Entertainment conglomerate Walt Disney (NYSE:DIS) has a great deal going for it, which makes it an attractive stock. First and foremost, Walt Disney’s best strength resides in its powerful content portfolio and its multiple means of distribution, including motion pictures, theme parks, cruise lines, cable networks, etc. This strength translated into huge fundamental expansion for Walt Disney and superior returns for its shareholders. Over the past five years, Walt Disney stock has expanded 204% versus 71% for the S&P 500 (see chart below). However, there are some risks that Walt Disney investors should consider. Let’s examine.
Disney stock price chart by amigobulls.com
The Changing Landscape Of Entertainment
Emerging markets such as China, with large populations and a growing middle class, represent a huge opportunity for multinational companies like Walt Disney. As an example, in Walt Disney’s Q3 FY 2015 earnings call, an analyst expressed concerns about streaming technology changing the way people consume movies. Walt Disney’s CEO talked about motion picture consumption actually increasing on a global scale. Specifically, he indicated a “massive increase in movie-going over the last two to three years” in China. Walt Disney executives are also highly enthusiastic about a Shanghai Disneyland theme park.
However, as a counterbalance, the theft of intellectual property and piracy represent hindrances to the home video market. Thieves could video record these shows along with motion pictures and television programming and sell them without compensation to Walt Disney. Furthermore, waning economic growth in China could lessen the potential of this market.
Brand Fatigue
Walt Disney inherited a huge universe of fictional characters when it bought Marvel in 2009, giving it a huge opportunity for creating one blockbuster after another. LucasFilm also owns properties that could create blockbuster movies, TV shows and theme park experiences. However, consumers could actually tire of seeing one sci-fi film after another. Right now, everywhere you look you see the Star Wars movie associated with everything from Campbell Soup (NYSE:CPB) soup to HP INC (NYSE:HPQ) printers. Also, if the writers hit a creative brick wall and start putting out flops, Walt Disney’s stock price will flat line. Of course, Walt Disney’s diversity and depth will help counteract this. For example, if people tire of Star Wars, Walt Disney can put out Indiana Jones films or create new sagas altogether.
