The entertainment industry has always been tough to navigate. Whether you're a Hollywood star or a famous athlete, the entertainment world is predicated on a "what have you done for me lately?" mentality.
But one company that seems to defy expectations time and again is The Walt Disney Company(NYSE: DIS). For a century, Disney has captivated audiences around the world like no other company in history. From an unparalleled roster of iconic characters, a never-ending string of magical universes, and storylines that enchant people of all ages, Disney may just be the greatest source of entertainment ever brought to life.
With that said, Disney's state of affairs has been a little turbulent as of late. Over the last couple of years, Disney has faced a wicked battle with activist investor Nelson Peltz. Plus, there's been intensifying competition in the streaming landscape (mainly from Netflix) and a tough landscape surrounding the movie industry and theme parks thanks in part to a writers strike and a tough macroeconomic environment.
While Disney has weathered the storm, I think it's in the company's best interest to identify some new opportunities. Below, I'm going to reveal my bold prediction for Disney's next potential big move as 2025 draws near. Let's dig in!
I think Disney should make an acquisition
Disney has a long history of making acquisitions. In recent history, some of the more notable deals Disney has completed include acquiring Marvel Entertainment and Lucasfilm. Between these two deals, Disney spent approximately $8.5 billion.
Although this might seem like a lot of money, consider that these two properties provided Disney an opportunity to expand the Marvel Cinematic Universe (MCU) and Star Wars franchise exponentially -- from several blockbuster films, new items and rides at theme parks, merchandise, and spin-off shows on Disney+.
The entire rationale of acquiring Marvel and Lucasfilm wasn't just to own the rights to these franchises. Rather, by marrying beloved characters with Disney's unparalleled creative horsepower, the company was essentially able to reinvent itself by expanding upon two of the most famous media properties of all time. In a sense, Disney created a cycle by which owning these franchises served as a catalyst that helped fuel new waves of growth across the company's entire business -- well beyond its legacy film operation.
In my eyes, Disney has the opportunity to replicate this blueprint once again. Below, I'll detail why I think Disney should acquire Build-A-Bear Workshop.
Image source: Getty Images.
Why I see Disney and Build-a-Bear as a match made in Heaven
Build-a-Bear Workshop is a retail business at which consumers create a plush, stuffed animal from scratch. Generally, Build-a-Bear locations are in malls, and sometimes satellite locations can be found inside of sports stadiums.
I think Build-a-Bear offers Disney a new way to engage with consumers and drive loyalty. Build-a-Bear's interactive experience is a unique way for Disney to bring its storytelling to a new level by leveraging its intellectual property (IP) portfolio and introducing an entire new line of characters to the Build-a-Bear lineup.
Another reason why I like the idea of Disney acquiring Build-a-Bear relates to the theme park and movie businesses. Simply put, going to Disney World or even the movies nowadays is increasingly expensive -- especially for families.
Build-a-Bear offers a more inclusive entry point for consumers with regards to pricing. Furthermore, Build-a-Bear's brick-and-mortar retail footprint provides Disney with additional distribution channels outside of digital. In other words, Disney could easily cross-promote new movies or series on Disney+ at Build-a-Bear locations.
Acquiring Build-a-Bear also gives Disney a chance to strengthen its merchandise vertical. The obvious opportunity here would be to enhance product revenue through the release of new products tied to upcoming film releases, thereby creating another form of marketing and hype before a movie is released.
Is the deal feasible?
Disney's last two major investments were in the streaming platform Hulu and the gaming company Epic Games. While I see plenty of reasons for Disney to be interested in both of these businesses, I think the streaming landscape is only going to intensify thanks to Apple, Amazon, and Alphabet all getting involved in recent years. In addition, while gaming is an enormous opportunity and presents some obvious overlap for Disney's IP portfolio, it seems to me the gaming landscape is pretty saturated, and I question if an investment in Epic Games will yield a ton of value in the long run.
I bring all of this up because, while I commend Disney for diversifying into other fields, I think it's in the company's best interest to double down on its roots: connecting with customers through powerful storytelling.
As of the time of this article, Build-a-Bear stock is trading for $44 and hovering around all-time highs. While this might give you the impression that the stock is expensive, consider that the company's market cap is just $585 million.
By comparison, Disney's market cap is over $200 billion. Furthermore, Disney's balance sheet carried $6 billion in cash and equivalents as of the company's full-year fiscal 2024 (ended Sept. 28) earnings report.
At the end of the day, if Disney wanted to acquire Build-a-Bear, the company could do so while also paying a generous premium and get the entire deal complete with cash on hand. To me, this is even more reason for this deal to happen.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, and Apple. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Netflix, and Walt Disney. The Motley Fool recommends Build-A-Bear Workshop. The Motley Fool has a disclosure policy.
