Explaining How Star Wars and Avengers Impact Disney’s Stock Performance

Explaining How Star Wars and Avengers Impact Disney’s Stock Performance

The Force Awakens and Age of Ultron are expected to easily break the one billion barrier

With Avengers: Age of Ultron coming out last week and the high expectations for the sequel to the original trilogy – Star Wars: The Force Awakens, traders are wondering how their success, or lack of it, will impact the stock price of one of the entertainment giants – Walt Disney Co.

Avengers is looking to make between $1-1.5 bln in revenue, the the bar is set higher for the Force Awakens, despite some negative feelings created by the last three installments in the franchise. Some even expect the movie to surpass the current record holder Avatar, that has grossed approximately $2.7 bln.

The sums themselves aren’t actually that big when you compare them with the overall company performance. 75% of Disney’s revenue comes from its media division, where the ESPN network and ABC are the main cash cows. But the remaining 25% are what drive emotion trading.

Not only Star Wars (purchased with the acquisition of Lucasfilm for $4 bln in 2012), but the Marvel Universe and other hits like Frozen and Pixar’s Big Hero Six, bring in some serious cash. Even more importantly, they provide revenue streams for many more years to come (for more on the method of creating films at a set price and managing the duds among them you can read here). These come from three main sources:

Amusement parks and rides – the potential for creating something that attracts families to visit theme parks and immerse themselves in the atmosphere of a movie, interact with its heroes is what makes the difference between spending hundreds to thousands on a family trip and tickets.

Merchandise – Toys are a high margin business, but the challenge there is to find a scalable line that has enough appeal to warrant mass production. George Lucas’ famous deal to keep ownership of Star Wars toys before the first movie came out, is one of the main sources of his personal wealth

Cross media products – With more channels popping up where spinoffs and “by-products” can be promoted, this revenue stream has increased its importance. 3D animated cartoons over Cartoon Network and now NETFLIX, as well as TV series like The Flash, Green Arrow and Daredevil are turning into steadier and more predictable products. They can even boost the previous two sources.

While expectations for this part of the business are, let’s say optimistic, things aren’t so rosy for the rest. The media business is facing some new threats from the development of cable tv distribution and how it’s sold to customers, mainly in the US. With TV packages sold in bundles the consumers pay a certain amount in order to get the most desired content, but they get the feeling of overspending for channels that don’t necessarily watch.

For operators this is a good deal, as there are still clients that expand their viewership and get exposed to more advertising. But in an age of on-demand viewing the math isn’t adding up.

Verizon, another company available in Trading 212, recently announced an “unbundling” of how they will be selling viewing packages, responding to consumer pressure. Disney are currently suing them to stall this development, as they pitch their whole media package to advertisers and create content that can be used (and recycled) across multiple platforms, but it seems like the tide has turned.

The main impact of movies, and especially such a large universe like Star Wars, is that it promises to attract the money of an extremely large audience who will be making purchases based on emotion. Buying based on emotion is what sells for larger margins and looks good on a balance sheet. It has its risks though – the first hint of disappointment among fans of either movie might limit the force’s impact on trader’s sentiment. But come December 18th, we sense a strong presence of moviegoers.

8 Rules for Picking Stocks to Trade

8 Rules for Picking Stocks to Trade

8 Rules for Picking Stocks to Trade

We give you the essential filters for stock picking

Stocks are the preferred instrument type for many traders, attracting attention with their new products and services, especially if it’s something that touches our everyday lives. Here we give you the most important filters for choosing among the wide variety of companies out there.

1. Start with companies you know – everyone has heard the names of Apple, Google, Facebook and Mercedes-Benz. Why not trade their stocks? You can also initially start with companies from your own country, taking advantage of any knowledge that helps with placing their activities in context.

2. Decide if the trade you’re planning is short or long term – this will be your main internal filter for the information and data you find while researching the companies. Short term trades can be based on news or on technical indicators, while longer plays can be founded on fundamentals alone.

3. Perform thorough fundamental and/or technical analysis – these are the building blocks of any research into a company, beside the general news and its look and feel. Of course you can go without them and trade based on instinct, but that would be like going to an exam and filling-in answers based on your wits.

4. Don’t bet on one horse – trading, like everything involving risk, has to involve risk management and the best way to reduce it with picking stocks is to spread it around. Identifying the best choice among companies is possible, but unlikely, as the number of variables influencing their performance is quite big (this is why hedge funds use supercomputers). Instead, make several picks and do your homework on them to limit the chances of getting it wrong multiple times.

5. Select your risk tolerance – deciding what you’re going for in terms of profit is another filter that helps you focus on what’s important in the selection process. Some stocks have more volatility and are more prone to sharp moves, while others can remain “dormant” in ranges for days, weeks and months (which can also be traded on). Checking this and previous price movements will help you place your Take Profit and Stop Loss levels either wider or tighter around the entry point.

6. Don’t forget that you can both buy and sell – seems kind of obvious, but many people forget this while deciding if they like a company or not. But analysis works both ways – if you decide the background check shows it isn’t worthwhile buying the stock, then you might consider selling it.

7. Pick the best AND the worst – Don’t only go for prominent stocks, as this limits your statistical chances of winning trades. Opportunities lie in both spectrums and companies perform badly all the time, providing ample opportunity to profit from their downfall. Fundamental and technical analysis can give you hints.

8. Always check the most important measurable data about companies – these come from quarterly reports issued by companies and provide a look inside. The price to earnings ratio (low is usually good), the amount of cash the company has on its books (the more, the better), dividends and the future guidance are all to be considered. (We will be taking a closer look at them in subsequent articles.)