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Who Seeks to Gain from Avengers: Endgame?

With the world waiting on the stroke of midnight for blockbuster hit, Avengers: Endgame to drop, MioTech looks into writing a review into the financial impact it would have on the box office, Disney’s stock and other major related players in cinema.

MioTech Team2019-04-24

China has got box offices worldwide holding their breath for the big premiere of Walt Disney Studios Motion Pictures’ Avengers: Endgame in the Mainland. Dubbed as the “rescuer of China’s box office”, America’s greatest heroes are set to restore order in movie ticket sales which has plummeted to the worst level in 2 and a half years.

Marvel’s largest fan base proved their loyalty with presales in China breaking records in a matter of hours, at US$82 million in advance tickets, topping previous Avengers: Infinity War numbers in 2018.

On just the first night of presale release on April 10th alone, the box office exceeded US$14.8 million. A week later, the Marvel magnet attracted over US$44.6 million. This broke the record in 3 fronts: the fastest movie to break 100 million yuan in pre-ticket sales, it also broke box office records on premiere night and while it’s yet to be seen, it’s set to be the all-time highest grossing movie in China.

Eager fans were willing to shell out anywhere from US$60 to as high as US$150 for a head start. The blockbuster is on track to surpass the US$357 million box office receipts of 2018’s Infinity War, according to data by China’s largest online ticket site, Maoyan Entertainment, with talks of a US$1 billion worldwide start.

Moviegoers aren’t the only ones in high anticipation for the debut of Endgame, cinema operators, film distributors and ticket sales platforms are set to gain from these Hollywood heroes as well.

Can Disney’s stock price be “avenged”?

While the box office success of the latest Marvel addition is almost palpable, does it necessarily translate to moving the needle of a $200 billion market cap company.

In fact, Disney's stock price has not been satisfactory since 2017. Sales of the company's largest business unit have continued to decline in recent years, and the fast-rising success of content streaming and producers such as Netflix and Amazon have also placed pressure on Disney's mission for media-dominance. Even for laymen, Disney’s share price may be too low.

According to AMI’s events driven analysis, for investors keen on capitalizing on the Avengers, buying Disney’s stock on the date of the premiere of the Avengers 1, 2, and 3, which are April 11, 2012, April 13, 2015, and April 23, 2018, respectively, and selling on the 20th day after the event will rake in the most gains.

Source: Events Driven Analysis, AMI

Disney reported a better than expected growth in 2018, with its annual financial report released in November 2018 reporting revenue of US$14.31 billion, up 12% year over year, topping analysts' consensus estimates of US$13.72 billion. Profits were also better than expected, with adjusted earnings per share of US$1.48 easily surpassing the US$1.33 anticipated by analysts.

The money generating arm of Disney came from the studio entertainment segment, with revenue growing 50% year over year, and profitability more than doubling. The exceptional performance can be attributed to the theatrical releases of Black Panther, Star Wars: The Last Jedi, Avengers: Infinity War and Incredibles 2.

The company continues to reap the benefits from the record-setting slate of superhero blockbusters from earlier this year.

The sentiment analysis evaluation of the Avengers series on the market are quite optimistic with most of the public opinion being positive.
Source: MioTech, AMI

Will Disney’s castle be conquered by newcomers?

This legacy company’s kingdom stretches far and wide, conquering three of the world’s most successful film studios: Marvel, Pixar and the recently acquired 21st Century Fox. It also has under its rule box office winners like Star Wars, Toy Story and X-Men to name a few. It’s safe to say that Disney is the biggest contender in this game of box offices.

List of Disney subsidiaries, including Lucas Pictures with Star Wars series copyright.
Source: MioTech. AMI

Since the launch of the first Avengers series in 2008, Marvel has become one of Disney's most important brands, with a total investment of US$3.96 billion, with Lucasfilm following immediately after. In March 2019, Disney acquired 21st Century Fox for US$71 billion, transforming itself into the strongest film studio in history, demonstrating its determination to command the film and television industry.

Disney's investment and financing projects at a glance including recently acquired 21st Century Forbes Pictures for $71 billion. Source: MioTech, AMI

In addition to movies, Disney's business unit also encompasses television, theme parks, and consumer products & interactive media. According to past earnings reports, the most profitable business arms of Disney are that of the TV and theme park segments. The real magic of it all is the reinvention or reiteration of its business segments across the entire value chain. Disney theme parks have now incorporated a Star Wars area, a Marvel area, etc. As the popularity of these films continues to attract more movie-goers, it will also translate to good results to its theme park business and consumer products business.

But while the film and television segments play a vital position in Disney's business chain, it’s revenues alone aren’t sufficient to sustain a healthy stock price. Disney's veteran television arm - is being fully overtaken by Netflix and Amazon. Disney holds an 80% stake in ESPN, a US paid-TV station, but as more young people shift to online media consumption, cable TV services have bulked under the massive influence of various streaming media platforms. According to statistics, the Disney TV division lost nearly 10 million subscribers in the past 5 years, citing yet another 3% decline in the 2018 fiscal quarter. In FY2017, Disney experienced a decline in both operating income and net profit. In mid-2018, Disney's market value was outstripped by Netflix, dethroning Disney of its place in the kingdom of television.

But Disney isn’t going down without a fight. Disney has over the years been building a perfect storm through large acquisitions, combined with box office blowouts, and the launch of its own streaming media platform, Disney+, the media giant is setting its sights to the future. The announcement of the launch of "Disney+" alone drove its single-day share price by nearly 12%. As of April 16th, Beijing time, the Disney stock was at a historical high of US$129.9 per share.

Gains to go beyond the Disney realm, to Hong Kong stocks and stocks on the A-share market.

While Disney may have the box office reigns, according to data gathered from AMI, if Avengers continue to burst box office records, market-related stocks in the Hong Kong stock market and the A-Share market have gained in varying degrees leading up to the premiere of Endgame.

In the Hong Kong stock market, IMAX China (1970.HK) rose more than 7% on the first trading day of 15th April, and has risen 18% in the five trading days to April 18. Cat Eye Entertainment (1896.HK) rose more than 4%, and Ali Pictures (1060.HK) rose nearly 4%. In the A-share market, Chinese distributors are the biggest winners.

China film, the co-distributor holding the main monopoly of the Avengers movie, may earn between 147 million yuan and 188 million yuan in related sales. China film’s shares (600977.SH) shares have risen 20% in the past two weeks, rising nearly 3% on the 15th of April alone. Channel Hengdian film (603103.SH), Jinyi film rose more than 2%, Wanda film (002739.SZ) has also gained 16% in the past 2 weeks, rising nearly 2 % on 15th April alone. Shanghai Film, Happy Blue Ocean, etc. have a certain increase.