Looking forward into the next few years, Disney has a lot of room to expand its Marvel movie universe, with sequels to Thor, Captain America and The Avengers all on the way. These films will generate a steady stream of studio revenue for Disney all the way up to the 2015 release of Star Wars Episode VII, a guaranteed blockbuster. If Episode VII is well received, then a new trilogy of Star Wars films will solidify Disney’s dominance over the movie making industry.
Enter Electronic Arts
Speaking of Star Wars, The Walt Disney Company (NYSE:DIS) recently signed an agreement with video game publisher Electronic Arts Inc. (NASDAQ:EA) to produce a new series of Star Wars video games.
When Disney acquired Lucasfilm last year, it shut down LucasArts, the latter’s video game arm. Disney’s reason for shutting down the game segment was obvious – since Disney’s own interactive games division never made a profit, exposing itself to more video game sales would be a poor strategy. However, partnering with Electronic Arts Inc. (NASDAQ:EA) was a wise move, which now shoulders the risks of producing these games.
Electronic Arts Inc. (NASDAQ:EA) Labels president Frank Gibeau has stated that several of its core studios, such as DICE, Visceral Games and Bioware will develop Star Wars titles. Bioware, which also created EA’s best-selling Mass Effect series, already has previous experience creating Star Wars games – it created the popular 2003 role playing game Knights of the Old Republic as well as the 2011 massive multiplayer online game, The Old Republic.
The Foolish Bottom Line
Disney has all the magical characteristics of a perfect growth stock. The majority of its revenue is generated from three clearly defined business segments – media, parks, and movies – and each division has strong catalysts for long-term growth.
In media and movies, it is superior to Time Warner. In parks and resorts, it has no real competition. Competitors such as Six Flags and Comcast Corporation (NASDAQ:CMCSA)’s Universal Studios are far too small to impact The Walt Disney Company (NYSE:DIS)’s park attendance rates. Disney has also cleverly shifted most of its movie studio business over to its subsidiaries Pixar, Marvel and Lucasfilm, which produce far more successful products than its own in-house studio. Lastly, it is smartly downsizing non-profitable segments, like its interactive games division.
Although the stock is currently near all-time highs with a slightly overheated trailing P/E of 21 (compared to the industry average of 18.5), I believe that Disney will continue to grow over the next five years, making it a great, safe stock to buy and hold.
Leo Sun owns shares of Walt Disney. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney.
