This weekend the force was strong with thirty (and forty, and fifty) year-olds, wishing to awaken memories of their youthful days with an admirable redo of the first Star Wars movie, first released nearly 40 years ago. But the force has never been stronger with Disney which is expected to rake in a record-breaking $238 million in opening weekend box office sales in the US and Canada, and a near-record $279 million overseas, a grand total of well over half a billion around the globe.
That is just the beginning of an epic annuity created by Disney under director J.J. Abrams. As the WSJ notes [11], "Star Wars: The Force Awakens" isn't just a hit, but the spark Disney needs for years of sequels, toys, videogames, television series, theme-park attractions and more that it is planning or already producing."
Although it has been a decade since the last "Star Wars" movie, Disney and Mr. Abrams’ has to revive a franchise that has been largely dormant since the release of “Return of the Jedi” in 1983. A trio of prequels—produced by then-independent Lucasfilm between 1999 and 2005 and directed by George Lucas—performed well financially but were largely scorned by fans, who considered them inferior to the original trilogy. However, with the new Star Wars, Disney has a sure hit on its hands, and the only question is just how far will it go?
The "Star Wars" sequel easily routed the prior record for a domestic movie opening of $209 million set by “Jurassic World” in June, and caps the Top 5 of biggest weekend box-offices, all attained in recent years by fantasy-fiction films ranging from Iron Man 3, to the original Avengers and its "Age of Ultron" sequel:
The movie also set new opening weekend records in the U.K., Germany, Australia, Russia, and 14 other countries. It wasn't a smash hit everywhere, though, and produced less than "sensational" ticket sales in countries such as Brazil, Japan and Mexico, while it underperformed in South Korea, where a more popular local film also was released at the same time.
Still, the only reason the Star Wars sequel may have failed to achieve the biggest international opening of all time, is because it has yet to open in China: the Chinese release is delayed to January next year as all quota slots for imported movies are taken for this year.
How did the watching public react to the movie? According to Dow Jones, there was little disappointment with U.S. moviegoers giving it an average grade of A, according to market research firm CinemaScore, mirroring its very strong reviews and boding well for word-of mouth.
On Friday, 63% of the audience was male, but by Saturday that percentage dropped to 58% as the fanboy-driven early crowds started to broaden, said Dave Hollis, executive vice president of distribution at Disney’s movie studio. “Seeing the way younger audiences and women are responding bodes really well for the future of the franchise,” Mr. Hollis said.
“The Force Awakens” was designed to emulate the original in style and substance. It returned stars Harrison Ford, Carrie Fisher and Mark Hamill to their original roles and introduced a new cast of Jedi Knights, storm troopers and imperial officers led by Daisy Ridley and John Boyega.
Coming out of a screening at the TCL Chinese Theater in Los Angeles, stay-at-home mother Jessica Sisoer, who had waited in line 12 days with other hard-core fans, said the new movie “felt like going home” because it reminded her so much of the original trilogy.
Among the factors that will determine if it rivals the all-time global box-office record of $2.79 billion held by “Avatar” is whether strong word-of-mouth draws infrequent moviegoers, how many times fans return to theaters to watch again. The biggest question mark, however, is how the movie will perform in China, the world’s second biggest movie market, where “Star Wars” isn't well known because the original trilogy was never released there.
As DJN adds, the film, which cost a little over $200 million to produce, is now poised to gross well over $1 billion, and could go much higher, particularly with people expected to take time off from work during the holidays.
And yet, despite the movie euphoria, Disney stock tumbled on Friday, closing down 4% at the days lows, following a surprising downgrade by BTIG's Rich Greenfield, who downgraded DIS stock from Neutral to Sell on Friday, lobbing a $90 price target, with the thesis that "Disney management made a fundamental mistake by overpaying for sports rights based on overly aggressive multichannel video subscriber projections. Not only did Disney overpay for individual sports rights packages, they also acquired too many sports rights in an effort to prevent new competitors such as Fox Sports 1 and NBC Sports from growing stronger. As a result, we believe Disney’s cable network profitability will meaningfully underperform investor expectations – with cable networks representing 44% of Disney’s segment operating income. We are now estimating that Disney’s FY2017 cable network operating income will be DOWN year-over-year, with total Disney FY2017 operating income flat."
Not even expectations of record global box office receipts by Star Wars were enough to appears Greenfield:
While we believe the strength of Star Wars Episode VII: The Force Awakens (estimated at $2.6 bn in global box office) will lead to Disney modestly exceeding consensus expectations for fiscal (Sept) 2016 earnings, we now believe consensus earnings are too high for FY2017 and far too high for FY2018. We believe if Star Wars Episode VII does not exceed $2.0 billion in worldwide box office revenue, Disney will miss our FY2016 and consensus earnings estimates as well.
Given that we now expect Disney EPS growth to slow dramatically and miss current Street consensus EPS expectations in both FY2017 and FY2018, we believe its current multiple is unwarranted. We are now forecasting EPS growth of just 3%-4% in FY2017 and 6% in FY2018. In turn, we are reducing our rating on Disney to SELL from Neutral with a $90 one-year price target. Our $90 one-year price target is based on a P/E of 15x FY2017, which also equates to 14x FY2018. Disney is currently trading at 20x FY2016, 19x FY2017 and 18x FY2018 based on our estimates.
- In March 2015, with Disney shares at $106, we downgraded the stock from Buy to Neutral (link), nearly five years after we put a Buy on the stock. Our downgrade was based on the view that even though consensus EPS expectations still needed to move higher, Disney shares were approaching full value.
- Despite a temporary correction in August 2015, Disney shares have continued to climb higher since our March downgrade, having notably outperformed their media industry peers over the past year and currently sitting just 7% below their all-time peak of $122. We believe Disney's outperformance has been driven by film slate excitement, most notably Star Wars Episode VII: The Force Awakens (which opened last night), despite increasing concerns facing Disney's cable network franchise.
The conclusion: "#FadetheForce: Downgrade to SELL with $90 Price Target."
In other words, not even world records may be enough for a stock priced beyond record perfection, and a very forlorn looking Luke Skywalker better have something big up his sleeves for 2017 when the next sequel, Episode VIII, is due.
