Last week I highlighted The Home Depot, Inc. (NYSE:HD) and how its recently announced $17 billion share buyback program would possibly affect the company moving forward. Today, I’d like to stick with how a company’s capital allocation may affect long-term shareholder value. With that in mind, let’s take a look at how The Walt Disney Company (NYSE:DIS)‘s purchase of Lucasfilm has the potential to provide great returns to investors and one rising threat to Mickey’s dominance.
But first, Disney has performed well thus far in 2013, and at this time investors would have been better suited buying shares of Disney as opposed to a typical index fund. While the Dow Jones Industrial Average 2 Minute (Dow Jones Indices:.DJI) is currently up an impressive 9.87%, shares of Disney have risen 15.26% year to date. That kind of performance has also made Mickey the third best performing Dow component of 2013.
The company has a strong diversified revenue stream, which has proved itself capable of overcoming economic downturns. In its most recent quarterly filing, The Walt Disney Company (NYSE:DIS) reported that its parks and resorts unit brought in $3.3 billion, or 30% of the total quarterly revenue; media networks attracted the most revenue, with $5.1 billion, or 45% total quarterly revenue; and studio entertainment had revenue of $1.5 billion, or 13% of the total.
The Walt Disney Company (NYSE:DIS)’s studio entertainment revenue is the only area that experienced revenue decline on a quarterly year-over-year basis. The inconsistent nature of the movie industry may be one reason Disney has purchased a number of known entertainment franchises over the past few years. Back in 2010 the company bought Marvel Entertainment, best known for the Marvel Comic books and characters the company has developed over the years. Marvel was a well-established brand, from which Disney could easily take known characters and stories and turn them into movies, merchandise, and, most importantly, cash with very little effort and risk.
But anytime something new is attempted, hiccups are to be expected. The Walt Disney Company (NYSE:DIS)’s Marvel misstep was the John Carter debacle, but things quickly turned around, and the idea of taking known characters has played out very well for Disney in The Avengers.
With the purchase of Lucasfilm, Disney now has another franchise that is not only well established and known throughout the world but also has a ravenous fan following. When Disney made the purchase for slightly more than $4 billion, it announced that Star Wars: Episode VII will be released sometime in 2015. It has been estimated that the previous six episodes have brought in more than $30 billion in revenue.