars.

Animated movies in 3D should continue to benefit Disney in the future. We forecast Disney’s global box office market share to grow to 9% in 2011, and remain flat going forward. Should market share increase to 10% by 2013, we estimate 2% upside to the company’s stock.

The chart above analyzes the impact of Disney’s box office market share on the company’s intrinsic value.

Toy Story’s Success a Roadmap

Toy Story 3 generated more than $150 million [1] in ticket sales during its opening weekend, 60% of which came from 3D theaters that charged an average $3 more per ticket than normal movie theaters. [2] Overall, Toy Story 3 grossed over $1 billion in global box office revenues becoming the 5th highest grossing movie of all time. [3] Below you can see how changes in global ticket prices affect Disney’s price estimate.

Disney is unlikely to repeat the success of Toy Story 3 with Cars or other movies given that viewers waited 11 years for the new Toy Story movie (vs. only 5 years for Cars), but it does provide an interesting benchmark.

How Valuable are Movies Like Cars to Disney?

We estimate that Disney’s share of its movies’ box office revenues is about 60%. If a movie generates $400 to $500 million worth of box office sales, Disney could well earn close to $240 to $300 million of revenues each year. Supplemental value also comes from sales of DVDs and merchandise related to successful movies.

In the years ahead, animated movies like Cars 2 could become an increasing source of value for Disney. Cars 2 in particular will provide an interesting data point on what we could expect from similar productions going forward.

You can see the complete $37.44 Trefis price estimate for Disney’s stock here.

Notes:
  1. See CNBC: ‘Toy Story 3’ Sets Worldwide Box Office Abuzz []
  2. See CNBC: What Toy Story 3’s Success Means for Movies []
  3. See IMDB: All-Time Worldwide Box Office []