With all eyes on Dow component Disney's (DIS) earnings release after the close today, the focus remains on the highly anticipated "Star Wars: The Force Awakens" due in theaters Dec. 18 and expected to be among the top-grossing films of all time.
However, with results driven by cable subscription trends, advertising strength, and consumer discretionary spending, there's more on the line than "Star Wars" success.
And, indeed, Disney's $4 billion LucasFilm acquisition in 2013 -- following Pixar in 2006 and Marvel in 2009 -- has been a key driver for the stock. Single-day advance ticket sales for "Star Wars" beat any previous record by 10 times with over 1,000 showings sold out in less than 12 hours in AMC Theaters, according to Bank of America in its aptly titled note "A perfect storm (trooper)." Additionally, IMAX reported $6.5 million in domestic single day pre-sales, more than six times what "The Hunger Games: Catching Fire" and "The Avengers" had achieved in a single day.
Of course, cross-monetization opportunities in Disney Parks and consumer products are important sources of more long-term value for the "Star Wars" franchise. Merchandise sales, where Disney takes about a 10% royalty, could amount to $5 billion in the first year, according to Macquarie. Toy maker Hasbro's (HAS) third-quarter results support this number, as its toy category for boys was driven by initial "Star Wars" shipments on Sept. 4.
But the bigger driver for the company remains its media properties, including its cable networks -- ESPN, ABC, and the Disney Channel -- which contribute approximately half of the company's revenues and more than two-thirds of its profits. Disney emphasized the challenges of the changing media landscape, reflecting a trend of cord cutters, in its last conference call in August, propelling a sell-off in shares from $120 to $90 before rebounding to current levels of $115.
But following Disney's downbeat subscriber trends on its last earnings conference call, media multiples have compressed by 12% in the midst of an aggregate 4% downward revision in 2016 earnings for the group, according to Nomura, adding that strong U.S. Open viewership on ESPN and the rebound of Monday Night Football ratings support momentum for cable. Sports in general has been a strong demand category for the name, giving it more negotiating power amid industry changes.
Overall, aside from the "Star Wars" catalyst and cable dynamics, the improving macro economy and consumer spending should benefit the company overall, from consumer products to park attendance, offsetting some of the conerns about pressure from the stronger dollar and weakness in its cable operations.